A proposal for a new round of tax reforms presented on Monday includes changes to encourage the return of Croatian emigrants to their home country.

In view of the labour shortage, Croatian citizens who have lived abroad continuously for at least two years will be exempt from income tax for five years upon their return, said Finance Minister Marko Primorac.

This tax relief also applies to descendants of Croatian emigrants from overseas and European countries.

Equalisation of health insurance contributions for all participants in the labour market

In order to harmonise the level of health insurance contributions for all labour market participants, employers will also no longer benefit from the exemption from health insurance contributions for young employees. The Minister clarified that this exemption does not affect employees’ wages, but serves as a subsidy for employers.

Currently, employers benefit from an exemption from contributions for up to five years for full-time employees who were under the age of 30 at the time of recruitment.

From 1 January, this exemption will no longer apply to new employees, but accrued entitlements will remain unaffected. For example, if someone was hired two years ago when they were under 30, the employer still has three years to utilise this benefit.

Primorac said that last year alone, lost revenue due to this exemption totalled 385 million euros.

Certain non-taxable income amounts will increase

However, the exemption from health insurance contributions for employees who are hired for the first time remains in place for up to one year after the start of employment. The reduction in annual income tax for young people: 100% for under 25-year-olds and 50% for 26 to 30-year-olds remains in place.

In addition, as previously announced, the basic personal allowance will be increased from €560 to €600 from 1 January, with higher deductions for dependants and disabled people.

Certain non-taxable income amounts such as severance payments, compensation for living away from home or performance bonuses will also increase, as they are calculated using a coefficient of the basic personal allowance.

Primorac estimates that around 200 million euros will be available to taxpayers as a result of these income tax measures.