Freelancing in Croatia: Legal requirements and tax Environment
Published on 2020-03-09 by useme.
Freelancing is an uprising career option. You can grow your professional skills, earn extra income, and gain more experience. There are no additional entry requirements to start working. Furthermore, more and more companies work with short-term contractors. Start-ups work with freelancers to expand their businesses. International cooperation works with freelancers to share their burdens. Croatia, the beautiful coastal country for filming the “Game of Thrones" So, what is the situation for freelancing in Croatia?
How many freelancers are in Croatia?
There are a lot of remote workers in Croatia. At least 5,300 people register on the marketplace for freelancers. More people work as a freelancer in Croatia as the country offers a flexible labor market like Poland and Macedonia.
Do freelancers in Croatia need to register or open a business?
No, they do not need to. Freelancers can use the contract for specific work (ugovor o djelu) without opening a company. Furthermore, the tax system offers several ways for employers to work with freelancers. Freelancers usually use three types of contracts. One is the basic contract for specific work. The other is a contract with copyright transfer and a contract with an artist. With those three types of contracts, freelancers can work on different kinds of projects. The biggest difference between each contract is the statutory tax-deductible costs. We will provide more information in the following sections..
What is the basic tax rate for freelancers in Croatia?
The tax rate is calculated on several features. For instance, the effective tax rate will be influenced by the copyright transfer with the artists. In general, the employer needs to pay 24% of the income tax. Below are the elements for the tax-deductible:
- Basic contract for specific work
- Contract with copyright transfer:30% of the gross amount
- Contract with an artist:55% of the gross amount
We calculated to above data, the effective tax rate for different types of contracts are 31.6%, 22.13%, and 14.24%. This type of system is more favorable. Bulgaria and Poland also have this type of tax-deductible cost. In Poland, this type of tax-deductible cost is 50%
Besides the tax rate, the freelancer and employer also need to pay social and pension for this type of contract. Both parties are obliged to pay it as a solution similar to the employment contract. The total amount on the employer's side is 7.5% which is more than the gross amount on the contract. The individual contractor needs to pay 10% calculated from the tax base. The tax system is more friendly compared to other European countries.
How to report the tax rate as a freelancer in Croatia
The most popular option for freelancers to pay the tax is via self-employment (paušalni obrt'), as this option has simple tax rules. This option can be used for contractors who earn less than HRK 300k per year (Euro 40.3k). Moreover, a freelancer who has a full-time job does not need to take the full cost of the social contributions.
The social and pension contributions remain fixed. The income tax is a progressive lump sum for a self-employed person with income up to 40k. This type of option is rare in European countries, especially for taking the income tax as a lump sum. With this option, no matter how much the Croatia freelancer earns, they will always pay the same amount of tax.
This type of option is similar to KATA from Hungry. The advantages of this option are simplicity and motivation to increase income. As he/she will not be required to pay more tax or even less tax. This option is very suitable for self-employed individuals with full-time jobs because they pay fewer social contributions.
What is an additional advantage for a freelancer with a higher income?
Croatia offers a very good environment for freelancers with higher incomes. For freelancers with the self-employment option. Then they will pay extremely low-income tax. The tax rate is between 2.1 % and 3.3%. The only disadvantage is that there is no tax-free allowance for contracts for specific work and self-employment.
What is a better way to work as a freelancer?
It is good to work as a freelancer. Let us help you grow even further. With us, we will secure your freelance work and contact your client. With us, they can only download the file after paying for it. Meet a new employer? We have a special path for you. We will confirm the cooperation with them in advance and receive the payment in the way you want.
What is a better way to work with Croatia freelancers?
Useme offers a way to simplify the recruitment process and a safer way to receive finished work from freelancers. With a piece of information, we can start the whole process. We will sign an online contract with your talent and take care of everything.
Any questions? Contact us at email@example.com.