Tax competitiveness is becoming an increasingly important factor when choosing a market for business expansion. Croatia, as well as the countries in our region — Slovenia, Austria and Serbia — are often on the radar of entrepreneurs and investors, whether due to proximity, market potential or tax advantages.
CONEO Croatia has therefore prepared a tax guide for the region. Which country offers the most favorable conditions for directors and owners? Where is the payment of a 13th salary most tax-efficient? Who has the most annual leave, public holidays and maternity leave? You will find the answers to these questions below.
Where is it most favorable to work?
For every employee who receives, for example, a net salary of €1,500 at the end of the month, the actual cost for the employer is significantly higher. This amount includes numerous mandatory contributions, taxes and fees that the employer must pay to the state. In Croatia, for a net salary of €1,500, the employer will allocate approximately €2,513, which is somewhat more favorable than in neighboring Slovenia and Austria. The system of contributions and personal income tax in Croatia is relatively simple, with clear thresholds and fixed contributions for pension and health insurance.
Slovenia applies a more complex model of labor taxation, whereby social contributions are first deducted from the employee’s gross salary, and then income tax is calculated on the remaining amount, taking into account personal allowances and tax deductions. Personal income tax in Slovenia is determined according to a progressive scale, which means that individuals with higher incomes pay a higher tax rate. Thus, for a net salary of €1,500, the employer in this case will allocate €2,693.
This amount increases further in Austria to €2,830, given that it has a significantly higher labor burden, but also a more developed system of social security and employee benefits. The high cost of labor remains one of the main obstacles to the competitiveness of smaller entrepreneurs and startups.
In Serbia, for the same net salary, employers will allocate €2,240, which includes insurance contributions.
How much of your salary do you actually keep?
Personal income tax is one of the key indicators of the tax burden on labor. It applies to various personal incomes: salaries, fees, rent, dividends, and thus strongly affects net income.
Taxation models differ between countries: Croatia applies a progressive income tax system with two basic tax rates, which are applied depending on the amount of the monthly tax base. The applicable rates are: 20% for income up to the prescribed threshold, and 30% for amounts above that threshold, depending on the decisions of local government units.
Slovenia applies a progressive income tax system with several tax brackets, whereby the income tax rate increases as annual income rises. Rates start at 16% for the lowest brackets and reach as much as 50% for income above €78,016.32 per year.
The Austrian income tax system is based on six tax brackets, with progressively increasing rates as income grows. For annual income below €13,308 it is 0%, above that 20%, and gradually up to 55% for individuals earning more than €1,000,000 annually. New legislative changes stipulate that the first five brackets are indexed to inflation (+3.83%), and the highest rate of 55% will apply temporarily until the end of 2025, after which it will return to 50%.
Personal income tax in Serbia covers a wide range of income sources, from salaries and self-employment to rent, royalties and capital gains. Tax rates range between 10% and 20%, depending on the type of income, while capital income such as dividends and interest is taxed at a rate of 15%.
The system provides several taxation models: standard, lump-sum and withholding tax—allowing adaptation to different taxpayer profiles. The lump-sum model is particularly attractive for small entrepreneurs as it allows simplified operations without the obligation to maintain accounting records. Residents also have access to tax reliefs, including a non-taxable portion of salary and incentives for dependent family members.
Such a flexible approach makes the Serbian tax system relatively simple to administer, especially for the self-employed and micro-employers.
What about tax-free benefits and the 13th salary?
Tax-free salary benefits and the payment of a 13th salary represent an important tool for rewarding employees, while also serving as an instrument through which companies can optimize labor costs without additional tax burden. The approach to this issue differs significantly between Croatia, Slovenia, Austria and Serbia.
Employers in Croatia have the possibility to pay various tax-free benefits, such as compensation for transport, meals, field work, daily allowances, as well as Christmas and Easter bonuses, all up to certain prescribed amounts. Although the payment of a 13th salary is not legally prescribed, in practice it is used as an additional incentive for employees, within the same tax-free framework.
Slovenia also allows tax-free benefits for certain types of payments alongside salary, but within clearly defined limits. The meal allowance is tax-free up to €7.96 per day, while compensation for commuting to and from work is recognized up to €0.21 per kilometer, but may not exceed €140.00 per month.
Austria stands out as a specific example in this regard. The payment of a 13th and even a 14th salary is common practice and standard. The specificity of the Austrian system is that these payments are taxed more favorably, with lower tax and contribution rates compared to regular salary.
Serbia views tax-free benefits as a mechanism that allows a certain degree of flexibility and tax relief in salary payments. However, their application is clearly regulated and limited by law. The payment of a 13th salary is treated as regular income and is subject to all prescribed tax and contribution obligations.
Who has the most annual leave, public holidays and maternity leave?
Croatia prescribes a minimum of 20 working days of annual leave for employees with full-time employment, with the possibility of additional days based on collective agreements or internal employer regulations. The number of non-working days in the form of public holidays is 14 per year. Parents are entitled to up to 58 weeks of paid leave after childbirth, which is one of the longest in the European Union.
Slovenia applies a very similar model with a minimum of 20 working days of annual leave. The number of official public holidays is slightly higher, totaling 15 per year. Mothers are entitled to 105 days of maternity leave, and in addition both parents have the right to parental leave of 160 days.
In Austria, employees are entitled to a minimum of 25 working days of annual leave, which is above the EU average. After 25 years of service, subject to meeting other conditions, employees are entitled to 30 working days of annual leave. Austria also has 13 public holidays. Maternity leave lasts 16 weeks.
