Croatia became a member of the EU in 2013, which enhanced its economic stability and provided new opportunities for trade and investment. Croatia is accessing a substantial amount of available EU funds, but many direct benefits of EU entry are still to come. The Croatian government pledged to take legislative and administrative steps to reduce barriers to investment, streamline bureaucracy and public administration, and program EU funds more efficiently, but it has been slow to deliver promised reforms.
The government is willing to meet at senior levels with interested investors and to assist in resolving problems. Prime Minister Andrej Plenkovic 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 ease of doing business in Croatia 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, and banking.
Although the Croatian economy was stable ahead of the COVID-19 global epidemic, the government assessed in late April that GDP will drop by at least 9.4 percent in 2020. Tourism directly contributes 12 percent of Croatia’s GDP and up to 20 percent when indirect contributions of the sector are included; the tourism sector is expected to suffer tremendous losses due to the COVID-19 crisis. The COVID-19 impact is not entirely negative. The government sped up the digitalization of many public administration services and will likely expand this effort. The economy is burdened by a large government bureaucracy, underperforming state-owned enterprises, and low regulatory transparency, all of which contributes to poor performance and relatively low levels of foreign investment. Following a decade of growth from the end of the war in 1995, investment activity in Croatia slowed substantially in 2008 and remained under historic levels despite the economy’s emergence from the recession at the end of 2015, relatively robust growth in 2016, and continued moderate growth through 2019.
The banking system weathered the global financial crisis well but was saddled with financial costs related to the government-mandated conversion of Swiss Franc loans into euros in 2015.
In the last three years, the government implemented a number of financial incentives and measures designed to attract investment and support entrepreneurship. However, these incentives are not corrective for profound deficiencies in the investment climate which are predominantly linked to an inefficient, unpredictable judicial system that is slow to resolve legal disputes. Investors continue to face high “para-fiscal” fees, rigid labor laws, and slow and complex permitting procedures for most investments.
Before the COVID-19 crisis, the government maintained a budget deficit well within EU-recommended levels, but now expects a 6.8 percent budget deficit for 2020. In March 2020, the government announced the fourth economic reform package of PM Plenkovic’s tenure. This package is expected to create sustainable economic growth and development, to connect education to the labor market, and to sustain public finances. Significant structural reform is still needed. Although the government continues to make incremental improvements to the business environment, its primary focus remains on preventing job losses from state-owned enterprises and “strategic” sectors. In the last year, the government provided state guarantees for two major shipbuilding companies.
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, Entrepreneurship and Crafts Directorate for Investment, Industry and Innovation assists investors. For more information, see: http://investcroatia.gov.hr/. 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 national security-sensitive sectors: inland waterways transport, maritime transport, rail transport, air to ground handling, freight-forwarding, publishing, education, and ski instruction. Apart from these, the only blocks to market access involve professional licensing requirements (architect, auditor, engineer, lawyer, and veterinarian, etc), about which detailed information can be found at http://psc.hr/en/sectoral-requirements/. Over 90 percent of the banking sector is foreign-owned.
Other Investment Policy Reviews
The Organization for Economic Cooperation and Development (OECD) published an investment climate review for Croatia in June 2019:
The Croatian government offers two e-government options for on-line business registration, www.hitro.hr and start.gov.hr, 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 2019, the Global Enterprise Registration website (www.GER.co) rated Croatia’s business registration process 4 out of 10, while the 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. In 2019, the government adopted legislation relieving the service sector of various fees, licensing requirements, and prohibitions for companies in legal services, energy certification, architecture, accounting, tourism, pharmaceutics, and physical therapy. 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 23.1 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.
2. Bilateral Investment and Taxation Treaties
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, Malaysia, Malta, Moldova, Mongolia, Montenegro, Morocco, Netherlands, North Macedonia, Oman, Poland, Portugal, Qatar, Romania, Russia, San Marino, Serbia, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, United States, Zimbabwe.
Croatia and the United States do not share a bilateral tax treaty. As an EU member, Croatia avoids 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, Japan, Jordan, Kazakhstan, Kosovo, Kuwait, Malaysia, Montenegro, Morocco, Mauritius, Moldova, North Macedonia, Oman, Qatar, Russia, San Marino, South Africa, South Korea, Syria, Serbia, Switzerland, Turkmenistan, Turkey, Ukraine, the United Arab Emirates, and Vietnam. Croatia is actively pursuing a tax treaty with the United States.
