Entrepreneurs and business owners frequently look for legal ways to provide additional benefits to their employees while optimizing tax costs. One of the most effective tax-free receipts is the reimbursement of regular childcare costs for employees’ children.

This measure allows employers to fully or partially cover the costs of kindergartens or licensed childcare crafts (nannies) without paying taxes and contributions. Below is a detailed overview of the legal rules, requirements, and accounting practices.

What Exactly Does the Law Stipulate?

According to Article 7, Paragraph 2, Item 37 of the Income Tax Regulations, employers can pay out the following on a tax-free basis:

“Reimbursements for the costs of regular childcare of employees’ children paid to the employee’s account based on authentic documentation from preschool education institutions and other legal or natural persons who, based on special regulations and decisions of the competent authority, care for a child of preschool age.”

Reimbursement Amount: The law does not set a fixed monetary limit; instead, the reimbursement is recognized “up to the amount of actual expenses”.

 

Key Conditions and Employee Obligations

Additional conditions for applying this tax-free receipt are prescribed in Article 7, Paragraph 40 of the same Regulations. To qualify for tax-free status, the following criteria must be met:

  1. Age of the Child: The reimbursements apply exclusively to children of preschool age.
  2. Regular Program Only: Only the cost of the regular childcare program is considered a tax-free receipt. Short-term programs (such as foreign language classes, sports activities, or workshops) that are charged additionally outside the regular program are excluded.
  3. Statement and Invoice: The employee must submit a written statement to the employer declaring that the other parent/guardian does not use this right to a tax-free receipt for the same child with another employer (or uses it in a specific proportion). A copy of the invoice issued by the service provider must be attached to the statement.

 

Why Does This Provision Apply to Childcare Crafts (Nannies) too?

The text of the Regulations explicitly mentions kindergartens (“preschool education institutions”) but immediately adds “and other legal or natural persons who, based on special regulations, care for a child”.

This is where licensed childcare crafts come into play:

  • They are established and operate under a specific regulation – the Nanny Act.
  • According to Article 2, Paragraph 1 of that Act, nanny activities are defined precisely as the care, nurture, and supervision of children.
  • According to Article 24, Paragraph 1, the craft must hold a valid decision from the competent authority confirming compliance with the requirements to perform the activity.

Since a licensed childcare craft is registered as a natural or legal person providing childcare based on a special regulation, an invoice from such a craft constitutes an authentic document based on which the employer can legally reimburse the employee tax-free.

Practical Application and the Reporting Deadline (JOPPD)

In accounting and tax practice, it is crucial to precisely define the moment when the reporting obligation to the Tax Administration arises.

  • Timing of the Obligation: The obligation to report and record the tax-free receipt via the JOPPD form does not arise in the month the child used the service, nor when the employee brings the invoice to accounting. The obligation arises exclusively on the day of the actual cashless payout of funds from the employer’s account to the employee’s current account (or directly to the account of the kindergarten/craft).
  • Rule for the Amount (Local Government Subsidies): If the employee lives in a city or municipality that already subsidizes the placement in a craft or kindergarten (e.g., the City of Zagreb), the institution/craft issues an invoice to the parent strictly for the remaining amount of the parent’s co-payment. The employer can only reimburse the actual expense incurred by the employee as shown on that invoice. If the employer pays out more than the invoice amount, the difference is treated as taxable salary in kind.

For the technical preparation of the payout decision and the correct submission of the JOPPD form, make sure to consult with your accounting service.

 

Author: Admin