New Tax Laws: What Do The Changes Bring For Private Hosts In 2025?

We bring you an overview of the key amendments to tax laws coming into force in 2025, with a focus on the impact of the new taxes on private accommodation providers.

What changes for accommodation providers under the tax law amendments?

Recently, the media space has been filled with news and commentary on new legislative changes related to property tax, as well as other tax law amendments that will come into force on the very first day of next year. The greatest public attention is certainly being drawn by the amendments to the Local Taxes Act, which also regulates a new tax – the real estate tax – according to which this new tax will have to be paid for all residential properties if it cannot be proven that the property is being lived in or that it is used for long-term rental (at least 10 months). Of the entire set of tax-related legislative changes, private accommodation providers are most interested in the following two laws: the Local Taxes Act and the Personal Income Tax Act. What changes for accommodation providers through these two laws?

What is new for accommodation providers in the Local Taxes Act?

This law was already in focus at the beginning of this year, when accommodation providers began receiving information about the obligation to pay tax on holiday homes in the amount of 0.60 to 5.00 euros per m2. This is a tax that until this year was paid only by “weekend homeowners”, but since this year the definition of what is considered a holiday home has been “expanded”, this category now also includes accommodation providers who have accommodation units outside their address of residence, that is, properties not used for permanent living. The amount of the tax was determined by municipalities and cities for their respective areas, and if they did not want to introduce it, they were not required to do so.

From next year, this tax becomes mandatory and all municipalities and cities will have to prescribe it, while the upper limit for determining the amount of this tax is also changing.

The lower limit of 0.60 euros per square metre remains the same, while the upper limit increases from the current 5.00 euros per square metre to 8.00 euros. The calculation is based on the net usable surface area of the property. Since this tax will now be mandatory, it has also been determined that if an individual municipality or city does not pass a decision on the amount of this tax, an amount of 0.60 euros per square metre will apply, that is, the lowest rate.

Additional criteria for determining the tax

Another novelty in this law is that municipalities and cities will be able to determine the amount of the tax according to various criteria, such as the location of the property, the age of the property, and the presence of features that increase the value of the property. This means that there is a possibility that within the same municipality or city there will be different determined amounts of this tax.

What is new for accommodation providers in the Personal Income Tax Act?

Until now, this law defined the income tax from renting, which accommodation providers already pay, in accordance with the data and calculation delivered to them each year by the Tax Administration. The flat-rate income tax was previously paid in quarterly instalments and amounted to between 19.91 and 199.08 euros per bed annually, depending on the amount chosen by municipalities and cities.

Amendments to this law, which are currently causing the most public debate, propose new flat-rate income tax ranges that will be prescribed in four categories determined according to the tourism development index of the location.

Therefore, when the amendments to this law come into force, the amount of tax to be paid will depend on which of the four categories, based on the tourism development index, a particular municipality or city belongs to. Municipalities and cities in the first group according to the tourism development index will pay from 150 to 300 euros per bed annually, those in the second group will pay between 100 and 200 euros per bed annually, the third group is prescribed between 30 and 150 euros per bed annually, and the fourth group between 20 and 100 euros.

Proposed lower and upper flat-rate income tax limits

Where can you check the group of your location?

You can find out which group the municipality or city in which your accommodation property is located belongs to on the website of the Institute for Tourism, at the following link: https://www.iztzg.hr/hr/itr/

Within these ranges, municipalities and cities will therefore have to prescribe the flat-rate amount. If they fail to do so, the following amounts will apply: for the first group 225.00 euros per bed annually, for the second 150.00 euros, for the third 90.00 euros, and for the fourth 60.00 euros per bed annually.

Municipalities and cities will be able to change the decision on the amount of this tax every year, and the deadline for adopting it is 15 December of the current year for the following year. Exceptionally, since the amendments to this law will enter into force on 1 January, for 2025 decisions on the amount of the tax may be adopted until 28 February 2025 for that year.

What does all this ultimately mean for accommodation providers’ costs?

How much all of this will increase the total expenses of accommodation providers will depend mostly on the decisions of municipalities and cities. While the holiday home tax may in theory remain the same (the new law raises the upper limit for determining the amount by 3.00 euros, but municipalities and cities do not have to change anything if they do not wish to), the flat-rate income tax will still represent a stronger financial blow for the vast majority of accommodation providers. Apartments and holiday homes located in municipalities and cities classified in group III or IV according to the development index may feel only a minor difference or none at all. For example, until now the lower limit of this flat-rate tax was around 20.00 euros, and if municipalities and cities from these last two groups opt for the lowest rate, this expense will remain (almost) the same for accommodation providers. However, municipalities and cities from the first two groups will definitely feel the change.

Who will feel the changes the most?

As a rule, places by the sea and several other developed inland areas of Croatia fall into the first and second groups according to the tourism development index, while most municipalities and cities belong to the third or fourth group. According to the 2023 tourism development index, a total of 61 municipalities/cities fall into the first group, 47 into the second, 126 into the third and 290 into the fourth. We can therefore say that around 80% of municipalities and cities will be able (if they so decide) to remain at almost the same amount.

Given that these are new taxes that have met with strong public resistance, and bearing in mind that local elections are scheduled for next year, it is likely that municipalities and cities will mostly opt for the (very) lowest prescribed rates. However, we repeat, they may change that decision every year afterwards.

Sensationalist media headlines about enormous amounts that accommodation providers will now have to pay represent the worst-case scenarios that may affect those in the first or second group. All other accommodation providers will certainly also feel an increase, but not to such a drastic extent.

When do the changes begin?

Amendments to both of these laws should enter into force on 1 January 2025, and they are currently in the e-Consultation process, which ends on 24 October. After the e-Consultation is completed, publication of the final report is expected by 23 November, when we will know whether anything may still change compared to the proposal, that is, whether any comments and suggestions submitted during the e-Consultation will be accepted, of which there are already many. However, if everything goes as announced, the exact amounts each person will have to pay in these taxes will be known by the end of March 2025, and collections will begin immediately afterwards.