Croatia’s EU membership has enhanced its economic stability and provided new opportunities for trade and investment. Despite having access to a substantial amount of EU funds, the Croatian economy has yet to gain the full benefits of membership in terms of growth and sustainability. Croatia will receive more than $30 billion in EU funding through 2030, which has the potential to provide a significant boost to the economy, if the government directs the funds to productive activities that stimulate job creation and growth. Croatia joined the European Exchange Rate Mechanism (ERM II) in July 2020, and the government is committed to eurozone accession by mid-2024.
The Croatian economy had experienced a five-year period of growth and stability, but the COVID-19 pandemic coupled with three devastating earthquakes that caused more than $20.3 billion worth of damage to Zagreb and central Croatia led the economy to contract by 8.4 percent in 2020. The budget deficit reached approximately 7.4 percent in 2020. 8.4 percent in 2020. The tourism sector, which directly accounts for 12 percent of Croatia’s GDP and indirectly as much as 20 percent, achieved only 50 percent of the prior year’s revenues. The government doled out more than $1.5 billion in job-retention and economic stabilization measures. Unemployment in January 2021 was at 7.1 percent, only slightly higher than the average rate in 2019. The European Commission estimates that the Croatian economy will grow 5.3 percent in 2021 and 4.6 percent in 2022.
The economy is burdened by a large government bureaucracy, underperforming state-owned enterprises, and low regulatory transparency, all of which contribute to poor performance and relatively low levels of foreign investment. The Croatian government has taken some positive steps to reduce para-fiscal fees and taxes and to simplify procedures for opening a business. However, it has been slow to implement additional steps to reduce barriers to investment, streamline bureaucracy and public administration, and reform the judiciary. The government continues to implement economic reforms designed to create sustainable economic growth and development, to connect education to the labor market, and to sustain public finances.
The government is willing to meet at senior levels with interested investors and to assist in resolving problems. Prime Minister Andrej Plenkovic, elected to a second consecutive term in July 2020, is a former member of the European Parliament and has signaled his commitment to wide-ranging structural reforms in line with recommendations from the EU and global financial institutions. His government is working with the World Bank and other international institutions to improve the business climate and to attract investment. Relative strengths in the Croatian economy include low inflation, a stable exchange rate, and developed infrastructure.
Historically, the most promising sectors for investment in Croatia have been tourism, telecommunications, pharmaceuticals, healthcare, and banking. Investment opportunities are growing in Croatia’s robust IT sector, and the coming years will offer new opportunities related to energy transition. Starting in 2020, Croatia offers visas for so-called “digital nomads” to work in Croatia without having to pay local taxes in order to attract individuals with bigger spending capabilities and connections to strong IT sectors abroad.
|TI Corruption Perceptions Index||2020||63 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||51 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||41 of 128||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||$184||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita (USD)||2019||$28,388||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Croatia is generally open to foreign investment and the Croatian government continues to make efforts, through financial incentives, to attract foreign investors. All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below. However, bureaucratic and political barriers remain. Investors agree that an unpredictable regulatory framework, lack of transparency, judicial inefficiencies, lengthy administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate.
Croatia is partnered with the World Bank on the “Croatia Business Environment Reform” project which intends to help Croatia implement various business reforms. The Ministry of Economy and Sustainable Development Directorate for Internationalization assists investors. For more information, see: . The Strategic Investment Act fast-tracks and streamlines bureaucratic processes for large projects valued at USD 10.7 million or more on the investor’s behalf. Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.
Limits on Foreign Control and Right to Private Ownership and Establishment
Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities. Article 49 of the Constitution states all entrepreneurs have equal legal status. However, the Croatian government restricts foreign ownership or control of services for a handful of strategic sectors: inland waterways transport, maritime transport, rail transport, air to ground handling, freight-forwarding, publishing, ski instruction, and primary mandated healthcare. Apart from these, the only regulatory requirements to market access involve occupational licensing requirements (architect, auditor, engineer, lawyer, veterinarian, etc.), about which detailed information can be found at . Over 90 percent of the banking sector is foreign owned.
