Q: How do I Become an Independent Contractor in Croatia?
From registration to taxes and beyond, the info here will help you on your way to freelancing in Croatia.
Croatia has a stable economy, and its government offers support for those who are self-employed, making it a great place to do independent contracting work. There, you can become a sole proprietor (obrt in Croatian) and work for yourself! There is a bit of paperwork you’ll have to go through, but do not fret. Here we will break down the basics of sole proprietorship in Croatia. The information here should not be used in place of professional advice or legal counsel.
What is a sole proprietor in Croatia?
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A sole proprietor in Croatia is known as Obrt, and this status can be established under the Handicraft Act and the Companies Act. Obrt is the simplest form of business that a foreign professional can have in Croatia. The Obrt structure allows for growth, and once your company develops more, it is easy to change business structures,
Registering as a sole proprietor in Croatia
It’s not too hard to become an Obrt in Croatia — all you have to do is follow the necessary steps and make sure you have all the correct paperwork. According to Company Formation Croatia, the most important things to keep in mind when establishing sole proprietorship in Croatia are:
- Single entrepreneurs can only develop activities as sole traders, whether local or from abroad.
- The Crafts Act mentions the type of activities that can be established in Croatia.
- The owners’ personal information (name, nationality, residency) needs to be provided to the Croatian Trade Register.
- A proper business plan comprising details and costs of materials, equipment, and consumables needs to be drafted.
- The business startup costs include specific registration fees and rental office costs if it is the case.
You’ll also need some essential documents after you decide on a business name and have it verified:
- The valid ID or the valid passport of the owner, in copies.
- The vocational qualifications are required for associated crafts businesses.
- The registration forms provided by the local business registration office in Croatia.
- The proof showing you can use the premises if required for the activities you intend to develop.
- The Decision on Entry in the Register of Craft Business in Croatia.
- Proof that all the fees for registering the sole trader have been paid.
You’ll then have to apply with the State Administration Office to get an official stamp of the firm. Then, you should open up a commercial bank account.
Next steps after registration
Once you are registered as a sole proprietor, you will still need to do a few more things. You must register for pension funds with the Croatian Institute of Pension Insurance and the Health Insurance Institute, and you have to register to become a taxpayer in Croatia. The whole process is not that difficult, but Croatian officials still will often recommend that you have the advice of a professional agent to help form your business and keep up with tax/accounting laws.
Taxes and Invoicing in Croatia
Sole proprietors are subject to relatively low taxes compared to larger companies. If your profits are HRK 26,400 or more per year, then a 12% income tax rate will apply to you as a sole proprietor. Sole proprietors must also register for Value Added Tax (VAT) purposes, the rate of which is set at 25% for now. You may consider registering as a “paušalni obrt” as this means you’ll deal with a flat-rate VAT scheme (if you earn less than 230,000 kn a year), which can make bookkeeping simpler.
In terms of VAT obligations, Croatia follows the EU VAT Directive meaning that it is standard for VAT to be added to the prices of goods/services on your invoice. Croatian VAT invoices should be issued on the date of the supply for goods and up to 15 days after the end of the month of supply. You should keep invoices for ten years after the supply. According to Alvara, Croatian invoices should include the following information:
- Date of issuance
- A unique, sequential number
- VAT number of the supplier
- Full address of the supplier and customer
- Full description of the goods or services provided
- Details of quantities of goods, if applicable
- Unit prices, if applicable
- A date of the supply if different from the invoice date
- The net, taxable value of the supply
- The VAT rate(s) applied, and the amount of VAT broken out by rate
- The gross, total amount of the invoice
Receiving Payments in Croatia via Liquid
Liquid supports payments to Croatia and 175+ countries worldwide in USD as well as select foreign currencies, including HRK and EUR. Payments arrive in 2-5 business days via wire transfer, whether the invoice was sent to an existing Client using Liquid or a Client who is new to Liquid.
Invoices in Liquid are in USD by default but can also be sent in Croatian Kuna, Euros and other select foreign currencies, allowing Vendors to receive payment in their local currencies instead of USD. In addition, Work orders / Project Proposals can also be agreed to in HRK, EUR, and other select foreign currencies in Liquid.
Liquid charges Clients who initiate payments $3 per US invoice paid and $8 per international invoice paid.
Liquid never charges Vendors to receive payments, even when Vendors are requesting payments from Clients who are not current users of Liquid.
Go ahead and get started!
There you have it – the basics behind sole proprietorship or obrt in Croatia. The process to start your own small business may involve a bit of paperwork and protocol, but it really isn’t too hard (especially when you consider the obrt classification is far simpler than other structures). The information here combined with proper planning and research will lead you to successful self-employment in Croatia. Now there’s nothing stopping you from starting your journey into independent contracting.
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Updated: June 3, 2021
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.