Doing Business In: Croatia
M&S PartnersView firm profile
* Author of the picture is Davor Rostuhar
1. SEVEN REASONS TO DO BUSINESS IN CROATIA
Regardless of which sector you are doing business in, here is why you should consider doing it in Croatia:
1. Excellent Geostrategic Position
Three major Pan-European corridors pass through Croatia and make it your shortest route between the Western Europe and Asia, Eastern Europe and the Mediterranean. Located in the Southeast Europe, bordered by Italy, Slovenia, Hungary, Serbia, Bosnia and Herzegovina and Montenegro, Croatia is perfectly positioned for reaching the EU market as well as the Southeast European markets. The close proximity to other EU capitals (Budapest, Vienna, Ljubljana) makes it easy for you to access large European markets and reach new customers.1
2. Skilled and competitive workers produce great value for money
Many foreign companies already operating in Croatia recognize Croatian workforce as highly skilled, experienced, and multilingual that produces great value for money. According to a 2009 survey, 78% of Croatians claim the knowledge of at least one foreign language, most frequently English. Croatia is among the countries with the highest rate of persons aged from 20 to 24 having completed at least upper secondary education (Eurostat). The number of students graduated from institutions of higher education has been recording a continuous increase over the past few years.2
3. EU Member
Doing business in Croatia gives you access to the EU Internal Market, consisting of 450 million customers. With its accession to the European Union on 1 July 2013, Croatia was granted an opportunity to use considerable amounts of money from the EU Structural Funds. Starting from 2014, around EUR 1.5 billion per year have been made available. A large portion of these funds is attributed to the promotion of small and medium entrepreneurship. Companies established in Croatia by foreign investors are able to compete for the EU funds under equal conditions as national ones.3
4. Safety, political and economic stability
According to the Institute for Economics & Peace, Croatia is one of the safest countries in the world, with a notably low crime rate. Moreover, Croatia is not only a member of the EU, but also a NATO member and has enjoyed crucial political and economic stability for the last 25 years.
5. Croatian IT sector
The Croatian economy is very much service-based, and the IT sector is one of the most up and coming in recent years. It is not just the household names like Infobip and Nanobit, but a number of other small to medium-sized software companies doing an excellent job and covering a wide variety of technologies. In terms of specific technology skill-set, you can find it all — from web & mobile apps, UI&UX design to VR&AR, IOT and AI.4
6. Business friendly time zone
The Central European Time (CET) zone makes Croatia very compatible to work with, not only with other European partners but US-based companies as well. The six-hour time difference (occasionally 5-hours depending on daylight saving time) allows for a significant time overlap with the US east coast.
7. High quality of life
Croatia is a truly unique country – nowhere in the world can three different climate zones – continental, mountainous, and Mediterranean, be found in only 400 km (the distance between the North and South of the country). From hilly and gentle Zagorje in the North, through vast fertile plains of Slavonia in the East, Lika and Gorski Kotar rich in forests and rivers, to Dalmatinska Zagora, bounded by mountain ranges and typical Dalmatian karst, all the way to its indented coastline stretching from Istria to South Dalmatia with over a thousand islands, Croatia is truly a world’s treasure. Good transport connection between the continental and coastal part of the country allows you to have it all – start your morning with skiing in the capital, the city of Zagreb, or in Bjelolasica and end your day experiencing most beautiful sunsets on the Adriatic coast. The abundance of cultural activities and historical heritage, the proximity to other European cultural and business centres, clean water and air, traditional and organic growing of agricultural products and healthy Mediterranean lifestyle provide all the conditions necessary for a pleasant, high-quality life anywhere in Croatia.5
2. BUSINESS IN THE CROATIAN CONTEXT
Prior to the COVID-19 crisis, Croatia recorded steady economic growth of close to 3 percent. However, in 2020 Croatia was hit not just with COVID-19 and the (global) economic crisis but was also struck by a series of earthquakes in March and December 2020. Croatia’s membership in the EU again proved beneficial as the EU together with many individual EU Member States offered financial and logistical assistance.
The young country and its people are no strangers to hardship (e.g. the 90’s Independence War), Croatia is working hard to prove its resilience to the world and it believes that the crisis could nevertheless provide an opportunity for Croatia to revisit its growth model and focus on policies to increase resilience to exogenous shocks and raise growth potential.
