Croatian government unveils anti-inflation package with new taxes, budget cuts and pension relief

The Croatian government on Thursday presented a new anti-inflation package aimed at reducing the state deficit and lowering inflation to two percent by the end of the year.

Deputy Prime Minister and Finance Minister Tomislav Ćorić unveiled the measures during a government session, confirming that the package will come into force at the beginning of next year.

The package includes five key measures, combining budget savings, tax reforms and continued market interventions.

Alongside existing subsidies for electricity and gas prices, as well as fuel price caps, the government plans to introduce €1.3 billion in budget savings. Measures also include a freeze on wages and social benefits in the public and state sectors until the end of the first quarter of next year.

A moratorium will also be placed on administrative price increases by state bodies and state-owned companies.

New tax measures for businesses

One of the main changes is the introduction of a tax on what the government described as excessive profits for medium-sized and large companies.

Around 1,740 companies are expected to be affected. Company gross profits in 2026 will be compared with average profits over the previous three years. Firms with profit margins more than 15 percent above the three-year average will face a 50 percent tax rate on the excess amount.

The measure will not apply to exporters generating more than half of their revenue outside Croatia, Jutarnji list writes.

Changes for flat-rate businesses

The government also announced higher taxation for flat-rate sole traders, following strong growth in the number of such businesses in recent years.

According to Ćorić, Croatia had around 27,500 flat-rate sole traders in 2017, while the figure rose to approximately 101,000 by the end of last year.

Ćorić said some workers had shifted from standard employment into flat-rate business models, creating what he described as “hidden employment”.

Under the new rules, higher-earning flat-rate businesses will face the biggest increases.

Those earning between €50,000 and €60,000 annually will see taxes and contributions rise by 82 percent. Annual payments will increase from €4,571 to €8,324.

For those earning between €40,000 and €50,000, tax obligations will rise by 49 percent. Businesses earning between €30,600 and €40,000 will face a 24.6 percent increase, while those earning between €19,900 and €30,600 will see costs rise by 7.67 percent.

The government said nearly 60 percent of flat-rate sole traders earning up to €19,900 annually would not be affected.

Higher charges for short-term rentals

Changes were also announced for flat-rate taxation in tourism, affecting around 110,000 small private accommodation providers.

Minimum flat-rate charges will increase for properties in the two highest development categories.

Owners of apartments and holiday homes in the most developed tourist areas will pay a minimum flat-rate charge of €150 instead of €100, representing a 50 percent increase.

Those in the second category will pay at least €100 instead of €70, an increase of 43 percent.

Upper limits for flat-rate taxation remain unchanged, while no changes are planned for the third and fourth development categories.

Pensioners are expected to be the main beneficiaries of the package.

From next year, income tax on all pensions will be abolished. The measure will affect more than 540,000 pensioners currently paying income tax and is valued at around €180 million.

According to government figures, a gross pension of €1,000, currently worth €954 net, would increase by €46 per month under the new rules.