Are receipts of digital nomads taxable in the Republic of Croatia?
As a tax advisor, I often find myself thinking about the tax implication of various new situations brought by digitalization, in terms of sale of goods and services and in terms of income taxation. One of the newer phenomena in this area are people who travel the world and while enjoying their vacation do their work tasks or without any limitation decide to make their vacation destination a more permanent place to stay and work, simply because they like the view of the sea or the mountains.
Yes, we are talking about digital nomads.
According to the general definition, a digital nomad is an entrepreneur or employee who does his/her job all over the world, almost always, using the help of digital technology, for which the only condition is internet access.
As this is a trend with an upward trajectory, the quick reactions of the legislator and the understanding of the advantages of the stay and work of digital nomads in the territory of the Republic of Croatia, are commendable.
The new Aliens Act, published in the Official Gazette 133/20, which entered into force on 1 January 2021, introduced the definition of the digital nomad into Croatian legislation together with the conditions that a person must meet in order to obtain a temporary residence permit in the territory of the Republic of Croatia on that basis.
According to the Act, a digital nomad is a third-country national who is employed or performs work through communication technology for a company or his own company that is not registered in the Republic of Croatia and does not perform work or provide services to employers in the Republic of Croatia.
The provision of Art. 57. para. 1. item 11 of the Act grants temporary residence to a third-country national who intends to stay or already is staying in the Republic of Croatia as a digital nomad.
These changes in the Aliens Act also required amendments to the Income Tax Act, which defines the tax status of their income.
In order to simplify the procedure itself and attract an increasing number of digital nomads in the Republic of Croatia, the provisions of the Income Tax Act exempt their receipts from taxes.
Amendments to the Income Tax Act have been published in the Official Gazette 138/20.
As far as contributions are concerned, a digital nomad does not become liable to pay contributions for pension and health insurance in the Republic of Croatia due to the fact that she/he is employed or performs work for his company that is not registered in the Republic of Croatia.
At the time of writing this article, the Act Amending the Compulsory Health Insurance and Health Care of Foreigners in the Republic of Croatia, which should enter into force in 2021, has not yet been published. However, the proposal of the mentioned Act regulates the status of a digital nomad in health insurance in a way that prescribes exemption from paying contributions on that basis. In that case, they will have to pay the costs of using health care in the Republic of Croatia from their own funds.
Although the legislator in this case proscribes income tax and contributions exception, the income that the state will generate through the stay of digital nomads in the Republic of Croatia will come from their own consumption and use of local shops, restaurants etc.
Certainly, this is a positive example of how, through a simplified legal procedure and exemption from taxation, Croatia can be included in the list of desirable destinations for residence and work for an increasing number of people who meet the definition of a digital nomad.