Furthermore, Next Generation EU, the new EU temporary recovery instrument, will support country’s investments and policy reforms, enabling it to emerge stronger from the crisis. An acceleration of reconstruction after the earthquake will also support the recovery investment.6
Real GDP’s upward trend could resume in 2021 with a strong rebound in tourism revenues. The European Commission forecasts, at the time of writing, 4% to 6% GDP growth in 2021 and 2022.
Croatia is the leading destination for digital nomads
As was widely covered in international media, (e.g. CNN7 and euronews8) Croatia reformed its immigration laws to grant one-year residency permits to remote digital workers from outside the European Union allowing it to not just boost local economies and its tourist industry, but also the services industry in general and the VAT revenues of the state. Digital nomads will not just spend their income in Croatia they will also further enrich the Croatian labour market and could act as a bridge to foreign investors intending to do business in Croatia.
Hotel, tourism & leisure sector is planning a comeback
Together with the aviation industry, the hotel, tourism & leisure sector was severely hit during the pandemic. In February 2021, Croatia’s government adopted new measures worth 1.5 billion kuna (198.4 million EUR) to help businesses operating in the sector during the Covid-19 pandemic.9
As the inoculation rates are accelerating around the world, a significant rebound in the sector is expected as early as in the third quartal of 2021. A recent study shows people missing traveling, tourism and leisure so much that 48% of participants in the survey said they would give up their job for it. A majority of the participants surveyed (80%) said that they consider travel a part of a well-rounded life.10
Croatia is the place to be for the hotel, tourism & leisure sector comeback. Pre-pandemic, it has recorded a steady increase of tourists and profits in the sector. A record 21 million tourists visited Croatia in 2019, a country with a population of 4 million11. Continuously improving Croatian infrastructure will allow the sector to flourish in the post-pandemic world.
Infrastructure projects in the age of the pandemic – the show must go on
Big infrastructure projects in Croatia are continuing despite the COVID-19 epidemic. Most notable is the Pelješac Bridge and its connecting roads. The bridge will for the first time in Croatia’s history ensure territorial connectivity as it is on course to be completed by November 2021. It is a first EU-funded project for any Chinese contractor, valued at 270 million EUR.
Moreover, after recent reconstruction and adaptation of all three main Croatian airports (Zagreb, Split and Dubrovnik), Croatia is modernizing its railway infrastructure with projects worth 4.4 billion Euros for the period of 2021-2030, funded mostly by EU funds. Consequently, many other direct and indirect benefits are expected, such as GDP growth, employment growth in the construction sector, employment growth of young highly educated workers, strengthening multimodal transport, shifting more traffic to an environmentally friendly form of transport, greater mobility of citizens, goods and services.12
Construction of the Zagreb-Sisak motorway is also being prepared, worth 39.6 million EUR. High-speed internet for rural and suburban Croatia with €86 million investment, etc.
Showing an interest in the green economy, Croatia, i.e. the Croatian Ministry of Economy and Sustainable Development and the European Investment Bank expanded cooperation on the development and financing of Croatia’s key energy, resilience and climate projects.
Fun fact about the history of Croatian business attire
Do you know that the necktie was invented in Croatia? No matter how you may feel about the modern-day office noose, we have to thank Croatia for it, and it may very well be Croatia’s most successful export. After all, it used to be called the cravat, and where has the word cravat come from? Croatia. The origins of the necktie go all the way back to the 17th century, when Croatian mercenaries fought for the French in the Thirty Years’ War, bringing their distinctively knotted neckwear along with them. From there it spread to other militaries, other countries, and, eventually, into the cubicles of modern-day offices and other formal places. The knotting became distinctive enough that it simply became known as a tie.13
3. LEGAL SYSTEM
A. Company Law
Apart from a few exceptions, the Croatian company law is regulated by the 1993 Companies Act with its amendments (latest one in 2019). The Act is based on Central European standards and is especially oriented to the German company law. As forms of companies, the Act distinguishes general partnership, limited partnership, joint stock company, limited liability company and economic interest grouping. However, general partnerships and limited partnerships are rare in the Croatian business practice and joint stock companies and limited liabilities companies prevail.
