Croatia tax system after prirez abolition: What employers owe in 2026

Foreign employers running Croatian payroll in 2026 face a system that looks very different from the pre-2024 framework. The local income-tax surtax (prirez) has been abolished, and municipalities now set their own income-tax rates within statutory ranges. For payroll and finance teams, this means there is no longer a single “Croatia rate” that can be applied across the workforce. Employees on the same gross salary can now receive materially different net pay depending entirely on the local self-government unit (jedinica lokalne samouprave, JLS) where they reside.

For employers, the practical implication is a new payroll configuration requirement. Running a compliant Croatian payroll now depends on correctly mapping municipality-level tax rates alongside personal allowances and contribution rules. The sections below explain what changed under the reform, what remained unchanged, and what employers need to configure to run Croatian payroll correctly in 2026. The figures reflect guidance from Porezna uprava, Ministry of Finance impact assessments, and the amended Income Tax Act (NN 114/23).

Before 1 January 2024, Croatia levied personal income tax on employment income through a two-rate national schedule (20% on the lower band and 30% above it), plus a local surtax (prirez) applied as a percentage surcharge on the calculated income tax. Municipalities could apply prirez of up to 10%, small cities up to 12%, larger cities up to 15%, and the City of Zagreb up to 18%. The system was administratively awkward because payroll had to compute income tax first, then apply a local surcharge in a separate line.

The 2023 amendments to the Income Tax Act (NN 114/23) and the Local Taxes Act removed prirez entirely from 1 January 2024. In its place, the state defined statutory ranges for lower and higher income-tax rates, and delegated the rate decision itself to the local self-government units. The government’s stated objectives were twofold: to strengthen local fiscal autonomy by letting each JLS choose rates within statutory limits, and to reduce the effective tax burden on employment income through higher allowances and thresholds.

The Ministry of Finance’s ex-post impact assessment found that most JLS either declined to compensate for the loss of prirez or set rates so that the overall tax on employment income was lower than in the previous year. It also found that net pay increased in most JLS once the threshold and allowance increases were taken into account.

The reformed system keeps the two-band structure but adjusts the threshold and shifts the rate decision to the local level.

For 2025 and 2026, Porezna uprava confirms the threshold at EUR 60,000 annually or EUR 5,000 monthly. Income up to that threshold is taxed at the applicable lower rate; income above it is taxed at the applicable higher rate.

The statutory ranges within which each JLS may set its rates are:

Where a JLS does not adopt a rate decision by the statutory deadline, the fallback rates of 20% and 30% apply. This fallback is a legal default, not an optional simplification: it is what the statute imposes on employers when no local decision has been published.

For illustration, the Zagreb City Assembly adopted rates of 23.60% (lower) and 35.40% (higher) effective 1 January 2024, sitting at the top of the range for the capital. Osijek did not adopt its own decision for 2024, so the statutory default of 20% and 30% applied. Because Zagreb chose to raise its rates to compensate for the loss of prirez while Osijek did not, employees on the same gross salary see materially different net pay in the two cities.

Payroll teams must therefore know each employee’s registered municipality of residence and reference either the JLS decision published in Narodne novine or the Porezna uprava rate table before running payroll. A static “Croatia rate” is no longer compliant. The Porezna uprava Excel table lists lower and higher rates and associated payment accounts for all 556 JLS.

The reform package also raised the basic personal allowance (osnovni osobni odbitak) as part of the broader relief on employment income.

• For 2023, the basic allowance was EUR 530.90 per month.
• For 2024, it was raised to EUR 560.00 per month.
• From 2025 onwards, and continuing in 2026, the basic allowance is EUR 600.00 per month (EUR 7,200 annually).

Dependent-family and disability allowances are calculated as coefficient multiples of the basic allowance. The Porezna uprava schedule sets the standard coefficients:

• First child: 0.5 × basic allowance (EUR 300 per month at the 2026 base).
• Second child: 0.7 × basic allowance (EUR 420 per month).
• Third child: 1.0 × basic allowance (EUR 600 per month).
• Each subsequent child increases the coefficient progressively (fourth child 1.4, and so on).

Disability allowances follow similar coefficient-based mechanics scaled off the basic allowance. Employees declare their allowances through the tax card (Porezna kartica or PK), and the payroll engine applies them before computing the taxable base.

