2018 Investment Climate Statements: Croatia

Policies Towards Foreign Direct Investment

Croatia is open to foreign investment and the Croatian government continues to prioritize attracting foreign investors. All investors, both foreign and domestic, are guaranteed equal treatment by law. There are no laws or practices that discriminate against U.S. investors; however, bureaucratic and political barriers remain. Investors agree that an unpredictable regulatory framework, lack of transparency, duration of administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate. The Agency for Investment and Competitiveness, a Croatian government entity, provides investors with various services intended to help with implementation of investment projects. For more information, go to: http://www.aik-invest.hr/en/ . The Strategic Investment Act helps investors streamline large projects by gathering all necessary information the investor needs to implement the project and then fast-tracking the necessary procedures for implementation of the project, including acquiring permits and help with location. 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 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. The Croatian government restricts foreign ownership or control of services for inland waterways transport, maritime transport, rail transport, air ground-handling, freight-forwarding, publishing, education, and ski instruction. Otherwise, there is no sector-specific legislation that discriminates against market access, apart from professional (architect, auditor, engineer, lawyer, and veterinarian) requirements. Over 90 percent of the banking sector is foreign-owned and there are no investment screening mechanisms for inbound foreign investment. Article 49 of the Constitution states all entrepreneurs have equal legal status.

Other Investment Policy Reviews

The World Bank Group published a “Doing Business” Economic Profile of Croatia in 2017. Please find the report at http://www.doingbusiness.org/data/exploreeconomies/croatia .

Business Facilitation

The government’s e-government initiative “Hitro.hr” (www.hitro.hr ) provides 24-hour on-line business registration, although registering on weekends and holidays can delay registration for several days. Hitro.hr offices are located in more than 60 Croatian cities and towns. In order to begin business activities, a company needs to register with the Commercial Court, Notary Public, Tax Administration, Health and Pension agencies, and the State Statistics Bureau to obtain a company identification number. It can take from one to three days to register a business, depending on the efficiency of the local Commercial court, which processes the registration.

The Global Enterprise Agency Rated Croatia’s Business Registration Process 4 out of 10, while the World Bank Ease of Doing Business report has Croatia as 87^th out of 190 countries in the category of registering a business, an improvement of eight spots from 2017.

The business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.

Outward Investment

There is not a government-based mechanism for incentivizing outward investment. There are no restrictions on domestic investors who wish to invest abroad.

Croatia has signed investment protection treaties or agreements with the following countries:

Albania, Argentina, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria,Cambodia, Canada, Chile, China, Cuba, Czech Republic, Denmark, Egypt, Finland, France, Greece, Germany, Hungary, India, Indonesia, Iran, Israel, Italy, Jordan, Kuwait, Latvia, Libya, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Moldova, Mongolia, Morocco, Netherlands, Oman, Poland, Portugal, Qatar, Romania, Russia, San Marino, Serbia, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, United States, Zimbabwe.

All forms of investment by American citizens are covered by the U.S.-Croatian Bilateral Investment Treaty (BIT), which entered into force in June 2001. The treaty fulfills the principal U.S. objectives for agreements of this type. For further information about BITs and for the text of the U.S.-Croatian BIT please see www.state.gov/e/eb/ifd/bit/117402.htm (under “Croatia”).

Bilateral Taxation Treaties

Croatia and the United States do not have a bilateral tax treaty. Completing a bilateral tax treaty with the United States is one of the most discussed topics in Croatian government and business. As a member of the European Union, Croatia implements avoidance of double taxation with the other 27 member states and has dual taxation agreements with the following countries:

Albania, Armenia, Azerbaijan, Belorussia, Bosnia and Herzegovina, Canada, Chile, China, Georgia, India, Indonesia, Iran, Iceland, Israel, Jordan, Kosovo, Kuwait, Macedonia, Malaysia, Montenegro, Morocco, Mauritius, Moldova, Oman, Qatar, Russia, San Marino, South Africa, South Korea, Syria, Serbia, Switzerland, Turkmenistan, Turkey and Ukraine.

Recent changes to the tax regime reduced income and corporate taxes. The government has committed to simplifying the tax system in order to facilitate better business and more investment. In July 2015, the government introduced the binding tax opinion procedure, which serves to eliminate last-minute changes to tax legislation that could affect investment costs. For detailed information, see: http://www.porezna-uprava.hr/bi/Stranice/Obvezuju%C4%87a-mi%C5%A1ljenja.aspx . There are a number of so-called non-tax “para-fiscal” fees or levies, including, for example, taxes for use of radio frequencies, monument upkeep, use of water, and use of forests, among many other fees that are paid to relevant ministries and place an extra burden on business. The business community is currently working with Ministry of Economy of Entrepreneurship as they identify which fees should be removed. On March 8, the Croatian Government announced the Action Plan for Removing Administrative Fees and pledged to relieve a total of approximately USD 100 million worth of fees in 2018.