B. Labour Law
The Croatian labour legislature consists of only one act – Labour Act, which does not contain only provisions on individual rights from labour, including the provisions on protection of the rights of workers, but also contains provisions on court protection of rights from labour relations; provisions on participation of workers in decision making process through workers’ councils; the provisions on labour unions and associations of employers, collective bargaining agreements and strikes. Individual rights from labour relations are primarily regulated by employment contract on which civil law rules are applicable. The Labour Act regulates minimal rights arising from labour relations, which may be regulated by employment contract, agreement between the employer and the workers’ council or by a collective bargaining agreement in the way which is more favourable for the worker. Deviations from legal provisions against the worker’s rights are possible only in collective bargaining agreements and only when so expressly allowed by law.
C. Land Registers and the Acquisition of Ownership by Foreign Persons
Together with the Ownership and Other Property Rights Act, the Croatian Parliament also adopted the new Land Registers Act. The Act contains provisions on land registers, regulates the rules of procedure in land-register matters, establishes presumptions and the method of keeping of land registers in electronic form and obligates the courts of the relevant jurisdiction to establish appropriate land registers within the period of five years or to adjust the existing land registers to the provisions of the Act within the same period of time.
The systematization of the Croatian regulations on land registers may be compared to the one of the Central European countries, based primarily on the fact that keeping of the land registers was established in time of the Austrian Monarchy and that the new Act brought no significant changes. The land registers are kept with land-register divisions at municipal courts. One main book and several accessory books are kept for one cadastral municipality. For one real property (which may consist of one or more land-register plots) or for several real properties of the same owner one land register a single land-register record is formed in the main book. The land-register record consists of Sheet A (possession title sheet), Sheet B (ownership sheet) and Sheet C (encumbrance sheet).
Considering that keeping of land registers was neglected during the socialistic regime for various reasons, certain problems occur from time to time since some real property has not been recorded in the land registers or the recorded facts do not correspond with the actual and legal status of the real property. Complete adjustment of the land registers shall certainly require significant time.
Acquisition of Ownership by Foreign Persons
The Ownership and Other Property Rights Act regulates the property rights of foreign persons in a special chapter. With exception of certain restrictions related to acquisition of ownership of real property, the Croatian property law is applied to foreign natural persons and legal entities in the same way as it applies to Croatian citizens.
Fun fact – do you want to have real estate in the smallest town in the world?
Although there are seven EU Member States with a smaller population size, Croatia indeed is a small country and according to the Guinness Book of World Records, the smallest town in the world is Hum, which is in Istria with a population of only 23 inhabitants. It was first mentioned in documents dating from 1102, at which time it was called Cholm, which is derived from the Italian name Colmo.14
D. Intellectual Property Rights
Copyright law is regulated by the Copyright Act.
An author’s work is an original intellectual creation in the literary, scientific, or artistic field or in any other field of creation of whatever kind, method or form of expression, value or purpose. The protection of author’s work does not depend on registration or certification of a competent authority. The copyright law contains author’s moral rights, author’s economic rights (exclusive right of use and exploitation) as well as the right to remuneration for exploitation of his work by another person. Authors’ economic rights shall last during the author’s life and seventy years after his death.
The provisions of the Copyright Act relate, among others, to works of the author and holders of similar rights who are Croatian citizens and foreign persons with the residence in Croatia. The authors’ works of foreign nationals enjoy protection under international treaties or on the basis of the de facto reciprocity (The Bern Convention for Protection of Literary and Artistic Works of 1886 with Paris Text of 1971; Universal Copyright Convention of 1952, also with Paris Text of 1971; The Brussels Convention Relating to the Distribution of Programme-Carrying Signals Transmitted by Satellite of 1974; Stockholm Convention Establishing the World Intellectual Property Organization of 1967), and the applicable EU acquis.
Patent and Trademark Law
The Republic of Croatia, being an independent country since 1991, is a signatory of all relevant international treaties in the field of protection of industrial property (Stockholm Convention Establishing the World Intellectual Property Organization of 1967; Paris Convention for the Protection of Industrial Property of 1883; Madrid Agreement Concerning the International Registration of Marks of 1891; Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks of 1957; Lugarno Agreement Establishing an International Classification for Industrial Designs of 1968).
In February 2020, the Parliament has adopted the new Patent Act. According to the Act, the patents are protected in Croatia for the period of 20 years. Foreign natural persons and legal entities may protect their rights from patents in Croatia at the State Intellectual Property Office through a representative registered in the Register of Representatives at the Office.