Previous changes to the Croatian tax regime reduced income and corporate tax rates. The government has committed to simplifying the tax system to facilitate business operations and more investment. The government offers a binding tax opinion procedure to investors that guarantees a fixed tax rate for a certain period of time and thus eliminates the risk of unanticipated changes to tax law that can affect investment costs. For detailed information, see: https://www.porezna-uprava.hr/bi/Stranice/Obvezuju%C4%87a-mi%C5%A1ljenja.aspx.
Croatia has a number of so-called non-tax “para-fiscal” or administrative fees, including, for example, levies for use of radio frequencies, monument upkeep, use of water, and use of forests, paid to relevant ministries. In 2018, the Ministry of Economy identified 3,076 rules and obligations that a business faces. In 2019, the government announced the “Action Plan for Removing Administrative Fees” to relieve a total of approximately USD 100 million worth of fees during the year, although this process is incomplete. The business community continuously demands the removal of all para-fiscal fees across the board.
3. Legal Regime
Transparency of the Regulatory System
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. All legislation is published both on-line and in in the National Gazette, available at: www.nn.hr. There are no informal regulatory processes, and investors should rely solely on government-issued legislation to conduct business.
The Croatian Parliament promulgates national legislation, which is implemented at every level of government, 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 and when it is published in the National Gazette. 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 commentary at https://esavjetovanja.gov.hr/ECon/Dashboard. 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.
Croatia adheres to international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses. Publicly listed companies must adhere to these accounting standards by law.
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. However, judicial remedies are frequently ineffective due to delays or political influence.
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 enforced 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. Enforcement proceedings are regulated by the Enforcement Act, last amended in 2017, and by laws regulating its execution, such as the Act on Implementation of the Enforcement over Monetary Assets, amended in 2020. The legislation incorporates European Parliament and European Commission provisions for easily enforcing cross-border financial claims in both business and private instances. Enforcement proceedings are conducted on the basis of enforcement title documents which specify the creditor and debtor, the subject, type, scope, and payment deadline.
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. Reports on public finances and public debt obligations are available to the public on the Ministry of Finance website at: http://www.mfin.hr/en.
Croatia, as an EU member, transposes all EU directives. Domestic legislation is applied nationally and – while local regulations vary from county to county — there is no locally based legislation that overrides national legislation. Local governments determine zoning for construction and therefore have considerable power in commercial or residential building 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.
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. Regulations and enforcement actions are appealable and adjudicated in the national court system.
The Ministry of Justice continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of judicial cases. The World Bank approved a USD 110 million loan to Croatia for the Justice for Business Project in March 2020, specifically for the purpose of supporting reforms that will improve justice sector services to improve the business climate. This effort will be led by the Ministry of Justice, in coordination with the Economy Ministry and the Construction Ministry, from 2020 to 2024. Reforms are underway, but significant challenges remain in relation to land registration training court officers, providing adequate resources to meet the court case load, and reducing the backlog and length of bankruptcy procedures. Investors often face problems with unusually protracted court procedures, lack of clarity in legal proceedings, contract enforcement, and judicial efficiency. On average, Croatian courts resolve roughly the same number of cases that they receive each year, but there is a significant backlog (of sometimes tens of thousands of cases) which carries over from year to year. The European Union Country Report for 2020 assessed that the length of court proceedings continues to be a burden for business.
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 Ministry of Economy Directorate for Investment, Industry, and Innovation (investcroatia.gov.hr) facilitates both foreign and domestic investment. The directorate’s website offers relevant information on business and investment legislation and includes an investment guide.
According to Croatian commercial law a number of significant or “strategic” business decisions must be approved by 75 percent of the company’s shareholders. Minority investors with at least 25 percent ownership plus one share have what is colloquially called a “golden share,” meaning they can block or veto “strategic” decisions requiring a 75 percent vote. The law calls for minimum 75 percent shareholder approval to remove a supervisory board member, authorize a supervisory board member to make a business decision, revoke preferential shares, change company agreements, authorize mergers or liquidations, and to purchase or invest in something on behalf of the company that is worth more than 20 percent of the company’s initial capital. (Note: This list is not exhaustive.)