Transparency of the Regulatory System

All investors, foreign or domestic, are guaranteed equal treatment under all forms of market-related legislation. Croatian legislation, which is harmonized with European Union legislation (acquis communautaire), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulation can be complex and time-consuming, although the government is working to remove unnecessary regulations.

The Croatian Parliament adopts all national legislation, which is implemented at every level of government throughout the country, although local regulations vary from county to county. Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation. Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval. The approved act becomes official on the date defined by Parliament. Citizens maintain the right to initiate a law through their district Member of Parliament. New legislation and changes to existing legislation which have a significant impact on citizens are made available for public debate. The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure. There are no informal regulatory processes, and investors should rely solely on government issued legislation to conduct business.

Croatia uses international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses.

Croatian courts are responsible for ensuring that laws are enforced correctly. If an investor believes that the law or an administrative procedure is not implemented correctly, the investor may initiate a case against the government at the appropriate court. Judicial remedies are often ineffective because of timing and political influence. All legislation is published both on-line and in in the National Gazette, available at: www.nn.hr .

The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforcement order. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. The Enforcement Act was amended in August 2017 and has incorporated European Union Parliament and Council provisions for making cross-border financial claims easily enforced in both business and private instances. More information can be found at www.fina.hr . Various types of regulation exist, which prescribe complicated or time-consuming procedures for businesses to implement.

Croatia has been a member of UN Conference on Trade and Development since 1992.

International Regulatory Considerations

Croatia, as an EU member, adopts all EU legislation. Domestic legislation is applied nationally and there is no locally based legislation that overrides national legislation. Local governments oversee zoning for construction and can therefore delay investment projects. International accounting, arbitration, financial and labor norms are incorporated into Croatia’s regulatory system.

Croatia has been a member of the World Trade Organization (WTO) since 2000 and maintains obligations to the WTO. There are no cases of dispute involving Croatia as complainant, respondent or third party.

Legal System and Judicial Independence

The legal system in Croatia is civil and provides for ownership of property and enforcement of legal contracts.

The Commercial Company Act defines the forms of legal organization for domestic and foreign investors. It covers general commercial partnerships, limited partnerships, joint stock companies, limited liability companies and economic interest groupings. The Obligatory Relations Act serves to enforce commercial contracts and includes the provision of goods and services in commercial agency contracts.

The Croatian constitution provides for an independent judiciary. The judicial system consists of courts of general and specialized jurisdictions. Core structures are the Supreme Court, County Courts, Municipal Courts, and Magistrate/Petty Crimes Courts. Specialized courts include the Administrative Court and High and Lower Commercial Courts. A Constitutional Court determines the constitutionality of laws and government actions and protects and enforces constitutional rights. Municipal courts are courts of first instance for civil and juvenile/criminal cases. The High Commercial Court is located in Zagreb and has appellate review of lower commercial court decisions. The Administrative Court has jurisdiction over the decisions of administrative bodies of all levels of government. The Supreme Court is the highest court in the country and, as such, enjoys jurisdiction over all civil and criminal cases. It hears appeals from the County, High Commercial, and Administrative Courts. The government continues efforts to reform the judiciary, including reducing the backlog of cases, reforming the land registry, training court officers and reducing the backlog and length of bankruptcy procedures. Although reforms are underway, investors often face problems with lengthy court procedures, legal certainty, contract enforcement, and judicial efficiency.

Regulations and enforcement actions are appealable and adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

There are no specific laws aimed at foreign investment. Both foreign and domestic market participants in Croatia are protected under the same legislation. The Company Act defines the forms of legal organization for domestic and foreign investors. The following entity types are permitted for foreigners: general partnerships; limited partnerships; branch offices; limited liability companies; and joint stock companies. The Obligatory Relations Act regulates commercial contracts.

The Agency for Investments and Competitiveness (www.aik-invest.hr/en ) facilitates both foreign and domestic investment and is available to all interested investors for assistance. Their website offers relevant information on business and investment legislation and includes an investment guide.

Competition and Anti-Trust Laws

The Competition Act defines the rules and methods for promoting and protecting competition. In theory, competitive equality is the standard applied with respect to market access, credit and other business operations, such as licenses and supplies. In practice, however, state-owned enterprises and “strategic” firms may still receive preferential treatment. The Croatian Competition Agency is the country’s competition watchdog, determining whether anti-competitive practices exist and punishing infringements. It has determined in the past that some subsidies to state-owned firms constituted unlawful state aid. Information on authorities of the Agency and past rulings can be found at www.aztn.hr . The website includes a “call to the public” inviting citizens to provide information on competition-related concerns.