In the field of protection of marks, the new Trademark Act was adopted in February 2019. The period of protection of the registered trademark lasts for ten years from the day of filing of the application for protection of trademark, with a possibility of renewal.
E. Foreign exchange transactions
Transactions between residents and non-residents in Croatia in foreign means of payment in Kuna as well as unilateral transfer of property from Croatia and in Croatia are regulated by the Foreign Exchange Act and a series of bylaws rendered by the Croatian National Bank.
Under the terms of the Act, the following categories of persons are considered Croatian residents: legal persons with a head office in the Republic of Croatia (except their foreign branches), branch offices of foreign persons in Croatia, sole proprietors, craftsman and other persons having domicile in Croatia who perform economic activity through self-employment, other natural persons having the domicile in Croatia, natural persons staying in the Republic of Croatia on the basis of a valid residence permit for a minimum period of 183 days, and diplomatic, consular and other representative offices of the Republic of Croatia abroad financed from the Croatian budget and Croatians citizens employed in such representative offices, including their family members.
Aiming to maintain foreign exchange stability in Croatia, this Act is rather conservative. It regulates various restrictions for residents in transactions with other residents and non-residents. For example, payment and collection of payment in foreign means of payment between residents and between residents and non-residents is allowed in cases regulated by law or by decision of Croatian National Bank. We state only some of the restrictions: in principle, residents are not allowed to keep accounts in banks abroad without special approval and transfers of capital and property abroad is restricted. On the other hand, purchase of domestic securities abroad is free, as well as foreign securities satisfying the minimum rating requirements as may be regulated by Croatian National Bank. Transfer abroad of profits realized by a non-resident from investment in Croatia is free. In principle, accepting and granting of loans for residents is not restricted, but the loan and the repayment must be reported to the Croatian National Bank.
Most of restrictions do not apply for domestic banks, while some restrictions do not apply for certain categories of residents.
F. Avoidance of Double Taxation
Bilateral agreements on avoidance of double taxation that are applicable in Croatia are based on OECD’s guidelines.
Croatia has concluded with 65 countries Treaties on Avoidance of Double Taxation. Some Treaties on Avoidance of Double Taxation are concluded by the ex-Yugoslavia but are still applicable in Croatia.
Moreover, on the 30th of September 2020 the Croatian government initiated a procedure to conclude a Treaty on Avoidance of Double Taxation with the USA.
G. Investment Promotion
The system of measures for promotion of investment of local and foreign legal entities and natural persons is regulated by the Investment Promotion Act. The Act defines the procedure of acquisition of the so-called status of the holder of incentive measures, which is acquired on the basis of a decision of an administrative authority on the ground of investment effected in a certain amount. The holder of incentive measures acquires the right to a various state incentives and custom and tax benefits.
Among other measures, Croatia also offers incentives for micro-entrepreneurs as well as for small, medium and large entrepreneurs.
Audit of financial statements are performed by companies registered for performance of auditing of financial statements. Audit is performed on the basis of the Croatian Audit Act and International Accounting Standards.
The audit companies may also render services of tax and financial consulting and accounting services but must employ at least one certified auditor licensed with the Ministry of Finance.
Audit of financial statements is obligatory once a year for all large enterprises according to the Accounting Act, as well as medium-sized enterprises if organized as joint stock companies. Small enterprises organized as joint stock companies are obligated to make a short audit every three year (a short audit is an insight in the business). Other medium- sized and small enterprises are subject to audit only if so regulated in their articles of association.
Amendments of the Accounting Act may result in changes in the obligation to perform audit of financial statements of companies.
Fun fact about auditing in Croatia
Did you know that double-entry bookkeeping was invented in Croatia? The first known manual on bookkeeping was ‘Della mercatura e del mercante perfetto’ (On Merchantry and the Perfect Merchant), written in 1458 by Benedictus de Cotrullis, born in Dubrovnik, Croatia. It is also the oldest known manuscript on double-entry.15
I. Data Protection
Being an EU Member State, GDPR is the law of the land. The Croatian law implementing the GDPR is The Act on Implementation of the General Data Protection Regulation (Official Gazette no. 42/2018 which also came into force as of 25 May 2018, together with the GDPR.