Croatia does not have a foreign investment screening mechanism, but the government designated the Ministry of Economy and Sustainable Development Internationalization Directorate as the “National Contact Point” for reviewing direct investments and responding to requests for information from EU Member States or the European Commission, per European Union Directive 2019/452.
Other Investment Policy Reviews
The Croatian government offers two e-government options for on-line business registration, and , both of which provide 24-hour access. Start.gov.hr provides complete business registration for a limited liability company (d.o.o.), simple limited company (j.d.o.o.) or company, without any need to physically enter a public administration office. The procedure guarantees a short turnaround on requests and provides deadlines by which the company can expect to be registered. The Start.gov.hr procedure eliminates fees for public notaries, proxies, seals, and stamps, and reduces court registration fees by 50 percent. Hitro.hr also provides on-line services but maintains offices in 60 Croatian cities and towns for those who want to register their business in person.
In 2020, the Global Enterprise Registration website ( ) rated Croatia’s business registration process 4 out of 10, while the latest available 2020 World Bank Ease of Doing Business report ranks Croatia as 114 out of 190 countries in this category. The government pledged to improve conditions for business registration and continues to identify areas for removing burdensome regulations and processes. Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.
Croatian foreign direct investment totals approximately USD 24.6 million in the United States, according to Croatian National Bank figures. The government does not promote or incentivize outward investment. Croatia has no restrictions on domestic investors who wish to invest abroad.
6. Financial Sector
Capital Markets and Portfolio Investment
Croatia’s securities and financial markets are open equally to domestic and foreign investment. Foreign residents may open non-resident accounts and may do business both domestically and abroad. Specifically, Article 24 of the Foreign Currency Act states that non-residents may subscribe, pay in, purchase, or sell securities in Croatia in accordance with regulations governing securities transactions. Non-residents and residents are afforded the same treatment in spending and borrowing. These and other non-resident financial activities regarding securities are covered by the Foreign Currency Act, available on the central bank website ( ).
Securities are traded on the Zagreb Stock Exchange (ZSE), established in 1991. Regulations that govern activity and participation in the ZSE can be found (in English) at: . There are three tiers of securities traded on the ZSE. The Capital Markets Act regulates all aspects of securities and investment services and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). The Capital Market Act was amended in 2019 and went into force on February 22, 2020. The amendments include the increase from USD 5.4 million to USD 8.7 million for mandatory publication of share prospectus, changes to administrative obligations, and a decrease in fees for issuing securities. These amendments also give HANFA more authority over corporate management of those companies listed on the capital market. All legislation associated with the Capital Market act can be found (in English) at: .
There is sufficient liquidity in the markets to enter and exit sizeable positions. There are no policies that hinder the free flow of financial resources. There are no restrictions on international payments or transfers. As such, Croatia is in accordance with IMF Article VIII. The private sector, both domestic and foreign owned, enjoys open access to credit and a variety of credit instruments on the local market, on market terms.
Money and Banking System
The banking sector is mostly privatized and is highly developed, competitive, and increasingly offering diverse products to businesses (foreign and domestic) and consumers. French, German, Italian, and Austrian companies own over 90 percent of Croatia’s banks. In 2016, Addiko Bank became the first U.S. bank registered in Croatia by taking over all of Hypo Bank’s holdings in Croatia. The banking sector suffered no long-term consequences during the 2008 global banking crisis. According to conclusions from an IMF Virtual Visit with Croatia in November 2020, the banking sector is generally considered to be one of the strongest sectors of the Croatian economy, “comparable to other Central and Eastern European Countries.” As of September 2020, there were 20 commercial banks and three savings banks, with assets totaling USD 68.24 billion.
