“The American Chamber of Commerce in Croatia appreciates the efforts of the Government of the Republic of Croatia aimed at reducing the tax burden of the Croatian economy and entrepreneurs operating in the Republic of Croatia, and welcomes the measures taken so far and presented through four rounds of the tax reform, as well as those announced, that should enter into force in early 2021,”said Andrea Doko Jelušić, the Executive Director of AmCham.

“The American Chamber of Commerce is continuously working on proposals for the further reduction of the tax burden aimed at attracting investments and achieving greater competitiveness of Croatian employers in attracting and retaining the workforce. The recently published AmCham’s position paper “Recommendations for Tax Reform in 2020” contains a number of measures to improve the functioning of the tax system, including measures for the reduction of tax burden on labor contributions (income tax) and payments for certain employee earnings,” Doko Jelušić concluded.

In addition to the measures already proposed, the position also contains new recommendations regarding the amendments to the tax treatment of the “benefit in kind” and the proposal for the amendment to the tax treatment of option plans.

As a result of the tax reform and a more favorable taxation of optional bonuses for employees, many companies began implementing this model to increase their competitiveness on the European market and retain their employees. However, the current wording of the Income Tax Act explicitly provides for a more favorable tax treatment for the allotment of or optional purchase of shares, but does not define the treatment of business shares. AmCham proposes an amendment to the Income Tax Act that will clearly stipulate that the income from capital, in addition to the allotment or purchase of own shares, also includes the allotment and acquisition of company shares, i.e. the implementation of option plans in limited liability companies ('d.o.o.').

Furthermore, AmCham proposes the amendment to the Croatian legislation regarding income tax so that the remuneration in the form of allotment of stocks/shares and the optional purchase of stocks/shares are deemed gross income from capital, taxable at the rate of 12% plus surtax, which would eliminate the need for the conversion into gross amounts and the enhancement of the effective tax rate. The tax rate of 12% is the currently applicable tax rate for dividends, interest and capital gains, which is why the reduction of the tax rate from 24% to 12% would be in accordance with those tax rates, and with such a favorable tax treatment, Croatia would enable highly qualified workforce to stay or relocate to Croatia, thus becoming a more attractive destination for foreign investments, particularly for the establishment of regional headquarters of foreign and domestic companies in Croatia.