Expropriation and Compensation

There have been no cases of expropriation of foreign investments by the government since Croatia’s independence in 1991. Article III of the U.S.-Croatia BIT covers both direct and indirect expropriations. The BIT bars all expropriations or nationalizations except those that are for a public purpose, carried out in a non-discriminatory manner, in accordance with due process of law, and subject to prompt, adequate and effective compensation.

Croatian Law on Expropriation and Compensation gives the government broad authority to expropriate real property under various economic and security-related circumstances, including eminent domain. The Law on Strategic Investments also provides for expropriation for projects that meet the criteria for “strategic” projects. However, it includes provisions that guarantee adequate compensation, in either the form of monetary compensation or real estate of equal value to the expropriated property, in the same town or city. The law includes an appeals mechanism to challenge expropriation decisions by means of a complaint to the Ministry of Justice within 15 days of the expropriation order. The law does not describe the Ministry’s adjudication process, and the fact that the Ministry of Justice represents the government, which initiates expropriations, could be an area of potential concern. Parties not pleased with the outcome of the Ministry decision can take administrative action against the decision, but no appeal to the decision is allowed.

Dispute Settlement

ICSID Convention and New York Convention

There is no specific legislation that refers to the ICSID, however Article 19 of the Act on Enforcement, states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law,” and would be applied after an ICSID ruling.

Investor-State Dispute Settlement

Croatia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration: the 1923 Geneva Protocol on Arbitration Clauses; the 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions; the 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions; and the 1961 European Convention on International Business Arbitration. In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID). The Croatian Law on Arbitration is implemented for both national and international proceedings in Croatia. Parties to arbitration cases are free to appoint arbitrators of any nationality or professional qualifications and Article 12 of the Law on Arbitration requires impartiality and independence of arbitrators. Croatia recognizes binding international arbitration, which may be defined in investment agreements as a means of dispute resolution. For example, the Croatian government has two open arbitration cases with a private investor MOL in the national oil company INA. Article X of the U.S.-Croatia BIT sets forth several mechanisms for the resolution of investment disputes, defined as any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the BIT with respect to a covered investment. There is not a history of extra-judicial action against foreign investors. There are currently three cases regarding U.S. investor claims before Croatian courts. The cases are in regard to privatization and the real estate sectors, and have all been pending for years.

International Commercial Arbitration and Foreign Courts

Alternative dispute resolution is implemented at the High Commercial Court, at the Zagreb Commercial Court and and at the six municipal courts around the country. In order to reduce the backlog, non-disputed cases are passed to public notaries.

Although underutilized, both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965. Arbitration is voluntary and conforms to UNCITRAL model procedures. . The Chamber of Economy’s Mediation Center has been operating since 2002 – see http://www.hok-cba.hr/hr/center-za-mirenje-hoka . The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, jurisdictional matters. Once an arbitration decision has been reached, the judgment is executed by court order. If no payment is made by the established deadline, the party benefiting from the decision notifies the Commercial Court, which becomes responsible for enforcing compliance. Arbitration rulings have the force of a final judgment, but can be appealed within three months.

In regard to implementation of foreign arbitral awards, Article 19 of the Act on Enforcement states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law.” The Act on Enforcement serves to decrease the burden on the courts by passing responsibility for the collection of financial claims and seizures to the Financial Agency (FINA), which is responsible for paying claimants once the court has rendered a decision ordering enforcement. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. More information can be found at www.fina.hr . The Ministry of Justice continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of cases.

The World Bank Ease of Doing Business 2016 report commended Croatia for making enforcing contracts easier by introducing an electronic system to handle public sales of movable assets and by streamlining the enforcement process as a whole.

There are no major investment disputes currently underway involving state-owned enterprises, other than the dispute between the Croatian government and Hungarian oil company MOL over implementation of the purchase agreement of Croatian oil and gas company INA. There is no evidence that domestic courts rule in favor of state-owned enterprises.

Bankruptcy Regulations

Croatia’s Bankruptcy Act is internationally harmonized and corresponds to the EU regulation on insolvency proceedings and United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency. All stakeholders in the bankruptcy proceeding, foreign and domestic are treated equally in terms of the Bankruptcy Act. The World Bank Ease of Doing Business 2018 rating for Croatia in the category of resolving insolvency was 60, down four spots from the 2017 ranking of 54. Bankruptcy is not considered a criminal act.