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 (SOEs) and government-designated “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 SOEs 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
Croatian Law on Expropriation and Compensation gives the government broad authority to expropriate real property in 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. Parties not pleased with the outcome of a Ministry decision can pursue administrative action against the decision, but no appeal to the decision is allowed.
Article III of the U.S.-Croatia Bilateral Investment Treaty (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.
ICSID Convention and New York Convention
In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID). 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.
Investor-State Dispute Settlement
The Croatian Law on Arbitration addresses 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.
The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, and 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.
Article Ten of the U.S.-Croatia BIT sets forth 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.
Croatia has no history of extra-judicial action against foreign investors. There are currently two known cases regarding U.S. investor claims before Croatian courts. The cases are in regard to privatization related or in the real estate sector and have 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 at the six municipal courts around the country. In order to reduce the backlog, non-disputed cases are passed to public notaries.
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.
There are no major investment disputes currently underway involving state-owned enterprises, other than a dispute between the Croatian government and a Hungarian oil company over implementation of a purchase agreement with a Croatian oil and gas company. There is no evidence that domestic courts rule in favor of state-owned enterprises.
Croatia’s Bankruptcy Act 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 2020 rating for Croatia in the category of resolving insolvency was 63 out of 190 countries. 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.
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.
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 allowed the Government, in this instance, to install an Emergency Commissioner to restructure the company.
4. Industrial Policies
The Investment Promotion Act (IPA), amended in 2020, 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 support and high value-added services; cash grants for capital costs of investment projects; cash grants for labor intensive investment projects; incentives for investments which utilize inactive government-owned property; and incentives to modernize business processes through automation and digitalization of production and manufacturing processes.
All incentive measures can be used by entrepreneurs. Entrepreneurs are defined as individuals subject to Croatian income tax or companies registered in Croatia investing the minimum amount of USD 54,000 in fixed assets, and creating at least three new jobs for microenterprises or 10 new jobs for companies investing in information computer technology (ICT) systems and software development centers, or USD 162,000 in fixed assets and creating at least five new jobs for small or medium enterprises, and large companies, and USD 540,000 in fixed assets for modernizing and increasing business process productivity.
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 1.1 million and create at least five new jobs (three jobs for microenterprises or 10 jobs for companies investing in ICT system and software development centers). This reduction increases to 75 percent for companies investing USD 1.1-USD 3.2 million and creating at least 10 new jobs, and up to 100 percent for companies that invest over USD 3.2 million and create at least 15 new jobs.
Profit tax reductions are also available for investments modernizing the manufacturing industry. These projects must include a minimum fixed asset investment of USD 560,000, all employees must be retained for the project duration, and the per-employee productivity after three3 years must increase at least 10 percent compared to the one-year period prior to the project. A 50 percent profit tax rate reduction applies for companies that invest up to USD 1.1 million,75 percent for companies investing USD 1.1 to -USD 3.2 million, and up to 100 percent for companies that invest over USD 3.2 million.
Cash grants for new jobs created can be up to USD 10,100 per new position, depending on the location of the investment and category of the person employed. Financial support of 10 percent of expenses, which is not subject to reimbursement, or up to USD 3,250 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 6,500 per position in counties with unemployment levels from 10 to 20 percent, and up to 30 percent or USD 10,000 per new position in counties with unemployment levels above 30 percent.
There are also programs to reimburse costs for employee education and training connected to an investment project which can 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. Incentives for education cannot exceed 70 percent of eligible costs of education and training.
Additional incentives for job creation are available for development and innovation activities that affect the development of new products or significantly improve existing products, 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 ICT systems and software development centers; for activities such as hospitality and tourism accommodation facilities categorized as at least four stars; support services for the above-listed types of accommodations with high value added in a range of categories; nautical tourism projects; and amusement and theme park projects; as well as for creative services, and industrial engineering services.