Under Croatian PAYE (predujam poreza na dohodak), the monthly taxable base is calculated by taking gross salary, subtracting the employee’s pension contribution on the relieved base, deducting the personal allowance and any declared dependant or disability allowances, and then applying the relevant tax rates to the remaining taxable income based on the applicable tax threshold.

The 2024 reform did not restructure Croatian social contributions, but a targeted low-income relief measure was introduced alongside the tax changes.

Employees pay a mandatory 20% pension contribution on a defined base. For employees born after 1 January 1962, this splits into 15% to the first-pillar pay-as-you-go insurance and 5% to the second-pillar funded scheme. Employees born on or before that date pay the full 20% into the first pillar. The base for pension contributions is reduced for low earners: for gross salaries up to EUR 700 per month, the base is gross minus EUR 300; between EUR 700.01 and EUR 1,300, a linear formula is applied. Above EUR 1,300 monthly, the full gross salary forms the base, subject to a monthly ceiling equal to six times the average gross salary (EUR 11,958 for 2026).

Employers pay 16.5% of gross salary for mandatory health insurance (zdravstveno osiguranje) on top of gross. There is no cap on the employer health contribution, and there is no matching employer pension contribution. Together, the standard employment “wedge” therefore sits at around 36.5% of gross once employer health and employee pension are combined, but only the income-tax component was materially affected by the prirez reform.

The contribution rule changes that came in alongside the reform related to euro alignment (following adoption on 1 January 2023), the timing of contributions on certain second-income activities, and the broader choice of contribution bases for some self-insured individuals. Standard employer payroll for salaried employees was not structurally affected.

The Ministry of Finance’s 2026 impact assessment provides worked calculations for Zagreb and Osijek at gross monthly salaries of EUR 2,000 and EUR 3,000, showing how net pay shifted after 1 January 2024.

In Zagreb, where local income-tax rates were raised to 23.60% and 35.40%, net monthly pay increased modestly at the EUR 2,000 and EUR 3,000 salary levels. The increase was driven mainly by the higher basic allowance and tax threshold, though this was partly offset by the higher local income-tax rates. On an annual basis, that translates into a small additional net-pay gain.

In Osijek, where rates stayed at the fallback of 20% and 30% and the 13% prirez was removed without compensation, net monthly pay increased by EUR 33.62 at the EUR 2,000 gross level and EUR 54.42 at the EUR 3,000 level, which annualises to EUR 403.44 and EUR 653.04, respectively.

The contrast is instructive for employer communication. The reform did not deliver an equal net-pay increase across Croatia. Employees in municipalities that chose to raise rates to compensate for prices saw modest gains. Employees in municipalities that let the statutory default hold saw substantial gains.

Aggregated across all 556 JLS in 2024:

• For the lower rate: 15 (2.70%) reduced it, 469 (84.35%) kept it the same, and 72 (12.95%) increased it.
• For the higher rate: 17 (3.06%) reduced it, 464 (83.45%) kept it the same, and 75 (13.49%) increased it.

In 2025, 21 JLS adopted new rate decisions, of which 13 reduced their rates further. Općina Kolan on the island of Pag, for example, cut its rates from 20% and 30% in 2024 to 15% and 25% in 2025.

For an employer or workforce management platform running Croatian payroll in 2026, the following configuration steps follow from the reform:

• Remove any separate prirez or surtax calculation step from the payroll engine: Applying prirez percentages from pre-2024 tables produces incorrect withholding.
• Parameterise income-tax rates by JLS and by year: The rates in force in 2026 for each municipality must be pulled either from the Narodne novine publication of the JLS decision or from the Porezna uprava consolidated table.
• Update thresholds and allowances per year: For 2026, the threshold is EUR 60,000 annually and EUR 5,000 monthly; the basic allowance is EUR 600 per month.
• Retain the contribution logic: 20% employee pension with the low-income base relief formula, and 16.5% employer health on gross without a cap.
• Collect the employee’s registered municipality of residence, date of birth, and any declared dependant or disability allowances as part of onboarding, and refresh whenever the employee moves or family status changes.

For remote or cross-municipality employees, a single payroll run can involve multiple JLS rate combinations in the same batch. The payroll engine must be able to apply the correct rates per employee rather than defaulting to a single national rate.