From an economic point of view, taxes represent revenues for the state, while, on the other hand, they represent expenditures for taxpayers. The main purpose of tax introduction is to finance the purchase of goods and payment of employees in the public sector for the purpose of securing the supply of public goods. Basic economic characteristics of tax include efficiency, abundance, fairness, simplicity and stability. The origin of tax can be traced back to the start of cohabitation between people and their mutual transferring and provisioning of goods and services. Specifically, income tax in modern countries was introduced after World War II. Income tax is a tax paid by companies and other legal entities on the basis of realised profit. It belongs to the category of direct taxes, which do not include the possibility of transferring tax liabilities to other taxable entities. There are four main elements that determine the character of any type of income tax. These are as follows: taxpayers, tax rates, tax bases and tax exemptions. In the Republic of Croatia, income tax is determined and paid pursuant to the Income Tax Act, while the Ordinance on Income Tax stipulates its implementation more precisely. Today, one of the topical issues certainly includes tax reforms, and the most recent is the one that entered into force at the beginning of this year. In addition, tax competition, which represents a major issue within the European Union, will also be analysed in this master thesis.