Details on the competent national supervisory authority: Agencija za zaštitu osobnih podataka (Personal Data Protection Agency) can be found here.
Basic seven steps for GDPR compliance in Croatia:
- Check the personal data you collect and process, the purpose for which you do it and on which legal basis,
- Inform your customers, employees and other individuals when you collect their personal data,
- Keep the personal data for only as long as necessary,
- Secure the personal data you are processing,
- Keep documentation on your data processing activities,
- Make sure your sub-contractor respects the rules,
- Check if you are obligated to appoint a data protection officer and if you need to carry out a data protection impact assessment.
4. INTENDING TO DO BUSINESS IN CROATIA?
Šooš Maceljski, Mandić, Stanić & Partners Ltd (M&S Partners) is a law firm situated in Zagreb, the capital and business centre or Republic of Croatia. M&S Partners, a member of the Cicero League of International Lawyers, has a long-standing tradition and reliable and dedicated lawyers who are leaders in their own fields. We advise both domestically and internationally, in local and cross-border transactions, on day-to-day operations and most challenging deals. We advise financial institutions, commercial enterprises, state and regulatory institutions on complex and critical legal issues.
We are a team who takes time to understand your needs and helps in guiding your business. We put ourselves in your shoes and pay attention to requests, suggestions and your overall philosophy and goals.
We focus on the needs of our clients and their respective businesses. Our clients require a rapid response, appropriate advice and innovative legal solutions based on a full understanding of their individual business needs. Our responsiveness to our clients goes beyond just returning phone calls and replying to e-mails. We are responsive not just to phone calls and emails, but also to our client’s needs.
As a full-service and multi-practice law firm we are able to provide legal advice to clients in diverse sectors. Our clients are our priority and we aim to serve them with the highest standards of legal service and provide timely and on point legal advice.
Our areas of practice include Corporate Law, Real Estate, Banking & Finance, Construction, Bankruptcy & Insolvency, Energy, Litigation, Employment Law, Intellectual Property, Public Procurement, GDPR & Tech Law and other branches of law.
To talk to us, please contact us here.
- Croatian Agency for SMEs, Innovations and Investments, ‘Brochure for Investors’ https://vlada.gov.hr/UserDocsImages/2016/Glavno%20tajni%C5%A1tvo/ENG/documents%20in%20english/Hamag%20-%20Brochure%20for%20Investors.pdf
- Kim Johnston, ‘8 Reasons Why Croatia’ https://q.agency/blog/8-reasons-why-croatia
- Sotheby’s, ‘Why invest in Croatia’, https://sothebysrealty.hr/why-invest-in-croatia/
- World Bank, ‘Country Overview – Croatia’, https://www.worldbank.org/en/country/croatia/overview
- CNN, ‘Croatia wants tourists to move there. These people are doing just that’,
- Euronews, ‘Meet Croatia’s first official ‘digital nomad’ as country opens its doors with special visa’, https://www.euronews.com/travel/2021/01/28/meet-croatia-s-first-official-digital-nomad-as-country-opens-its-doors-with-special-visa
- Dragana Petrushevska, ‘Croatia approves 1.5 bln kuna (198 mln euro) Covid-19 support for tourism’, SeeNews https://seenews.com/news/croatia-approves-15-bln-kuna-198-mln-euro-covid-19-support-for-tourism-sport-cos-730349
- Bre’Anna Grant, ‘Americans are so desperate to travel again’, Business Insider,
- Croatia Week, ‘Record 21 million tourists visit Croatia in 2019’, https://www.croatiaweek.com/record-21-million-tourists-visit-croatia-in-2019/
- HŽ Infrastruktura d.o.o., ‘Railways for the future’ https://www.hzinfra.hr/wp-content/uploads/2021/01/HZI-Zeljeznica-za-buducnost.pdf
- John William Bills, ‘How Croatia Invented the Necktie’,
- Croatia.hr, ‘Hum – The Smallest Town in the World’ https://croatia.hr/en-GB/Hum-Smallest-Town-World
- G. Kopun, ‘Did you know Croatia invented double-entry bookkeeping?’ https://kopun.hr/wp-content/uploads/2018/04/Dokument-za-web-Guide-to-doing-business.pdf>http://<https://kopun.hr/wp-content/uploads/2018/04/Dokument-za-web-Guide-to-doing-business.pdf