April 23, 2021 – TCN meets with KPMG Croatia’s Tax Services Department Director Kristina Grbavac to discuss the taxation of digital nomads in Croatia.
Croatian tax and immigration legislation was changed in 2020 to accommodate digital nomads in Croatia: a digital nomad visa was introduced and income based on the acquired status of a digital nomad became tax-free and exempt of the tax declaration obligation in Croatia.
While it may appear that all tax matters are covered by this exemption, there are still open questions for digital nomads to consider.
Kristina Grbavac, Head of Tax Services Department at KPMG Croatia, discusses the taxation of digital nomads in Croatia.
In which country is a digital nomad a tax resident?
The issue of tax residency is important because the country of tax residence has the right to tax worldwide income, while another country has the right to tax income from that country only.
Therefore, digital nomads must first verify and regulate their tax (non) residency status in their home country and in the country they are from in Croatia (if they are different from their home country ).
According to Croatian tax law, a tax resident is a natural person who has a permanent residence or habitual residence in Croatia, which includes among others:
- own or own a house or apartment in Croatia for at least 183 days;
- permanent stay in Croatia for at least 183 days; and
- other factors such as his family residing in Croatia, not being tax resident elsewhere, etc.
Since there are no specific provisions in Croatian legislation on the tax residency of digital nomads, the above rules for tax residency would also apply to digital nomads.
On the basis of the digital nomad visa, digital nomads can stay in Croatia for one year, that is, more than 183 days mentioned above; therefore, due to their stay in Croatia, they could become Croatian tax residents.
If a digital nomad is a tax resident of a country with which Croatia has an effective double taxation agreement and is at the same time a Croatian tax resident, the provisions of the relevant double taxation agreement should be reviewed to determine the global residence.
Therefore, there is no single answer on the tax residency of digital nomads, but to conclude on a person’s tax residency, their specific personal facts must be taken into account.
If digital nomads were to become Croatian tax residents, Croatia would have the right to tax their worldwide income.
Are other income earned by a digital nomad taxable in Croatia?
A digital nomad who only earns income on the basis of which he acquired the digital nomad status in Croatia, will not pay tax in Croatia and will not have tax reporting obligations in Croatia.
In addition, a digital nomad who would be a tax non-resident in Croatia, and his only source of income in Croatia would be income based on his status as a digital nomad, will also not have any tax or payment obligations. declaration in Croatia.
However, digital nomads who are Croatian tax residents who earn other types of income will be taxable in Croatia on these other types of income. Other types of income include all kinds of income, and the most common examples are dividend income, capital gains, and rental income.
For example, if a digital nomad who is a Croatian tax resident while staying and working in Croatia as a digital nomad receives dividends from shares in non-Croatian companies (for example, US or German companies) or rental income for the renting an apartment to someone else while he / she is in Croatia, this income must be declared to the Croatian tax authorities and the taxes paid in Croatia.
Therefore, digital nomads should carefully consider whether they earn other types of income that might be taxable in Croatia.
Is a Croatian digital nomad subject to tax in another country?
Even though the income of a digital nomad is tax exempt in Croatia, that does not mean that digital nomads do not have to report their income to their home country or to another country in which they previously resided.
Therefore, in addition to checking their tax status in Croatia, digital nomads should carefully check if they have any tax obligations in the countries where they previously lived.
Will the work of a digital nomad in Croatia create a tax risk for his own business or employer?
This is the question that most people who work remotely are not aware of, and most individual travelers believe their mobility only affects their personal taxation.
However, working abroad can create tax obligations and risks for employers or businesses owned by international travelers.
For example and in a very simplified way, if a digital nomad in Croatia manages the affairs of his own company from Croatia, his company could become taxable on its profits in Croatia.
In addition, digital nomads who work for their foreign employers in Croatia could create a taxable presence (a so-called taxable permanent establishment) in Croatia for their employers. It would depend on various factors including their job description, activities, power to contract or negotiate terms, etc.
A taxable permanent establishment is not a term specific to Croatia, but is common in most countries; however, international travelers have little awareness of this issue and, therefore, the issue of taxable permanent establishment is often not considered.
Are there any expected changes in tax legislation in the future?
Significant changes in the legislation have already been made, which answered the main questions.
However, the idea behind the Digital Nomad initiative was to make it easier for digital nomads to move to Croatia, remove administrative hurdles and tax costs that could prevent them from moving to Croatia, and there are still many open questions related to it. to their taxation.
Therefore, it is also important to address the remaining issues to enable digital nomads to settle in Croatia without worrying about their taxation.
In light of this, further changes in Croatian tax legislation are expected.
To learn more about digital nomads in Croatia, follow the section dedicated to TCN.