The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 18.4 billion and a market share of 27.01 percent. The second largest bank is Italian-owned Privredna Banka Zagreb, with assets totaling USD 14.02 billion and 20.54 percent market share. The third largest is Austrian Erste Bank, with assets totaling USD 10.9 billion and a 15.96 percent market share. According to a December 2020 European Commission report, the non-performing loans (NPL) ratio for Croatia was 5.5 percent in the second quarter of 2020, putting Croatia among the top ten of EU countries for NPL in 2020. The country has a central bank system and all information regarding the Croatian National Bank can be found at . Non-residents are able to open bank accounts without restrictions or delays. The Croatian government has not introduced or announced any current intention to introduce block chain technologies in banking transactions.
Foreign Exchange and Remittances
The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) additionally establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory. Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement ( ).
The Croatian Foreign Exchange Act permits foreigners to maintain foreign currency accounts and to make external payments. The Foreign Exchange Act also defines foreign direct investment (FDI) in a manner that includes use of retained earnings for new investments/acquisitions, but excludes financial investments made by institutional investors such as insurance, pension and investment funds. The law also allows Croatian entities and individuals to invest abroad. Funds associated with any form of investment can be freely converted into any world currency.
The exchange rate is determined by the Croatian National Bank through “managed floating.” The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy. On July 10, 2020 the European Central Bank and European Commission announced that Croatia had fulfilled its commitments and the Croatian kuna (HRK) was admitted into the Banking Union and European Exchange Rate Mechanism (ERM II), with the exchange rate between the kuna and the euro (EUR) pegged at EUR 1 to 7.53450 HRK. Any risk of currency devaluation or significant depreciation is generally low.
No limitations exist, either temporal or by volume, on remittances. The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.
Sovereign Wealth Funds
Croatia does not own any sovereign wealth funds.
7. State-Owned Enterprises
There are currently a total of 58 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake. The SOEs are managed through the Ministry of Physical Planning, Construction, and State Assets or the Center for Restructuring and Sale (CERP). The Ministry of Physical Planning, Construction, and State Assets oversees 39 “special state interest” SOEs, including 19 wholly state-owned, 13 majority state-owned companies, six listed as “legal entities of special interest,” and one with less than 50 percent state ownership. CERP oversees the other 19 SOEs, of which 11 are wholly state-owned and eight are majority state-owned.
These SOEs cover a range of sectors including infrastructure, energy, real estate, finance, transportation, and utilities. The latest figures available, from 2019, show that SOEs employ a total of 72,256 people and have net revenues totaling USD 9.95 billion and assets of USD 46.6 billion. The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.
CERP also oversees 306 companies; of these, the state owns up to 10 percent of 220 companies, from 10 to 49 percent of 67 companies,50-99 percent of 8 companies, and 100 percent of 11 companies. By statute, CERP must divest the state from these companies. Lists of SOEs are published on the websites of the Ministry of Physical Planning, Construction, and State Assets at and on CERP’s website at .
County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available. The latest available European Commission 2020 Country Report for Croatia assesses that Croatia made slow progress in selling off holdings in non-strategic companies, and its targets are not ambitious. The European Commission and the European Bank for Reconstruction and Development (EBRD) continue to provide support to Croatia through the Structural Reform Support Program for strengthening the functioning of state-owned enterprises and improvement of corporate governance: . The EC notes that this project created an early warning system to allow Croatian authorities to “identify when a state-owned enterprise is having financial difficulties and to prepare and implement plans to improve financial and operational performance.” The EC concluded “this reform will make state-owned enterprises more resilient and allow the State to act as an informed and active owner.”
The International Monetary Fund (IMF) Staff Virtual Visit with Croatia in November 2020 concluded that “streamlining the role of the state, predominantly through improved SOE governance is necessary.”
The Corporate Governance Code is available at . Croatia is not a member of the OECD but adheres to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas.
Croatia continues to slowly pursue privatization of SOEs through the Ministry of Physical Planning, Construction, and State Assets and the CERP. There are no restrictions against foreigners participating in privatization tenders. When Croatia initiated its privatization process in the late 1990’s foreign investors purchased assets in the banking and telecommunications sectors, as well as Croatia’s largest pharmaceutical company. The bidding process is public, tenders are published online, and terms are clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress for projects. There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output. The Ministry of Physical Planning, Construction, and State Assets drafted the 2021 plan for Management of State Owned Property, as part of the National Strategy for Management of State Owned Property 2019-2025 (only in Croatian: ).