Additional incentives for job creation are offered for labor-intensive investment projects within the first three years of the project start date. Cash grants for job creation are increased by 25 percent for projects creating 100 or more positions, by 50 percent for projects creating 300 or more jobs, and by up to 100 percent or the total cost (or up to the maximum allowed limit) for creating 500 or more jobs.
Cash grants for the capital costs of investment projects are approved for investments over USD 5.4 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 540,000) in counties where the unemployment rate is from 10-20 percent. This incentive increases to 20 percent of the investment cost (up to USD 1.1 million) in counties where the unemployment rate is above 20 percent, with the condition that at least 40 percent of the investment is in machines or equipment and that at least 50 percent of those machines or equipment are of high-value technology. There are also grants for buying equipment or machinery for research and development activities up to 20 percent of the cost of the equipment, or up to USD 540,000.
There are incentives for investment projects which revitalize inactive state-owned property and provide free land leases for investors investing USD 3.2 million and creating at least 15 new jobs. Additional information regarding the types of incentives offered by the Ministry of Economy, Entrepreneurship and Crafts can be found at investcroatia.gov.hr.
The Act on Strategic Investment Projects went into effect in November 2013 and was amended in 2018. This Act facilitates and accelerates administrative procedures for projects deemed to be of strategic interest for Croatia based on a number of 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, audio-visual activities, science, defense, judiciary, technology, construction, and education.
The minimum amount for an investment to be considered strategic is approximately USD 10.6 million, which is significantly less than the previous minimum of USD 21.2 million. All investments over this amount may be considered strategic, and will be entitled to accelerated permitting and registration procedures. Investments may also be treated as strategic if they are valued at USD 1.4 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 can be found at: www.investcroatia.gov.hr.
The Construction Act allows investors to secure permits through an e-licensing system. 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/.
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.
There are no government imposed conditions for investment, nor are there “forced localization” policies for investors in terms of goods and technology. There are no performance requirements, or associated enforcement procedures. 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.
5. Protection of Property Rights
The right to ownership of private property is enshrined in the Croatian Constitution and in numerous acts and regulations. A foreign natural 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 well-functioning banking system, which provides mortgages, while courts and cadaster offices handle property records.
However, real property ownership can be particularly challenging in Croatia owing to unique titling issues, separate ownership of buildings and the land on which they sit, reciprocity laws, special treatment of agricultural land and coastal regions, and zoning disputes more generally. For all of these reasons, investors should 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 Ministry of Economy Directorate for Investment, Industry and Innovation helps those seeking information about property status in Croatia. For more information, see: http://investcroatia.gov.hr/.
While the cadaster offices reliably maintain records, there is a portion of property in Croatia which has changed hands without appropriate documentation for various reasons, including avoidance of paying the title transfer fees or hiding wealth. Historically, individuals and companies spent years in court attempting to resolve improper real estate documentation. For this reason, potential buyers should seek to verify that the seller possesses clear title to both the land and buildings (which can be titled and owned separately).
In order to acquire property by means other than inheritance or as an incorporated Croatian legal entity, foreign citizens must receive the approval from the Ministry of Justice. Approval can be delayed, owing to a lengthy interagency clearance process. While EU citizens 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.
In the case of the United States, reciprocity exists on a (sub-federal) state-by-state basis. Croatia’s Ministry of Foreign and European Affairs has confirmed the existence of positive reciprocity for real estate purchases for residents of the following states: Alabama, Arizona, Alaska, California, Colorado, Connecticut, Delaware, 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.
Alternatively, for U.S. citizens from Arkansas, Hawaii, Kentucky, Minnesota, Mississippi, New Hampshire, Oklahoma and Vermont, property acquisition is only allowed with the condition of Croatian permanent residence. Residents of other states could face longer waiting periods. The Foreign Ministry has confirmed 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 to foreign investors for purposes of national security.
Inheritance laws have led to situations in which some properties have claims by dozens of legal owners, some of whom are deceased and others who have emigrated and cannot be found.
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 is intended 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. Inconsistent regulations and restrictions on coastal property ownership and construction have also provided challenges for foreign investors in the past. Croatian law restricts construction and commercial use within 70 meters of the coastline.
