If you are planning to move to Croatia while keeping a foreign company, overseas investments, international clients or income from another country, you may be asking:
“If I move to Croatia, can Croatia tax my foreign income?”
The answer is not determined simply by where your company is registered, where your clients are based or where you receive the money.
What matters is the connection between you, your income, your business activities and Croatia.
Hi, I am Prof. Dr. Stjepan Gadžo, Vice-Dean for International Affairs and Professor of Financial Law at the University of Rijeka. My academic work focuses, among other areas, on international taxation and the limits of a state’s taxing jurisdiction.
This article looks at the factors that matter when asking whether Croatia can tax income connected with another country and why the answer cannot always be found simply by looking at where your company is incorporated, where your clients are based or where your bank account is located.
Can Croatia Tax Your Foreign Income?
If you are planning to move to Croatia while keeping a foreign company, overseas investments, international clients or income from another country, one of the first questions you may ask is:
What actually gives Croatia the right to tax that income?
The answer is not simply where your company is incorporated.
It is not necessarily where your clients are located.
And it is usually not determined solely by where you receive the money.
The more fundamental question is whether there is a sufficiently strong legal connection, or nexus, between Croatia and you, your income or the economic activity that generated it.
In my research on the principle of nexus, sometimes described as a “genuine link,” I examined a fundamental question: can a state legitimately exercise income-tax jurisdiction without a qualifying connection to either the taxpayer or the income it seeks to tax?
My conclusion was that the nexus principle forms part of general international law governing income-tax jurisdiction. Put simply, international customary law prohibits income taxation where both personal and territorial nexus are absent.
That conclusion is particularly relevant if you are internationally mobile.
If you are moving to Croatia while keeping your business, investments or sources of income abroad, the question should not simply be:
“Is this foreign income?”
Instead, I would start with a different question:
“What is the legal and economic connection between me, my income and Croatia?”
That is where the analysis begins.
What Is the “Nexus” or “Genuine Link” Principle?
In simple terms, nexus means a sufficient connection.
In my research, I examined whether international law places a limit on a state’s ability to tax cross-border income. More specifically, I asked whether a state must have a qualifying connection with either:
- the person it seeks to tax, or
- the income, property or economic activity it seeks to tax.
My conclusion was that such a connection is indeed required.
I describe this broadly through two forms of connection:
Personal nexus
This concerns the connection between you and the state.
Depending on the legal context, connecting factors may include matters such as fiscal residence and other legally relevant personal connections.
Territorial nexus
This concerns the connection between the state and the income-producing facts.
For example, the relevant connection may arise from the location of an economic activity, transaction or property connected with the income.
For you as an internationally mobile entrepreneur or investor, this distinction matters because more than one country may have a connection to your situation.
You may live in Croatia.
Your company may be incorporated elsewhere.
Your clients may be located in several countries.
And the activities generating your income may take place across borders.
This is why simply calling income “foreign” rarely completes the tax analysis.
My research establishes the principle that a sufficient nexus is required. However, it does not attempt to create one universal test for determining nexus in every possible case.
International law does not provide a simple rule saying:
“If X happens, nexus always exists.”
States have significant flexibility in defining concrete concepts such as fiscal residence or the source of income, subject to the broader requirement that a reasonable personal or territorial connection exists.
For this reason, when I analyse a cross-border situation, I would not begin by looking for a single magic factor.
I would begin by mapping the relevant connections.
The Two Questions Behind Most Cross-Border Tax Cases
For Mandracchio Capital’s clients, most international income questions can initially be separated into two fundamental issues. I would initially look at two broad questions.
1. What is your connection to Croatia?
First, I would examine the connection between you and Croatia.
For example:
- Where do you actually live?
- Have you moved your personal and economic life to Croatia?
- Could Croatian tax-residence rules apply to you?
- Could another country also consider you tax resident?
- Has your move created a new tax connection?
In international tax law, fiscal residence is one of the traditional connecting factors. Under Croatian domestic rules, fiscal residence generally turns on having a permanent home available for use, or a habitual/continuous presence in Croatia (broadly assessed against a roughly 183-day threshold across one or two calendar years), with a tie-breaker hierarchy applied if another country also has a claim (according to Croatian Tax Administration )
This is why a move to Croatia should not always be viewed solely as an immigration decision.