The Financial Operations and Pre-Bankruptcy Settlement Act helps expedite proceedings and establish timeframes for the initiation of bankruptcy proceedings. One of the most important provisions of pre-bankruptcy is that it allows a firm that has been unable to pay all its bills to remain open during the proceedings, thereby allowing it to continue operations and generate cash under financial supervision in hopes that it can recover financial health and avoid closure. In April 2017, the Croatian government passed the “Law on Extraordinary Appointment of Management Boards for Companies of Systematic Importance to the Republic of Croatia,” when it became clear that Croatia’s largest corporation, Agrokor, was in crisis and would likely go bankrupt. The Law allows the Government to install an Emergency Commissioner, who leads the process of maintaining and restructuring a company that satisfies the criteria for application of the law.

The Commercial Court of the county in which a bankrupt company is headquartered has exclusive jurisdiction over bankruptcy matters. A bankruptcy tribunal decides on initiating formal bankruptcy proceedings, appoints a trustee, reviews creditor complaints, approves the settlement for creditors, and decides on the closing of proceedings. A bankruptcy judge supervises the trustee (who represents the debtor) and the operations of the creditors’ committee, which is convened to protect the interests of all creditors, oversee the trustee’s work and report back to creditors. The Act establishes the priority of creditor claims, assigning higher priority to those related to taxes and revenues of state, local and administration budgets. It also allows for a debtor or the trustee to petition to reorganize the firm, an alternative aimed at maximizing asset recovery and providing fair and equitable distribution among all creditors.

Investment Incentives

The Investment Promotion Act (IPA), amended in 2018, offers incentives to investment projects in manufacturing and processing activities, development and innovation activities, business support activities and high added value services. The incentives are either tax refunds or cash grants. After they are approved for implementation, they are not distributed immediately. Those who receive cash grants are required to provide documentation proving they have fulfilled the criteria per which the request was granted for every year they have received approval for the incentive. Tax refunds are provided to companies on an annual basis based on information provided in tax returns. Incentive measures can be combined or used individually.

The IPA provides the following incentive measures: tax refunds for microenterprises; tax advantages for small, medium and large enterprises; cash grants for eligible costs of new jobs linked to the investment project; cash grants for eligible training costs linked to the investment project; additional aid for development and innovation activities, business development support and high value-added services; tax breaks for capital costs of investment projects; cash grants for labor intensive investment projects; and investment incentives for economic revitalization projects, involving previously state-owned property.

All incentive measures can be used by entrepreneurs – defined as individuals subject to Croatian income tax or companies registered in Croatia investing the minimum amount of USD 61,629 in fixed assets, and creating at least 3 new jobs for microenterprises (companies with up to 10 employees, or for so-called “Information Technology Development Centers”), at least 5 new jobs for small, medium enterprises, or, a minimum of 10 new jobs and USD 184,888 for large companies.

Substantial tax cuts on profits are available depending on the size of the investment and the number of new jobs created. A 50 percent reduction applies for up to ten years for companies that invest up to USD 1.2 million (USD 61,000 for microenterprises) and create at least five new jobs. This reduction increases to 75 percent for companies investing USD 1.22 -USD 3.7 million and creating at least 10 new jobs, and up to 100 percent for companies that invest over USD 3.7 million and create at least 15 new jobs.

Cash grants for new jobs created can be up to USD 10,000 per new position, depending on the investment. Financial support, of 10 percent of expenses, which is not subject to reimbursement, or up to USD 3,700 per new position can be used to create jobs in counties with unemployment levels up to 10 percent. This support increases to 20 percent or up to USD 7,400 per position in counties with unemployment levels from 10 to 20 percent, and up to 30 percent or USD 11,000 per new position in counties with unemployment levels above 20 percent.

There are also programs to reimburse costs for employee education and training connected to an investment project, which can be used to cover up to 50 percent of the of education and training costs for large companies, up to 60 percent for medium sized companies or if training is given to workers with disabilities, or up to 70 percent for small businesses and microenterprises.

Additional incentives for job creation are available for research and development activities to create new products; significantly improve existing products; improve production series, manufacturing processes, and/or production technologies; for business support activities such as customer support, outsourced business activities centers, or logistics and distribution centers, as well as programming and ICT centers; for high value added activities such as hospitality and tourism accommodation facilities categorized as four or five stars, heritage hotels and other types of accommodation created through renovation of cultural and historical structures, supporting services of the aforementioned types of accommodations; for health tourism, conference and event tourism, nautical tourism, golf tourism, cultural tourism, entertainment and/or recreation centers and parks, ecological tourism projects and other innovative, high value added projects in tourism; as well as for creative services and industrial engineering services.

