Foreign Per Diems – Your Comprehensive Guide

When you embark on business trips abroad, it’s crucial to understand the intricacies of calculating per diems. This blog aims to demystify the most common questions about compensating for per diems during international business travel, ensuring you gain a clear understanding of managing the financial aspects of your journeys.

According to the Income Tax Regulation provisions, official trips abroad have the following definitions: 

• A trip lasting up to 30 days from the Republic of Croatia to a foreign country and vice versa. 
• A trip from one foreign country to another. 
• A trip from one location to another within the territory of a foreign country.

The Income Tax Act and Regulation establish: 

• Criteria for classifying official trips. 
• A predefined per diem amount that an employer can provide tax-free.

An official trip encompasses various work-related activities, such as attending conferences, meetings, exhibitions, educational sessions, factory visits, and more, all aligned with the employer’s business operations. It’s also important to differentiate between domestic and international official trips.

A trip qualifies as an international official trip lasting up to 30 consecutive days: From the Republic of Croatia to a foreign country and vice versa. From one foreign country to another. From one location to another within a foreign country.

Calculating Foreign Per Diems – Step by Step

Your entitlement to per diems and reimbursement of costs incurred during international business travel depends on the following: 

• Collective agreements. 
• Employment contracts. 
• Internal regulations (e.g., decisions) of the employer.

The Income Tax Regulation stipulates that per diems for domestic and international official trips cover expenses for meals, drinks, and transportation when the employee is more than 30 kilometres from their workplace or residence.

For travel by road, calculate foreign per diems from the moment of crossing the Croatian border at departure to the return border crossing. For air travel, start the calculation two hours before the scheduled departure from the last Croatian airport and end with takeoff from the first Croatian airport. In the case of sea travel, calculate per diems from the time of departure from the ship’s last port to the return to the first Croatian port.

Accurate details are crucial for determining foreign and domestic per diems: 

• Note the exact border crossing time for land travel. 
• Record departure and landing times for air travel. 
• Mark the departure from the last Croatian port and the planned return to the first Croatian port for sea travel.

Calculating Foreign and Domestic Per Diems

When an individual goes on an international official trip that includes a domestic segment, determine the total duration of the trip covering both parts. First, establish entitlement to foreign per diem, then to domestic per diem, considering the total number of days/hours spent on the official trip.

To qualify for tax-free per diem covering meal, drink, and transportation expenses, you must fulfil specific conditions:

• The employee travels from their workplace or residence to another location (except the workplace or residence). 
• The distance to the destination is at least 30 km.

Grant half per diem for trips lasting 8 to 12 hours and full per diem for trips lasting more than 12 hours. If the employer or a third party provides meals, reduce the per diem by 60% or 30%, depending on whether lunch, dinner, or both are covered.

For every 24 hours spent on an official trip, you can receive payment for one per diem. Each additional time exceeding 12 hours adds one per diem, and time exceeding 8 hours results in half a per diem.

Article 7, Section 20 of the Income Tax Regulation defines the criteria for distinguishing domestic and foreign per diems. Treat official trips as a unified entity, and determine the number of per diems based on the total hours spent from departure to return. Then, allocate foreign and domestic per diems, with any remaining per diems paid as domestic.

Rules for Traveling Through Multiple Countries

Official trips usually end in a single foreign destination, which determines the calculation of hours per diems for that specific country, regardless of whether the travel involves multiple countries. An exception arises when an individual spends more than 12 hours in one of the countries, requiring the calculation of per diems for that country.

Each stay or transit through a foreign country lasting more than 12 hours justifies a per diem for that country. Any stay in a foreign country shorter than 12 hours is calculated based on the time spent in the following region where more than 12 hours are spent (Article 7, Section 18 of the Income Tax Regulation).