For an entrepreneur, investor or HNWI, it can also change the jurisdictions with which you have relevant tax connections.
For a detailed explanation of the Croatian rules, see our guide to tax residency in Croatia.
2. What is Croatia’s connection to the income?
The second question is different.
Here, I would look at the connection between Croatia and the income itself.
For example:
- Where is the relevant economic activity performed?
- Where is the business actually carried on?
- What activity generated the income?
- Where is the relevant property located?
- Does the income have a legally relevant source connection with Croatia?
This distinction is particularly important for remote founders.
You may own a company incorporated outside Croatia. But after moving here, you may personally conduct business activities in Croatia, make important decisions here or manage aspects of your international business while physically based here.
Those facts may become relevant to the legal analysis.
The point is not that every activity conducted from Croatia automatically produces the same tax result.
The point is that the real facts matter.
I Own a Foreign Company, Does That Mean Croatia Cannot Tax Me?
This is one of the questions I encounter most often in international tax and relocation discussions.
A client may tell me:
“My company is incorporated abroad. My clients are abroad. My bank account is abroad. Therefore, my income has nothing to do with Croatia.”
From the perspective of international tax law, I would be careful with that conclusion.
A company’s place of incorporation is important. But it is not necessarily the only relevant connection in every cross-border analysis.
If you move to Croatia while continuing to own and operate an international business, I would want to understand the full factual picture.
For example:
- Where are important business decisions made?
- Where do you actually carry out your work?
- Where is the business commercially managed?
- What is your personal connection to Croatia?
- What type of income do you personally receive from the company?
- Which other country may also have taxing rights?
- Is there an applicable tax treaty?
My research did not seek to provide one universal answer to all of these questions. The precise criteria through which nexus is established require separate analysis under the relevant legal framework.
But the underlying principle remains important:
Do not analyse an international tax structure based on labels alone. Analyse the actual connections.
Calling a company “foreign” does not, by itself, answer every Croatian tax question. Under Croatia’s own domestic rules, a Croatian tax resident’s tax base includes worldwide income, while a non-resident’s tax base is limited to Croatian-source income, which is exactly why the personal connection (“are you Croatian tax resident?“) matters as much as the corporate one, according to Income Tax Act.
Personal Nexus vs Territorial Nexus: Practical Way to Think About Your Situation
International tax debates often ask:
Should income be taxed based on residence or source?
In my research, I reached a more fundamental conclusion.
Residence and source can be understood as two manifestations of the same underlying idea: a state needs a sufficient connection to justify its taxing right.
One connection may exist primarily through the taxpayer.
Another may exist primarily through the income or economic activity.
For you, this means that asking:
“Where am I tax resident?”
may not be enough.
You may also need to ask:
“Where is the relevant income-producing activity connected?”
And: “Does another country also have a legitimate connection to me or this income?”
What If Croatia and Another Country Both Have a Connection?
This is where international tax treaties may become relevant.
In my research, I examined the international tax treaty network as part of the evidence supporting the nexus principle.
Tax treaties commonly deal with situations where there are potentially overlapping connections between two states.
For example:
- a person may have a residence connection with both countries;
- a person resident in one country may derive income connected with another country;
- or a country may lack a sufficient source or situs connection to a non-resident’s income.
This is important because a tax treaty should not be viewed simply as a document that answers:
“Do I pay tax in Country A or Country B?”
The analysis is often more nuanced.
Domestic tax rules may first establish potential taxing claims. An applicable treaty may then allocate, limit or otherwise coordinate those claims. For a closer look at how this works in practice, see our guide to Double Taxation Agreements in Croatia.
For this reason, when reviewing your situation before a move to Croatia, I would normally want to understand:
- your relevant residence position;
- the nature of your income;
- where the income-producing activities take place;
- which other countries have relevant connections;
- and whether an applicable tax treaty affects the analysis.