Serbia prescribes a minimum of 20 working days of annual leave. The Law on State and Other Holidays in the Republic of Serbia stipulates that members of religious and national minorities are entitled to days off for their holidays, which are celebrated on working days or with the right to a day off, but these are not public holidays for all citizens. In Serbia, maternity leave begins at the earliest 45 days before the expected due date or at the latest 28 days before the due date and lasts 12 months for the first and second child, or 24 months for the third and each subsequent child.
Where is it most favorable to be a director?
In Croatia, directors may be engaged through an employment contract or a management contract. In both cases, there is an obligation to pay contributions—regardless of whether an actual salary is paid.
If the director is also the owner and is not employed, they are considered insured based on performing an activity and are obliged to pay contributions on the prescribed minimum base. In 2025, this base amounts to approximately €1,050 gross per month.
Slovenia has a similar approach to Croatia regarding contributions for directors. If the director is employed in the company based on an employment contract, the same conditions apply as for all other employees, and the minimum base for calculating contributions amounts to €1,332.57 gross per month. If the director is engaged through a management contract, the company may pay compensation under that contract, but the director is obliged to pay social contributions themselves. In that case, they enter the insurance system as a self-employed person, and contributions must be paid even if the compensation is not formally paid. The minimum base for calculating contributions for self-employed directors generally ranges between €1,400 and €1,500 gross per month.
Although Austrian laws do not prescribe an explicit minimum salary for directors (Geschäftsführer), this does not mean that there are no rules in practice. According to Austrian commercial and tax law, a director’s remuneration must be economically justified and in line with market conditions. Competent authorities (tax administration or courts) may intervene if it is determined that the remuneration is unjustifiably low—indicating potential tax or social contribution avoidance—or disproportionately high.
In the Austrian tax system, lump-sum taxation is often used as a simplified model for calculating expenses and taxes, especially when the director holds more than 25% of the company. In that case, there is no need to maintain detailed records of all business expenses, but a fixed percentage of costs (e.g. 6% or 12%) is recognized.
Director 1 is classically employed in the company and receives a regular gross salary, which includes all usual benefits such as the 13th and 14th salary. Their income is calculated through the standard system of contributions and taxes applicable to all employees, and the employer pays all mandatory contributions.
Director 2, who owns more than 25% of the company, may use lump-sum taxation, meaning that a certain percentage of their income is automatically recognized as an expense without the need for documentation. In addition, they pay their own contributions and are not entitled to the 13th and 14th salary, but this is compensated through recognized expenses (so-called GFB).
In practice, the lump-sum model may be simpler and more flexible, but also less favorable at higher income levels, while the standard model is more stable for directors who are also employees of their company.
In Serbia, a director may be engaged through an employment contract or a special contract on the rights and obligations of the director (without employment relationship). In both cases, there is an obligation to pay contributions, even if the salary is not paid.
The minimum base for calculating contributions in 2025 amounts to approximately RSD 57,000, or about €485 gross per month. A director-owner may choose a higher base, but not lower than the prescribed minimum.
Where is it most favorable to generate profit?
For entrepreneurs, corporate income tax means one thing: how much of the earned money remains in the company after all costs are covered and the state takes its share. It is not paid on turnover, but on actual profit—the difference between income and expenses.
In Croatia, differentiated rates apply: 10% for revenue up to €1 million, and 18% above that, which is favorable for small and medium-sized enterprises.
In Slovenia, a flat corporate income tax rate of 22% applies, fixed by law until 2028. Austria applies a simple rate of 23%.
Serbia offers a competitive flat rate of 15%, but with a smaller scope of incentives.
What remains for investors?
The way a country taxes income from shares, equity, or asset sales significantly affects investor and business owner decisions. Croatia has a significantly more favorable treatment, with capital income from dividends or profit distribution taxed at a rate of 12%.
Slovenia applies a system of decreasing capital tax over the years of ownership, starting at 25% and decreasing every five years, reaching 0% after 15 years.
Austria maintains a flat rate of 27.5% without progressive reduction, as does Serbia with a flat rate of 15%.
Where is VAT the lowest?
Croatia applies a standard VAT rate of 25%, with a reduced rate of 13% applied to hospitality services, baby diapers, menstrual products, water, electricity and natural gas, while a 5% rate applies to bread, milk, certain medicines, cultural tickets and similar.
Slovenia, with a standard rate of 20%, also offers a reduced rate of 9.5% for a wide range of goods and services, including food and non-alcoholic beverages, medicines, passenger transport, cultural and sports tickets, restaurant and catering services, hotel accommodation, hairdressing services, minor repairs, cleaning of private homes and social services, as well as rental of residential property, municipal cleaning services, funeral services. A special reduced rate of 5% applies to books, e-books and publishing activities.
Austria has a standard rate of 20%, a reduced rate of 10% for essential goods and services, including food, prescription medicines, books, newspapers, rental housing, public transport and accommodation. A 13% rate applies to cultural and sports events, flowers, cinema tickets and restaurant services.
In Serbia, the standard VAT rate is 20%, while the reduced rate of 10% applies to basic food products, medical supplies, textbooks and natural gas.
Where is it most favorable to do business?
Croatia stands out with a stable legislative framework and favorable conditions for micro and small businesses. The Austrian system provides a high level of worker protection, but with a significant burden for employers. Slovenia offers a balanced model with a focus on progressivity, while Serbia attracts with competitive tax rates and lower labor costs, despite more limited tax incentives.
The choice of the most favorable tax environment largely depends on the profile of the entrepreneur, the size of the business, the industry, the ownership structure and long-term strategic goals.
CONEO Croatia advises clients in everyday practice in analyzing and optimizing tax and business models— feel free to contact us for a more detailed assessment.