Cash grants for capital costs of investment projects are approved for investments over USD 6.1 million which generate 50 new positions within 3 years of the start of the investment. They cover 10 percent of the cost of new factory construction, production facility construction, or the purchase of new equipment (up to USD 600,000) in counties where the unemployment rate is from 10-20 percent. This incentive increases to 20 percent of the investment cost (up to USD 1.2 million) in counties where the unemployment rate is above 20 percent, with the condition that at least 40 percent of the investment is machines or equipment and that at least 50 percent of those machines or equipment are of high technology.

Additional incentives are offered for labor-intensive investment projects within the first three years of the project start date. Cash grants for job creation are increased an additional 25 percent for projects creating 100 or more positions. The incentive increases to 50 percent for creating 300 or more jobs and up to 100 percent of cost (or up to the maximum allowed limit) for creating 500 or more jobs.

There are also grants for buying equipment or machinery for R&D activities up to 20 percent of the cost of the equipment, but no more than USD 616,295.

There are also incentives for investment projects involving revitalization of inactive state-owned property which provides free land leases for investors investing USD 3.7 million and creating 15 new jobs.

Additional information regarding the types of incentives offered by the Ministry of Economy, Entrepreneurship and Crafts can be found and calculated on the web pages of the Agency for Investments and Competitiveness at http://www.aik-invest.hr/en/investment-guide/incentives-calculator/ .

The Act on Strategic Investment Projects of the Republic of Croatia went into effect in November 2013 and was amended in 2018, making implementation of the law more accessible to investors. This Act facilitates and accelerates administrative procedures for projects deemed to be of strategic interest for Croatia based on 12 conditions listed in the Act. Strategic projects can include private, public-private or public investments in economy, mining, energy, tourism, transport, infrastructure, electronic communication, postal services, environmental protection, public utilities, agriculture, forestry, water management, fishery, health care, culture, science, defense, judiciary, technology and education. A project may be considered strategic if it contributes to the employment of a large number of people, improves manufacturing or service standards, implements or develops new technologies, offers sustainable growth, or helps advance the competitiveness of the economy.

The minimum amount for an investment to be considered strategic is approximately USD 12.4 million, which is significantly less than previous criteria of USD 21.5 million. All investments over this amount may be considered as strategic, and will be entitled to accelerated permitting and registration procedures. Investments may also be treated as strategic if they are valued at USD 1.6 million or more, and are implemented in assisted areas, or if they are implemented on the islands or are in the agriculture, fisheries, and forestry sector. A guide and application materials for private investors interested in applying for status under the Act on Strategic Investment Projects of the Republic of Croatia can be found at: http://www.aik-invest.hr/en/strategic-investment-projects/ .

The Construction Act allows investors to secure permits through an e-licensing system, which is a novelty in an otherwise cumbersome permit acquisition procedure. The investor may obtain a license valid for three years, which allows for a three percent change in the dimensions of the project from start to finish. The e-licensing system can be accessed at https://dozvola.mgipu.hr/ . Interested investors looking for available land for a greenfield investment may find a useful database operated by the Agency for Investments and Competitiveness at http://www.aik-invest.hr/en/zone/ .

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently 11 Free Trade Zones operating in Croatia. Contact information for each of the Free Trade Zones can be found at the following website http://www.croatianfreezones.org/ . Both domestic and foreign investors are afforded equal treatment in the trade zones. After Croatia entered the European Union in 2013, many of the Free Trade Zones that operated throughout Croatia were slowly substituted by Industrial/Business zones. Investment incentives are available in these zones. For more information regarding these zones go to http://www.aik-invest.hr/en/zone/ .

Performance and Data Localization Requirements

Croatian law does not impose performance requirements on or mandate employment requirements for foreign or domestic investors, nor are senior management or board of directors positions mandated in private companies. In regard to U.S. investors, Article VII of the U.S.-Croatia BIT prohibits mandating or enforcing specified performance requirements as a condition for a covered investment. The list of prohibited requirements is exhaustive and covers domestic content requirements and domestic purchase preferences, the “balancing” of imports or sales in relation to exports or foreign exchange earnings, requirements to export products or services, technology transfer requirements and requirements relating to the conduct of research and development in the host country. Article VII of the BIT makes clear, however, that a party may impose conditions for the receipt or continued receipt of benefits and incentives.

Although procedures for obtaining business visas are generally clear, they can be cumbersome and time-consuming. Foreign investors should familiarize themselves with the provisions of the Act on Foreigners. Questions relating to visas and work permits should be directed to the Croatian embassy or a Croatian consulate in the United States. The U.S. Embassy in Zagreb maintains a website with information on this subject at https://hr.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/entry-residence-requirements/.

There are no government imposed conditions that permiss investment, nor are there “forced localization” policies for investors in terms of goods and technology. There are no performance requirements, and therefore there are no enforcement procedures for performance requirements. Foreign IT providers are not required to turn over source code or give access to surveillance. There are no measures that prevent companies from freely transmitting customer or other business related data outside the country’s territory. There are no requirements for investors to maintain or store data within the territory of Croatia.

