The American Chamber of Commerce in Croatia (AmCham Croatia) organized the conference “Sustainable Tax System – Policy, Practice and Perspectives,” where the Minister of Finance, Marko Primorac, emphasized that “Taxation policy is key to the goals of sustainable development as it affects the economic environment in which investment, employment, and innovation take place. Tax policy plays an important role in strengthening social security and helping the most socially vulnerable groups, as well as relieving the economy and increasing its competitiveness. I want to stress that tax relief and mitigating price increases faced by citizens and the economy are implemented systematically to ensure a competitive, sustainable, and productive economy.”

AmCham has been dealing with tax policy issues for years and has so far issued 16 recommendations on how to improve the tax system. “In this round of tax reform, too, AmCham expects a further reduction of the tax burden on salaries, which will increase the citizens’ purchasing power in conditions of inflation. However, the tax policy should continue to focus on tax relief for businesses in order to enable further investment in innovation, growth and development, and employee retention in Croatia,” said Andrea Doko Jelušić, CEO of AmCham Croatia, opening the conference.

This year, the American Chamber of Commerce in Croatia also published the position paper entitled “Recommendations for the Tax System Reform in 2023,” which was presented at the conference by Hrvoje Jelić, partner, PwC Croatia (Tax Policy in Croatia – A Practice-Based View), Petra Megla, Associate Partner, KPMG Croatia (How to Attract Human Capital – Technological Progress and Competitiveness) and Krešimir Lipovšćak, Partner, Crowe Croatia (Additional Opportunities for Employee Retention).

The position paper sets out recommendations for the further reduction of the tax burden aimed at attracting greater investment and achieving greater competitiveness of Croatian employers in attracting and retaining the workforce. The recommendations focus on the following:

• Increase of non-taxable personal deductions to EUR 650,
• Reduction of the tax burden on salaries (a decrease of the 20% personal income tax rate to 10% and the 30% tax rate to 25%),
• Reduction of mandatory contributions (application of the maximum monthly and the maximum annual bases in the calculation of healthcare insurance), and
• Implementation of option plans also in limited liability companies (“d.o.o.”) with a reduction in the tax rate from 20% to 10% and consideration of the value of receipts from option plans as gross receipts to avoid enhancing the effective tax rate.

During the presentation, Minister Primorac confirmed the introduction of optional plans for limited liability companies. This means that the owners of such companies will be able to give their key employees company shares to additionally reward and retain them. This is a big step forward for the Croatian business community, especially for the IT industry and start-ups, for whom this way of employee retention is particularly important.

The participants in the panel discussion, which included Tajana Barbić, director of the Institute of Economics, Zagreb; Stanko Kršlović, member of the Management Board, Philip Morris Zagreb and Anita Cvetić Oreščanin, member of the Management Board of Poslovna inteligencija agreed with AmCham’s recommendations. Among other things, the panel discussion dealt with the relationship between tax policy and economic development and competitiveness, the role of tax policy in retaining human capital, the stimulation of technological development, and digital and green transformation.

The participants in the panel discussion agreed that, in addition to a stimulating tax policy, economic development requires further reforms, especially those in the judiciary and education.

“Reflecting on the role of tax policy in encouraging innovation and sustainable development of industries, Stanko Kršlović, a member of the Philip Morris Zagreb Management Board, said that tax policy can play a significant role in social progress because it can direct specific behavior and consequently encourage innovation and investment, all for the future benefit of the society. So, for example, in the tobacco industry, which is in the process of transformation towards less harmful products, the positive contribution of tax policy in differentiating less harmful products from more harmful ones can indeed bring about social progress.