8. Responsible Business Conduct
There is a general awareness of societal expectations regarding responsible business conduct which is regulated by law. The Croatian Financial Services Supervisory Agency has established a Corporate Governance Code of Ethics for all Zagreb Stock Exchange (ZSE) participants, and the Company Act, Audit Law, Accounting Law and Credit Institutions law are the sources for corporate governance provisions. Publicly listed companies are required to upload their annual corporate governance reports on the ZSE website. The existing code, drafted in 2007 by ZSE in cooperation with the Croatian Financial Services Supervisory Agency (HANFA) for companies listed on the ZSE, was updated in a project between the European Bank for Reconstruction and Development, ZSE, and HANFA, which created significant progress on transparency of business operations, avoidance of conflicts of interest, efficient internal control, and effective division of responsibilities.
No high profile or controversial instances of private sector labor rights violations have occurred in Croatia. Forced labor, forced evictions of indigenous peoples, or arrests of and violence against environmental defenders are not permitted by law. The government effectively implements and enforces domestic laws in order to maintain consumer and environmental protection and avoid infringement of human and labor rights. Sometimes these regulations even exceed European Union standards. Croatia implements all EU legislation which requires a due diligence approach to responsible business conduct. Labor unions are considered watchdogs for responsible business conduct and draw attention to issues that they find to be impeding on labor, environmental, or consumer rights in the business sector. In terms of security, the government employs private security companies for security of buildings, however security for defense purposes is handled by official Croatian state authorities, such as the army or police forces.
Croatia became a signatory of the Montreaux Document on Private Military and Security Companies in May 2013. Croatia is not currently a supporter of the International Code of Conduct for Private Security Service Providers, nor a member of the International Code of Conduct for Private Security Service Providers Association.
Although Croatia is not a member, Croatia supports the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and considers minerals from conflict affected areas to be illegal. Croatia does not participate in the Extractive Industry Transparency Initiative. Various laws related to forest and water management, concessions, and environmental protection are implemented in extractive and mining businesses to maintain high environmental and human rights standards. All procedures for mining or extraction tenders are publicly available and transparent.
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
- North Korea Sanctions & Enforcement Actions Advisory
Department of Labor
Croatia has a suitable legal framework, including regulations and penalties, to combat corruption. The Criminal Code and the Criminal Procedure Act define the tools available to the investigative authorities to fight corruption. The criminal code also provides for asset seizure and forfeiture. In terms of a corruption case, it is assumed that all of a defendant’s property was acquired through criminal offences unless the defendant can prove the legal origin of the assets in question. Financial gain in such cases is also confiscated if it is in possession of a third party (e.g., spouse, relatives, or family members) and was not acquired in good faith. Croatian laws and provisions regarding corruption apply equally to domestic and foreign investors, to public officials, their family members, and political parties. The Croatian Criminal Code covers such acts as trading in influence, abuse of official functions, bribery in the private sector, embezzlement of private property, money laundering, concealment, and obstruction of justice. The Act on the Office for the Suppression of Corruption and Organized crime provides broad authority to prosecute tax fraud linked to organized crime and corruption cases.
The Law on Public Procurement is entirely harmonized with EU legislation and prescribes transparency and fairness for all public procurement activities. Government officials use public speeches to encourage ethical business. The Croatian Chamber of Economy created a Code of Business Ethics which it encourages all companies in Croatia to abide by, but it is not mandatory. The Code can be found at: .
Additional laws for the suppression of corruption include: the State Attorney’s Office Act; the Public Procurement Act; the Act on Procedure for Forfeiture of Assets Attained Through Criminal Acts and Misdemeanors; the Budget Act; the Conflict of Interest Prevention Act; the Corporate Criminal Liability Act; the Money Laundering Prevention Act; the Witness Protection Act; the Personal Data Protection Act; the Right to Access Information Act; the Act on Public Services; the Code of Conduct for Public Officials; and the Code of Conduct for Judges. Whistleblowers are protected by the Law on Whistleblower Protections, as well as by provisions in the Labor Law and Law on Civil Servants.
