Understanding Payroll in Croatia: What Global Companies Need to Know About Croatia Payroll
Jun 6, 2017
Game of Thrones fans will be happy to learn that King's Landing exists and it is located in Dubrovnik, Croatia. Since switching from a socialist to a capitalistic system over 26 years ago, the country has been in an economic upswing since the 1990s. With more than 1,000 islands to its name and plenty of majestic coastline, the Balkan country is attracting all walks of life to visit (and stay) for both professional and personal reasons alike.
The population stands at around 4.2 million people, and the main industry is tourism. In fact, more than 60% of the workforce is in the service industry, with production of natural resources (e.g., oil, ore, gypsum, etc.) coming in at around 30%. If you are looking to set up a business here, it is recommended to work with an organization that understands the income tax, social security, and corporate tax laws. Multinational organizations are also encouraged to work with global payroll service providers to help manage their payroll.
Registering a business in Croatia is not too difficult, as long as you have done your prep work. Most transactions tend to be completed and approved within a day. To begin, one must register with the Commercial Court, where you may also confirm the validity of your business name. You will need a statistical registration number which may be obtained through the Croatian Bureau of Statistics.
When you register for VAT through the Tax Authority, you should also register for pension and health insurance (referred to as HZMO and HZZO respectively.) Having an account with a local bank is necessary to establish your company. You will need the court and registration information (statistical number, proof of health insurance registry, etc.) before a business bank account can be approved.
Employment Laws/Employment Rights
Croatia business hours are typically between 8:30 a.m. and 4:30 p.m, and the work week cannot extend past 40 hours. All workers who work 6 hours are entitled to a 30 minute rest period. Minimum age for hiring is 15 years old, with retirement age strictly observed at 65. Every worker given more than 20 hours a week is allowed to take part in decisions regarding their well-being in the business.
Written contracts are required, but if for some reason they are not drafted, the employee is still covered under the Employment Law. Collective bargaining generally determines overtime stipulations, and additional restrictions on how employees are treated. For example, if an employee is exposed to specific harmful elements in their job, their hours may be limited. Probationary or trial periods are allowed, but cannot last longer than a year (4 weeks is standard.) Terms of probation must be spelled out in the contract.
Compensation, Bonuses, Severance
Croatia recently changed the monthly minimum wage to 3,276 HRK ($499, £386, €440). Raises and bonuses are typically determined by collective agreement, or negotiated in the employment contract. It is customary in Croatia to reward excellent service from an employee with yearly raises. Termination of employees may occur when a worker turns 65, when the contract has ended, or due to layoffs or employee misconduct. In the case of misconduct, the employer is not required to grant severance. Otherwise, severance is typically given to workers with more than 2 years of service. At minimum, the severance should be a third of the employee's monthly salary for every year the employee worked for the company.
Taxes are typically withheld at the source, and an international payroll will need to account for income, social security, and other insurance taxes. Progressive income tax is 40% for those at the top earning bracket, 25% for those in the middle, and 12% for those at the bottom. Foreign businesses are taxed on all profits made in Croatia. Taxes in Croatia are competitive, with a 20% corporate tax rate. Employer contribution to health insurance is 13%, and VAT is 25%. Again, businesses are required to have an accountant to manage taxes.
Leave – Sick, Maternity, Vacation, Absence, Holidays
Pregnant women are required to take 28 days before they give birth, and 42 days afterward. Maternity leave can go for as long as 6 months, but there are no stipulations for new fathers. Employees are allowed to take up to 42 days off for illness, depending on the severity of the situation. Workers are entitled to 28 days off for vacation, 7 days personal time (generally used for weddings, births, funerals), and 13 public holidays.
|Date||Croatia's Public Holiday Schedule|
|January 1st||New Years Day|
|Monday after Easter||Easter Monday|
|May 1st||International Workers' Day|
|Second Thursday after Whitsun (May - June, Floating)||Corpus Christi|
|June 22nd||Anti-Fascist Struggle|
|August 5th||Victory and Homeland Thanksgiving Day|
|August 15th||Assumption of Mary|
|October 8th||Independence Day|
|November 1st||All Saints Day|
|December 25th||Christmas Day|
|December 26th||St. Stephens Day|
Croatia salaries can vary widely and can be extremely low for unskilled labor. However, the cost of living in the country is extremely reasonable. Businesses should consult professional help whenever and wherever possible as there are a variety of customs and rules that need to be followed.
Croatia has a lot of potential for businesses who want a beautiful place to work and live (if even for just a few months out of the year.) The country has an average of 300 sunny days per year. Tourism continues to climb, which provides a host of opportunities for different companies to make their mark. The tax climate and cost of living also make it easier to gain a foothold faster than you may in other countries. However, financial matters and payroll regulations may become difficult to navigate without further consultation and advice from a global payroll organization.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.