Real Property

The right to ownership of private property is established in the Croatian Constitution and in numerous acts and regulations. A foreign physical or legal person incorporated under Croatian law is considered to be a Croatian legal person and has the right to purchase property. The Ownership and Property Rights Act establishes procedures for foreigners to acquire property by inheritance as well as legal transactions such as purchases, deeds, and trusts. Croatia has a normally functioning banking system, which provides mortgages, while courts and cadaster offices handle property records. There is a fee in Croatia for transferring title and officially registering a new owner. While the cadaster offices reliably maintain records, there is a significant volume of property in Croatia which has changed hands without appropriate documentation of the transfer because the owners want to avoid paying fees for the title.

In order to acquire property by means other than inheritance or as an incorporated Croatian legal entity, foreign citizens must receive the approval of the Ministry of Justice. Approval can be delayed, owing to a lengthy interagency clearance process. While citizens of EU member states are afforded the same rights as Croatian citizens in terms of purchasing property, the right of all other foreigners to acquire property in Croatia is based on reciprocity. Reciprocity exists on a state-by-state basis with the United States. Croatia’s Ministry of Foreign and European Affairs confirmed the existence of reciprocity for real estate purchases for residents of the following states: Alabama, Arizona, Alaska, California, Colorado, Connecticut, Delware, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas Louisiana, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming; while for Arkansas, Hawaii, Kentucky, Minnesota, Mississippi, New Hampshire, Oklahoma and Vermont, there must be a condition of permanent residence. Residents of other states could face longer waiting periods. The Foreign Ministry confirms that Croatian nationals can purchase real estate throughout the United States without restrictions. A foreign investor, incorporated as a Croatian legal entity, may acquire and own property without ministry approval, with the caveat that the purchase by any private party of certain types of land (principally land directly adjacent to the sea or in certain geographically designated areas) can be restricted.

When purchasing land for construction purposes, potential buyers should determine whether the property is classified as agricultural or construction land. The Agricultural Land Act allows for additional fees for re-zoning of up to 50 percent of the value of the land to be diverted from agriculture for construction purposes; as such, this law should be considered when purchasing land. The Agricultural Land Agency works with local governments to review potential agricultural land purchases. However, the Agricultural Land Act no longer covers the sale of privately owned farmland, which is now treated solely as the subject of a sales agreement between the parties. Buyers of this type of land should be aware of potentially unresolved legacy issues with land ownership. Land in Croatia is either publicly or privately owned and cannot be transferred to squatters solely based on physical presence.

Clarifying Croatia’s land registry system is an ongoing process. Although Croatia continues to process a backlog of cases, potential investors should seek a full explanation of land ownership rights before purchasing property. Note that Croatia’s land records are available online (see www.pravosudje.hr  and www.katastar.hr ). Katastar.hr includes information on over 14 million pieces of land throughout the country. There can be ambiguous and conflicting claims to property, making it necessary to verify that the seller possesses clear title to both the land and buildings (which can be titled and owned separately). Inheritance laws have led to situations in which some properties can have claims by dozens of legal owners, some of whom are deceased and others of whom emigrated and cannot be found. The World Bank Ease of Doing Business 2018 report ranks Croatia as 59th out of 190 countries on ease of registering property. There is no property tax in Croatia, a proposal to introduce property tax failed in 2017.

It is also important to verify the existence of necessary building permits, as some newer structures in coastal areas have been subject to destruction at the owner’s expense and without compensation for not conforming to local zoning regulations. Investors should be particularly wary of promises that structures built without permits will be regularized retroactively. The Act on Legalization of Buildings and Illegal Construction came into effect in August 2012 and should help to resolve ambiguities regarding ownership of real estate.

Land ownership is distinct from ownership of buildings or facilities on the land. Investors interested in acquiring companies from the Ministry of State Owned Property should seek legal advice to determine whether any deal also includes the right to ownership of the land on which a business is located, or merely the right to lease the land through a concession. Property may be mortgaged for lending purposes. Inconsistent regulations and restrictions on coastal property ownership and construction have also provided challenges for foreign investors in the past. Legislation restricts coastal construction and commercial use within 70 meters of the coastline.

For all of these reasons, it is highly advisable to seek competent, independent legal advice in this area. The U.S. Embassy maintains a list of English-speaking attorneys (https://hr.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/). The Croatian Agency for Investments and Competitiveness is also a helpful service for those seeking information about property status in Croatia.

