Contracting in Croatia: A Guide for International Contractors
Just south of Austria on the Adriatic Sea lies the EU-member country Croatia, ideally situated for European or third-country contractors looking for new clients. It is also emerging as a new location for ‘digital nomad’ contractors, who just want to live in Croatia while working for foreign clients.
Before you make the move, it is a good idea to review the immigration, tax, and business requirements for contracting in Croatia, as well as the options for getting paid and managing projects.
Do I need a visa to be a contractor in Croatia?
Croatia has a new set of visa and residence rules that went into effect in January 2021, some of which will apply to self-employed contractors.
One rule that is constant and unchanged is that EU nationals do not need a work visa and only must apply for a residence permit after 82 days in the country.
Non-EU Nationals: Digital Nomad Residence Permit
Visas for non-EU citizens used to be more difficult, but now Croatia has introduced a Digital Nomad Residence Permit (it’s not called a visa although it functions the same way ).
The new law defines a digital nomad as:
…a third-country national who is employed or performs work through communication technology for a company or his own company that is not registered in the Republic of Croatia and does not perform work or provide services to employers in the Republic of Croatia.
This definition would apply to most expat contractors who want to work while in Croatia, but only if they are working for non-Croatian clients. The permit will be valid for the length of the contract, up to one year. It’s not clear yet if one can reapply or extend the permit, and there are other requirements such as obtaining health insurance and a background check from your home country.
Those working directly for Croatian clients would still need a work visa sponsored by a Croatian entity, either a client or a third party.
How do I get paid as a contractor in Croatia?
There are a few choices on how to contract and get paid in Croatia, which will depend on your nationality and level of international contracting experience.
Work as a self-employed freelancer
EU nationals will have an easy time working as self-employed with no immigration restrictions, but will still need to be vigilant with setting up the contract and establishing payment terms.
Unless you are working with non-Croatian clients as a digital nomad, freelancing is not a good option for non-EU nationals unless your client is willing to sponsor a work permit for you.
Set up your own limited company
If you have experience contracting in foreign countries you might be ready to set up your own Croatian limited company. The limited company would lease you out to the client, and the client would contract with the company.
Technically, your limited company could also sponsor a work permit for a non-EU national, but there are some complexities with setting up and registering the company. A limited company may also be subject to corporate taxes.
Work with an umbrella company
Non-EU nationals and those with little experience may be better off using a Croatian umbrella company. The umbrella company acts as a third party between you and the client, facilitating payment and ensuring performance milestones are met.
This gives both you and the client an extra layer of assurance in the contract, and relieves you of the task of tax withholding and making social contributions. The umbrella company takes care of all that for you.
How do taxes work for contractors in Croatia?
Croatia taxes every level of income from the first earned kuna (the local currency), and there is no special expat tax rate. Unless you are working through an umbrella company that withholds taxes for you, it will be necessary to file a return each year.
What are the tax rates?
Individual tax rates have been reduced in 2021 from a previous 24%-36% to a lower 20%-30%, based on income after deductions. There is also a municipal tax depending on the city which ranges from 0-18%. Notably, digital nomads have no tax liability in Croatia while working for foreign clients.
What is the tax residency rule in Croatia?
Croatia uses the 183-day rule, and stays beyond that will mean taxation of worldwide income. However, the 183-day rule has to be met in two consecutive years for you to be determined a tax resident, evidenced by renting/owning accommodation.
If you meet the criteria it means that you would have to look to a tax treaty to avoid double taxation in your home country. The new digital nomad law seems to have carved out an exception to tax residency.
How do I file taxes in Croatia?
Only individuals who realize income from self-employment or income from abroad must submit an annual tax return. In all other cases (e.g. regular employment income, other income) the tax authorities will perform the annual tax calculation and issue the tax assessment accordingly. Any tax liability must be paid within 15 days of receipt of the annual tax assessment.
The process of filing income tax in Croatia for individuals who realize income from self-employment or generated income from abroad involves:
Step 1: Enter the National Identification and Authorisation System (NIAS) here(link is external). Select one of the credentials and follow the sign-in instructions.
Step 2: On the Početna page (Home page), click Dostavi obrazac (submit a form) which will show a list of tax forms.
JOPPD Form: for individuals that earned capital gains.
INO-DOH Form: for individuals that have income abroad.
Step 3: Complete the required form and attach the supporting documents.
Step 4: Submit the form and await the tax assessment.
Step 5: Pay any tax liabilities within 15 days of receipt of the annual tax assessment.
What are the social security contributions in Croatia?
Social security contributions are 20% of income, but you may be exempt if paying and covered in your home country’s program, and if there is a totalization agreement with Croatia.
How do I stay compliant while contracting in Croatia?
The main compliance concerns for international contractors in Croatia are making correct tax payments, meeting immigration requirements, and paying social contributions. Each of these can apply to expat contractors in Croatia, and depend on a number of criteria that may be difficult to learn if you are new to the country.
The easiest way to remain compliant given all the variables is to use an umbrella company as your local partner in Croatia. They are already well-versed in the rules for self-employed contractors and can help you get started with the contract, and then facilitate all of the compliance-related steps on your behalf.
Using an umbrella company is the best way to avoid any misclassification issues or violating any self-employment rules. Aside from compliance, here are the other benefits of using an umbrella company:
- Handles all client payments, tax withholding, and any social contributions
- Issues you a payslip each month, to a local or foreign account
- Sponsors work permits for non-EU citizens
- Helps set up the contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
Contractor Taxation has experienced umbrella companies in Croatia who are ready to help you right away, even before you leave home. Please contact us for more information on how an umbrella company can be your essential partner in international contracting.