The Key Principle: Tax Planning Should Follow the Facts
One of the most useful lessons from the nexus principle is that international tax analysis should begin with the real facts and connections.
Before moving to Croatia, you should map:
You
Where do you live and where may you be tax resident?
Your income
What type of income do you receive?
Your activity
Where is the work or economic activity actually performed?
Your business
Where is the company incorporated and where are relevant business functions carried out?
Other jurisdictions
Which other countries may have a personal or territorial connection to you or the income?
Tax treaties
Does a relevant treaty allocate or limit taxing rights?
Only after understanding these connections can a cross-border tax analysis move from the general question of “who may have jurisdiction?” to the more specific question of “how is this particular income treated?”
Before You Move to Croatia, Map Your Tax Connections
If you are an entrepreneur, investor, HNWI or internationally mobile professional, the question is “What personal and territorial connections exist between me, my income, my business and Croatia, and how do those connections interact with the other countries involved?”
In essence, international customary law requires a sufficient personal or territorial connection before a state can exercise income-tax jurisdiction and prohibits such taxation where both forms of nexus are absent.
At the same time, this principle does not provide a single universal test for every cross-border situation. The specific factors that establish a sufficient nexus remain dependent on the facts of the case and the detailed domestic and international legal rules that apply.
That is why, if you are planning to relocate to Croatia while retaining foreign income, investments or a business abroad, I would recommend reviewing your structure before you move, rather than waiting until questions concerning tax residence, business management or the source of your income have already become more complicated.
At Mandracchio Capital, our team can help you assess the Croatian legal and tax questions that should be considered before you relocate or restructure your international affairs.
Disclaimer: This article provides general information based on principles of international income tax jurisdiction and is not personalised tax or legal advice. The tax treatment of any particular individual, company or income stream depends on the relevant facts, applicable Croatian and foreign law, and potentially applicable tax treaties.
Frequently Asked Questions
Can Croatia automatically tax all my foreign income if I move there?
Not simply because the income is described as “foreign” or because you physically move to Croatia.
The starting point is to examine the relevant connections between you, the income and Croatia. In my research on the principle of nexus, I concluded that a state requires a sufficient personal or territorial connection before exercising income-tax jurisdiction.
However, this principle alone does not determine the tax treatment of every individual income stream. The precise answer depends on the applicable Croatian rules, the nature of the income, the facts of your situation and, where relevant, an applicable tax treaty.
Is tax residence the only factor that matters?
No.
Tax residence is an important connection, but it is not the only question to consider. The analysis may also involve the source of the income and where the relevant income-generating activity takes place.
For example, if you own a foreign company but personally manage or carry out business activities from Croatia, the facts surrounding those activities may also be relevant.
The right approach is therefore to look at both your connection to Croatia and Croatia’s connection to the income or economic activity involved.
Can Croatia tax income from a foreign company?
There is no universal yes-or-no answer simply because the company is incorporated outside Croatia.
A foreign company may have clients, employees, assets and business activities in several different countries. If you move to Croatia, the relevant analysis may also consider your own connection to Croatia, the type of income you receive from the company, where relevant activities take place and whether another country also has taxing rights.
In other words, the fact that a company is “foreign” does not, by itself, answer every Croatian tax question.
Does a foreign bank account prevent Croatia from taxing income?
No. The location of your bank account should not be treated as the sole factor determining where income may be taxed.
Receiving money into an account outside Croatia does not, by itself, determine the relevant tax connections. The broader analysis may include who earned the income, what type of income it is, where the relevant activity took place and which countries have a legally relevant connection to the person or income.
Can two countries both have a connection to the same income?
Yes.
This is a common feature of cross-border situations. One country may have a connection to you based on factors such as residence, while another may have a connection to the income or economic activity itself.
Where potentially overlapping taxing rights exist, the next question is how the relevant domestic tax rules and, where applicable, a double taxation treaty deal with those claims.
That is why international tax analysis is often not simply a choice between:
“Croatia or another country?”
The more accurate question may be:
“Which countries have a legally relevant connection to me or this income, and how are their potentially overlapping taxing rights addressed?”