Croatia has requested to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Croatia is a member and currently chairs the Group of States Against Corruption (GRECO), a peer monitoring organization that allows members to assess anticorruption efforts on a continuing basis. Croatia has been a member of INTERPOL since 1992. Croatia cooperates regionally through the Southeast European Co-operative Initiative (SECI), the Southeast Europe Police Chiefs Association (SEPCA), and the Regional Anti-Corruption Initiative (RAI). Croatia is a member of Eurojust, the EU’s Judicial Cooperation Unit, and is a signatory to the UN Convention Against Corruption.
Croatian legislation provides protection for NGOs involved in investigating or drawing attention to corruption. GONG, a non-partisan citizens’ organization founded in 1997, which also acts as a government watchdog, monitors election processes, educates citizens about their rights and duties, encourages communication between citizens and their elected representatives, promotes transparency within public services, manages public advocacy campaigns, and assists citizens in self-organizing initiatives. The Partnership for Social Development is another nongovernmental organization active in Croatia dealing with the suppression of corruption.
The business community continues to identify corruption in the healthcare and construction sectors, as well as the public procurement process as obstacles to FDI. During the years ahead of EU accession, Croatia invested considerable efforts in establishing a wide-ranging legal and institutional anti-corruption framework. The government is currently implementing the Strategy for Combatting Corruption from 2015-2020. The Ministry of Justice and Public Administration will submit for Parliamentary approval by mid-2021 a new Strategy for Combating Corruption that will cover a ten-year period. Croatian prosecutors have secured corruption convictions against a number of high-level former government officials, former ministers, other high-ranking officials, and senior managers from state-owned enterprises, although many such convictions have later been overturned.
Resources to Report Corruption
The State Prosecutor’s Office for the Suppression of Corruption and Organized Crime (USKOK) is tasked with directing police investigations and prosecuting cases. USKOK is headquartered in Zagreb, with offices in Split, Rijeka, and Osijek. In addition, the National Police Office for the Suppression of Corruption and Organized Crime (PN-USKOK) conducts corruption-related investigations and is based in the same cities. Specialized criminal judges are situated in the four largest county courts in Zagreb, Rijeka, Split, and Osijek, and are responsible for adjudicating corruption and organized crime cases. The cases receive high priority in the justice system, but still encounter excessive delays. The Ministry of Interior, the Office for Suppression of Money Laundering, the Tax Administration, and the Anti-Corruption Sector of the Ministry of Justice and Public Administration, all have a proactive role in combating and preventing corruption.
Contact information below:
Office of the State Attorney of the Republic of Croatia
Gajeva 30, 10000 Zagreb, Republic of Croatia
+385 1 4591 855
Office for the Suppression of Corruption and Organized Crime
Vlaska 116, 10000 Zagreb, Republic of Croatia
+385 1 2375 654
Trg Bana Josipa Jelacica 15/IV, 10000 Zagreb, Republic of Croatia
+385 1 4825 444
10. Political and Security Environment
The risk of political violence in Croatia is low. Following the breakup of Yugoslavia and the subsequent wars in the region, Croatia has emerged as a stable, democratic country and is a member of NATO and the EU. Relations with neighboring countries are generally fair and improving, although some disagreements regarding border demarcation and residual war-related issues persist.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2020||$58,789||2019||$64,690||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2020||$120.6||2019||$184||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2020||$30.12||2018||$19||BEA data available at
|Total inbound stock of FDI as % host GDP||2020||67%||2020||55%||UNCTAD data available at
* GDP for 2019 and FDI at www.hnb.hr. Note: U.S. Bureau of Economic Analysis (BEA) does not have GDP or FDI data available for 2020 at time of publishing. 2018 is the last available date for Host Country FDI in the U.S.
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$39,375||100%||Total Outward||$$5,546||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
*FDI at www.hnb.hr
Table 4: Sources of Portfolio Investment
Data not available.