Right to tax exempt severance payment in Croatia

In Croatia severance payment is used in most cases as monetary help that employer pays to the employees when cancelling their employment contract.

Nevertheless, a severance payment may also be a monetary reward for the loyalty of the employees to the employer, which is being paid when the employees are retiring.

Severance payment may be also paid in case where employees contracts are being cancelled as a result of accidents at work or occurrence of occupational diseases.

Right of the employees to severance payment is usually stipulated within provisions of the Collective Agreement (if any) and the Work Regulations (if any) and in the provisions of the of the Labour Act.

The employees are eligible for severance payment in three different situations:

• severance payment for retiring – when employees are retiring in cases of “old-age” retirement, early retirement and/or disability retirement
• severance payment for cancellation of employment contracts – for employees whose employment contracts have been cancelled by the employer through either a personally conditioned cancellation, or through a business conditioned cancellation
• severance payment for employees who suffered accidents at work or occupational diseases – and their employment contracts were cancelled as a result of subsequent inability to work.

All payments that may be paid tax-exempt to the employee are foreseen in the Income Tax Regulations, and hereunder you may see the relevant info for tax-exempt severance payment for retirement.