The tax system represents the totality of taxes that function in a particular country. Each country has a unique tax system. The size of the public sector, the demographic structure and the population are one of the factors that influence the tax system. Tax system of the Republic of Croatia is plural in which there are more tax forms that are divided into state, county, city or municipal and common taxes and compensation for lottery games. Income taxi s one of the oldest and most important forms of taxation and represents an important fiscal policy instrument. Income represents the difference between receipts and outlay for a given accounting period. Croatia is taxed on realized income, regardless of the purpose for which it is spent and independently of the sources from which it was realized. Sources of income in Croatia are income from non-self-employment, income from self-employment, income from property and property rights, income from capital and other income. In the Republic of Croatia, income taxi s applied to progressive tax rates. There are two tax rates. The rate of 24% is applied to income up to 30.000,00 kn per month, and the rate of 36% applies to income of more than 30.000,00 kn per month. The manner and determination of the tax liability is prescribed by the Lax on Income Tax. Taxpayers are residents and non-residents. Income tax is calculated on a non-resident basis according to the principle of domestic income while the tax on income is calculated on the basis of world income. In the determination of taxable income the provisions of international treaties concluded and ratified in accordance with the Constitution of the Republic of Croatia shall take precedence over the provisions of the Domestic Act.