Croatia Scraps Pension Tax, Adds Tax on Excess Margins
Zagreb sends parliament a 50 percent tax on excess margins and full pension tax relief up to 5,000 euros a month, while top-earning flat-rate tradespeople lose part of their deductible costs.
Croatia, a European Union member and a neighbor that shares both a labor market and a tourist season with Serbia, is launching one of its broadest tax overhauls in years. On Thursday, September 10, the government in Zagreb sent parliament a package that simultaneously introduces a tax on so called excess profit margins and fully abolishes the pension tax, with knock on effects for flat rate tradespeople and for tourist accommodation, where many seasonal workers from Serbia are also employed. For Belgrade, this is also a test of a model: Zagreb is trying to run an anti inflation measure through a one off corporate tax rather than through a price freeze.
The proposal was presented by Deputy Prime Minister and Finance Minister Tomislav Coric. It is a one time anti inflation measure, limited strictly to the 2026 tax period, affecting roughly 1,800 large and mid sized businesses that generate more than 50 percent of the value of their goods and services within Croatia. A margin counts as excessive if, in 2026, it runs 15 percent above the average posted over the previous three years, meaning 2023, 2024 and 2025. Tax is charged on that surplus at a rate of 50 percent.
“The logic guiding us is that this way we discourage, above all, those who used the inflation trends caused by external factors, and the fact that the surge which took place at the start of the year drove very high inflation rates, to raise the prices of their products, that is, to collect excessive margins,” Coric said, presenting the bill at the government session.
The second half of the package concerns pensioners. The income tax law would raise the reduction applied to pension tax liability from the current 50 percent to 100 percent, for pensions with a monthly base not exceeding 5,000 euros, or 60,000 euros a year. The government also offered a concrete example: a pensioner receiving 800 euros today pays 20 euros in income tax, and under the new law that amount drops to zero. Scrapping the pension tax comes at a cost for local budgets too, with local government revenue projected to fall by roughly 180 million euros as a result.
For flat rate taxation of trades, the first five tax brackets, covering everyone with annual income up to 40,000 euros, remain completely unchanged. That covers 83.4 percent of Croatian tradespeople. For the rest, the burden rises step by step: for tradespeople in the sixth bracket, with income between 40,000 and 50,000 euros, recognized expenses fall from 85 to 70 percent, and in the seventh bracket, from 50,000 to 60,000 euros, they fall from 85 to just 55 percent. The contribution calculation coefficients for those two brackets also rise, from 0.4 to 0.45 and from 0.4 to 0.5, which pushes the monthly contribution obligation up by 12.5 percent in the sixth bracket and by 25 percent in the seventh. The flat rate tax per bed in tourist accommodation is also going up: from 100 to 150 euros in the first category of local government units, and from 70 to 100 euros in the second.
“I would point out that the part of the legal amendments relating to excessive trade margins, that is, the taxation, has already shown its preventive role in practice since we presented it, because there has been a sharp slowdown in the growth of some prices,” Prime Minister Andrej Plenkovic said at the opening of the government session, noting that the announced reform had already shown a preventive effect on prices even before its adoption.
The package also changes the value added tax law, through which Croatia adopts the European Union’s new VAT directive for the digital age, effective January 1, 2027. As part of that, the tax free threshold for low value gifts rises from 22 euros per quarter to 100 euros per year per recipient.
This is Zagreb’s second major tax move in the past month. In mid August we reported on Croatia introducing life imprisonment for 15 of the most serious criminal offenses, and now comes a sweeping overhaul of the tax system, a sign that the ruling majority in Zagreb is using this autumn for legislative moves on a larger scale. For Serbia, the excess margin tax mechanism is of particular interest, since it is a tool Belgrade has so far used far less often than direct price controls, and Zagreb says it already produced an effect even before being adopted. The proposal now goes to debate in parliament, which is expected to pass it by the end of the year, with most of the changes taking effect from January 1.
