Scholarships finally exempt from tax in Croatia

Zagreb, 01.12.2010.

New Income Tax Bylaw includes recommendations from IDE's “Stop Scholarship Taxation” campaign

All the amendments proposed by the Institute for the Development of Education (IDE) in cooperation with the Croatian-American Foundation for Education and Training (Foundation), which were sent to Croatian Prime Minister Kosor and Finance Minister Šuker in April 2010 within the campaign “Stop Scholarship Taxation”, have been included in the new Bylaw on the Amendments to the Income Tax Bylaw (Official Gazette no. 123/10 November 4, 2010). IDE welcomes the amendments included in the Income Tax Bylaw regarding the tax-exemption of scholarships for the purpose of studying in Croatia and abroad. The Bylaw entered into force on November 12, 2010.

IDE has hereby successfully concluded its campaign “Stop Scholarship Taxation” as the new Bylaw includes all the amendments proposed by IDE, which enables the payment of scholarships that cover full study expenses without taxation. The amendments are of great importance for the development of the scholarship system in Croatia, because they provide the foundation and a stimulating environment for all those who wish to invest in scholarship programmes. More information is available in Croatian on the web page http://www.iro.hr/hr/javne-politike-visokog-obrazovanja/projekti-i-inicijative-instituta/stop-oporezivanju-stipendija/ .

The New Income Tax Bylaw regulates in detail the enactment of the Income Tax Act (which entered into force on July 1, 2010) and changes the present practice whereby scholarships exceeding the tax-exempt amount of 1.600,00 HRK (220 EUR) - or „exceptionally“ 4.000,00 HRK (545 EUR) for excellent achievement - were treated as a second income – making the share of the income tax rate, surtax and special tax in the net amount of the scholarship between 31% and 44%*.

The key changes in the Income Tax Bylaw are found in article 45 which regulates income which are free of income tax. Instead of the previous limit of the tax-exempt amount of scholarships which could only cover a part of the total study expenses, tax-exempt scholarships can now cover the costs of tuition, transportation, accommodation, basic health insurance abroad, food, books and other expenses. The Bylaw also includes proposals made by IDE and the Foundation to ensure efficient control of the use of tax-exempt scholarships and it regulates in detail the procedure and documentation required for the transparent reporting on the granted scholarships.

One of the important results of the new Bylaw is that it will enable the payment of tax-free scholarships not only for studying in Croatia but also abroad. This will contribute to one of the most important goals of the Bologna Process in Croatia – enhancing the mobility of students and teaching staff. It is important to note that scholarships regulated under the Bylaw may be granted only by foundations, agencies and other institutions founded with the intention of granting scholarships, registered in the Republic of Croatia for the purpose of education or scientific research and acting pursuant to specific regulations. This will give a strong impetus to the development of foundations as the most transparent legal framework for investment in scholarship programmes.

The changes in the Income Tax Ordinance and the Income Tax Act are the result of coordinated efforts by numerous partners and experts that IDE and the Foundation have been collaborating with and we would like to use this opportunity to extend our gratitude to: Zgombić & Partners tax advisers, the Bogdanović, Dolički & Partners law firm, the Adris Foundation, the Ministry of Science, Education and Sports' Working Group for Removing Barriers to Mobility in the Higher Education System, the Council for the Development of Civil Society, Croatian Rectors' Conference and the University of Zagreb.

* Calculation based on the assumed net scholarship of 50,000$ per year for studying abroad, with different varieties of students' personal circumstances according to Zgombić & Partners tax advisers.