Parliament passed amendments to six tax laws on Friday, which will come into force on 1 January. This introduces a property tax, new ranges for flat-rate tourist taxes, revised income tax rates, a higher personal allowance and a higher threshold for VAT registration.

The legislative amendments affect the Local Taxes Act, the Income Tax Act, the Contributions Act, the VAT Act, the General Tax Act and the Tax Administration Act.

The existing holiday apartment tax will be replaced by a property tax. This tax will range between €0.6 and €8 per square metre and will be mandatory for local authorities, which will set the rate within this range. The state itself will also become a taxpayer under the new system.

The tax will not apply to primary residences

The revenue from the property tax will be split, with 80% going to the municipalities and cities in which the property is located and 20% to the state.

The tax does not apply to primary residences, properties occupied by family members or those that are rented out long-term (at least 10 months a year). Dilapidated, uninhabitable properties are also exempt from the tax, as are properties that can be exempted from the tax for social reasons.

Hosts who offer a small amount of tourist accommodation as a secondary activity at their registered place of residence are also exempt from the tax.

The taxable base is drawn from the records used to calculate and collect public service charges.

The amendments establish new ranges for determining the flat-rate tax for the rental of flats, rooms and beds to tourists.

New ranges for the lower and upper annual income tax rates

Based on the tourism development index, the municipalities and cities will determine the tax amount per bed within specified limits.

These limits range from €100 to €300 in the most developed areas, €70 to €200 in the second group, €30 to €150 in the third group and €20 to €100 in the least developed areas.

The revised Income Tax Act introduces new bands for the lower and higher annual income tax rates. The lower rate is now limited to 20% for municipalities, 21% for smaller towns, 22% for larger towns and county centres and 23% for Zagreb.

For the higher rate, the limits are 30% for municipalities, 31% for smaller towns, 32% for larger towns and county centres and 33% for Zagreb. The lower limits for both rates remain unchanged at 15% and 25% respectively.

Croatian citizens who have lived abroad continuously for at least two years will be exempt from income tax for five years upon their return to the country.

Objections from opposition MPs

The basic personal allowance will be increased from €560 to €600, together with corresponding increases for dependants and disability allowances. The threshold for applying the higher income tax rate will be raised from €50,400 to €60,000.

Employers will no longer benefit from the five-year exemption from paying health insurance contributions for employees under the age of 30. A one-year exemption will only apply to employees entering the labour market for the first time.

In accordance with the amended VAT Act, the threshold for mandatory VAT registration will be raised from €40,000 to €50,000 from 1 January.

Before the vote, opposition MPs reiterated their objections to the introduction of the property tax.

Miro Bulj (Most party), who is also the mayor of the town of Sinj, vowed not to introduce the tax in Sinj “even if they put me in prison”, while independent MP Marija Selak-Raspudic called for tax relief and urged parliament to “throw the proposal in the bin”.

Marijan Pavlicek (Croatian Sovereignists) called the measure “an act of robbery against Croatian citizens”, while Marin Zivkovic (Mozemo party) argued that it would not solve the problems of affordable housing.