Intellectual Property Rights

Croatian intellectual property rights (IPR) legislation includes the Patent Act, Trademark Act, Industrial Design Act, Act on the Geographical Indications of Products and Services, Act on the Protection of Layout Design of Integrated Circuits, and the Act on Copyrights and Related Rights. These acts define the process for protecting and enforcing intellectual property rights. Texts of these laws are available on the website of the State Intellectual Property Office (https://www.dziv.hr/en/ip-legislation/national-legislation/ ).

Legislation pertaining to Intellectual Property Rights can be found at http://www.dziv.hr/en/ip-legislation/national-legislation/ . No new legislation regarding intellectual property was enacted in 2017, however the Copyright Act and Copyright Regulation were amended, as were the Patent, Regulation, Trademark Regulation, Industrial Design Regulation and Geographical Indicators Regulation.

Croatian law enforcement officials keep public records of seized counterfeit goods. According to the latest available report from the Customs Office, in 2017, 249,913 counterfeit goods were seized, with 3 criminal proceedings initiated and 246 misdemeanors issued in relation to the seizures. Croatian customs officials and Ministry of Interior work together to locate and seize such goods.

Although some areas of IPR protection remain problematic, Croatia is currently not on the U.S. Special 301 Watch List nor is it listed in the notorious market report. Problem areas continue to be concentrated in piracy of digital media and counterfeiting. Due to its geographical position, Croatia is also one of the transit routes for various contraband products bound for other countries in the region. There have been no problems reported with regard to registration of intellectual property in Croatia by American companies. However, the American Chamber of Commerce in Croatia delivered to the Croatian government in May 2016 Recommendations for Improving the Enforcement of Intellectual Property Protection in Croatia based on discussions with their members in regard to treatment of intellectual property and can be found at http://www.amcham.hr/position-papers-d207  (please scroll down to the 13th line). The American Chamber of Commerce continues dialogue with the Croatian government in regard to intellectual property rights issues.

As a WTO member, Croatia is a party to the Uruguay Round Agreement on Trade-Related Intellectual Property Rights (TRIPS). Croatia is also a member of the World Intellectual Property Organization (WIPO). For a list of international conventions to which Croatia is a signatory, consult the State Intellectual Property Office’s website at www.dziv.hr .

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

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 the Republic of 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 (www.hnb.hr ).

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: http://zse.hr/default.aspx?id=97 . 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 April 2018 to give HANFA more authority in terms of investigating and sanctioning false annual business reporting. All legislation associated with the Capital Market act can be found (in English) at: http://www.hanfa.hr/regulations/capital-market/ . 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 now overwhelmingly privatized, consolidated, highly developed, competitive, and increasing the diversity of products available to businesses (foreign and domestic) and consumers. French, German, Italian or 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 last global banking crisis. More than 90 percent of total banking sector assets are foreign-owned. As of December 31, 2017 there were 25 commercial banks and five savings banks, with assets totaling USD USD 61.2 billion. The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 15.6 billion, for a market share of 25.6 percent of total banking assets in Croatia. Second-largest is Italian-owned Privredna Banka Zagreb, with USD 11.6 billion, or 19.01 percent of total banking assets. The third largest is Austrian Erste Bank, with assets of USD 8.7 billion, with a 14.33 percent market share in Croatia. The country has a central bank system and all information regarding the Croatian National Bank can be found at http://www.hnb.hr/ .

Non-residents are able to open bank accounts with no restrictions or delays. The Croatian government has not introduced nor announced intention of introducing 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 (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).

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. The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy. The exchange rate of the Croatian kuna, while floating freely, is more tightly linked to the euro than the U.S. dollar. The risk of currency devaluation or significant depreciation is low.

Remittance Policies

There are not limitations, either temporal or by volume, on remittances. The government does not engage in currency manipulation. The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.

Sovereign Wealth Funds

The Republic of Croatia does not own any sovereign wealth funds.

Privatization Program

Croatia continues to slowly pursue privatizations through the Ministry of State Owned Assets. There are no restrictions against foreigners participating in privatization programs. The banking sector, telecommunications, and Croatia’s largest pharmaceutical company were purchased by foreign investors upon privatization. The bidding process is public 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 does view privatization as a means to reduce the budget deficit and increase output, and is working to speed up privatization processes. An amended Law on the Management of State Assets was passed in January 2018, which should make it easier for local governments to put state owned property into use for the purpose of new investments.

All tenders are published internationally and there are no restrictions on foreign investor participation in privatization. The bidding process is public. Tenders are in Croatian and can be found at https://imovina.gov.hr/vijesti/8 .

There is a general awareness of expectations or standards for responsible business conduct which is regulated by law. The Croatian Financial Services Supervisory Agency 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 was drafted in 2007 by ZSE in cooperation with the Croatian Financial Services Supervisory Agency (HANFA) for companies listed on the ZSE; the code was later updated in 2011. Its introduction led to significant progress on transparency of business operations, avoidance of conflicts of interest, efficient internal control and effective division of responsibilities. The European Bank for Reconstruction and Development is currently partnering with the Croatian Financial Services Supervisory Agency and the ZSE to update and strengthen corporate governance legislation.

No high profile or controversial instances of private sector human rights violations have occurred in Croatia. The government effectively implements domestic laws in order to maintain consumer and environmental protection and avoid infringement of human rights and labor rights. However, such protections are sometimes in excess of European Union standards. There is no legislation that requires private companies to implement a code of ethics; however, Croatia implements all European Union legislation which requires responsible business conduct provisions throughout. Unions are considered watchdogs for responsible business conduct and draw attention to issues that they find to be impeding on human rights in the business sector.

Although Croatia is not a member, Croatia encourages 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. 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.

Croatia has adequate laws, 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. Pecuniary 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.

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. The Labor Act contains whistleblower protections, but their effectiveness has yet to be proven.

Croatia has signed but not ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, but it 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 NGO’s 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.

Historically, the business community has identified corruption in healthcare, public procurement, and construction, and continues to raise it as an obstacle 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 Strategy for Combatting Corruption from 2015-2020 is currently being implemented, and the Ministry of Justice published an action plan in June 2017 to complement the Strategy for 2017-2018. 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 companies, 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 Croatia, again 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 recently with 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, all have a proactive role in combating and preventing corruption. GONG is a civil society organization founded in 1997 to encourage citizens to actively participate in the political process.

Contact information below:

Office of the State Attorney of the Republic of Croatia
Gajeva 30, 10000 Zagreb, Republic of Croatia
+385 1 4591 855
tajnistvo.dorh@dorh.hr

Office for the Suppression of Corruption and Organized Crime
Gajeva 30a, 10000 Zagreb, Republic of Croatia
+385 1 4591 874
tajnistvo@uskok.dorh.hr

GONG
Trg Bana Josipa Jelacica 15/IV, 10000 Zagreb, Republic of Croatia
+385 1 4825 444
gong@gong.hr

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.

Croatia has an educated, highly skilled, and relatively high cost labor force compared to regional averages, but low for the EU. Employment is regulated by the constitution, international conventions, treaties, labor law, collective agreements and employment agreements. The Labor Law is the main piece of legislation that governs employment and prescribes general labor regulations. Among other items, the Labor Law prohibits discrimination, defines various types of leave including maternity, and provides terms for striking, salaries and other labor related issues. Foreign or migrant workers do not play a significant role in any field. The World Bank estimates the grey economy accounts for 35 percent of GDP. Unemployment rates are falling, but Croatia maintains the 5th highest unemployment rate in the EU. Official figures from January 2018, using International Labor Organization (ILO) methodology, showed an unemployment rate of 12.7 percent, while youth unemployment stands at 24.5 percent. However, the government is committed to increasing jobs, especially for youth, through various programs funded by the EU. Companies report that Croatia’s labor law makes it relatively expensive to hire and dismiss employees in comparison to the United States and other countries in Europe at the same level of development.

There are currently labor shortages reported in the construction and transportation sectors. Croatia continues to experience a brain drain, with an estimated 60,000 Croatians (mostly young and educated) leaving the country annually. The Croatian government has increased quotas for foreign workers due to a lack of workers in the construction industry.

Croatian law does not require the hiring of Croatian nationals. Employers are bound by law to offer severance pay to individuals laid off due to restructuring or down-sizing. The labor law defines the conditions and amounts of severance pay, to include three items necessary to qualify for severance: 1) the employer must terminate the employee, 2) the termination must not be the result of behavioral issues, and 3) the employee must have been employed for two consecutive years. The Croatian Employment Agency provides unemployment payments for those laid off due to economic reasons.

Labor laws are strictly implemented and not waived to retain or attract investment. Collective bargaining is a common tool, mostly implemented by unions, which overwhelmingly represent workers associated with government spending and state owned enterprises.

According to OPIC : “OPIC’s current active projects include USD 13 million in funding and insurance for construction and information services in Croatia.”

Croatia is a member country of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). For more information see www.miga.org .

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

*GDP at www.dzs.hr , FDI at www.hnb.hr  Q1-Q3 2017 Note: World Bank and U.S. Bureau of Economic Analysis do not have GDP or FDI data available for 2017 at time of publishing.
Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Data not available.

For more information on the investment climate in Croatia, you may contact:

Economic Section
U.S. Embassy Zagreb
Ulica Thomasa Jeffersona 2, 10010 Zagreb
Tel (+385 1) 661-2200
E-mail: InvestmentClimateCroatia@state.gov