When purchasing land for construction purposes, potential buyers should determine whether the property is classified as agricultural or construction land. The Agricultural Land Act provides for additional fees for re-zoning of up to 50 percent of the value of the land that is diverted from agriculture to construction purposes. The Agricultural Land Agency works with local governments to review potential agricultural land purchases. The sale of privately owned farmland is treated solely as the subject of a sales agreement between the parties. Buyers of this type of land should still proceed with caution and 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.
The Ministry of Justice and the State Geodetic Office co-manage the National Program for Resolving Land Registration and Cadaster Issues. This program includes a One Stop Shop system, which is a single point for accessing land registry and cadaster data. For more information see http://www.uredjenazemlja.hr/default.aspx?id=17 where information is available in English.
Croatia is also working with the World Bank on implementation of the Integrated Land Administration System project (ILAS) to modernize the land administration and management system in order to improve the efficiency, transparency and cost effectiveness of government services. Croatia continues to process a backlog of cases and potential investors should seek a full explanation of land ownership rights before purchasing property.
Note that Croatia’s land records are also available online (see www.pravosudje.hr and https://www.katastar.hr/en/#/). Katastar.hr includes information on over 14 million pieces of land throughout the country and provides information in English.
The World Bank Ease of Doing Business 2020 report ranks Croatia as 38th out of 190 countries on ease of registering property, up 13 spots from the 2019 ranking of 51st.
There is no property tax in Croatia; a proposal to introduce a property tax failed in 2018.
Intellectual Property Rights
Croatian intellectual property rights (IPR) legislation includes the Patent Act amended in January 2020, the Trademark Act, the Industrial Design Act, the Act on the Geographical Indications of Products and Services, the Act on the Protection of Layout Design of Integrated Circuits, and the Act on Copyrights and Related Rights, which was entirely rewritten in 2020. The Law on Protecting Unpublished Information with Market Value went into force in 2018. These acts define the process for protecting and enforcing IPR in Croatia. Texts of these laws are available on the website of the State Intellectual Property Office (). All of the laws are harmonized with European Union legislation.https://www.dziv.hr/en/ip-legislation/national-legislation/). All of the laws are harmonized with EU legislation. Legislation pertaining to IPR. The Law on Protecting Unpublished Information with Market Value went into force in 2018. http://www.dziv.hr/en/ip-legislation/national-legislation/.
Croatian law enforcement officials keep public records of seized counterfeit goods. According to a 2019 report from the Customs Office, officials stopped 715 international imports that resulted in a total of 776 procedures for temporary detainment of goods, which included 2,267,412 items. Customs also detained 256 domestic shipments, which contained 48,310 counterfeit goods. They initiated one criminal proceeding against individuals involved in the transportation of seized goods. Croatian customs officials and the Ministry of Interior work together to locate and seize infringing goods.
Although some areas of IPR protection and enforcement remain problematic, Croatia is currently not included in the U.S. Trade Representative’s Special 301 Report or the Notorious Markets List. Problem areas are piracy of digital media and counterfeiting. Due to its geographic location, Croatia is also a transit route for various illegal products bound for other countries in the region. There have been no problems reported with regard to registration of IPR in Croatia by American companies. The American Chamber of Commerce maintains dialogue with the Croatian government on IPR issues.
As a WTO member, Croatia is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Croatia is also a member of the World Intellectual Property Organization (WIPO) and party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. 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/.
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 (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 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: 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 2008 global banking crisis. More than 90 percent of total banking sector assets are foreign-owned. As of December 2019, there were 20 commercial banks and three savings banks, with assets totaling USD 65.11 billion. The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 17.8 billion, for a market share of 27.3 percent of total banking assets in Croatia. The second-largest is Italian-owned Privredna Banka Zagreb, with USD 13.2 billion, or 20.3 percent of total banking assets. The third largest is Austrian Erste Bank, with assets of USD 9.7 billion, with a 14.893 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 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 (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 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. The exchange rate of the Croatian kuna, while floating and not pegged freely, is more tightly linked to the euro than the U.S. dollar. 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 State Owned Property or the Center for Restructuring and Sale (CERP). In 2018, the government established an official list of 39 “special state interest” SOEs overseen by the Ministry of State Owned Property, including 19 wholly state-owned, 19 majority state-owned companies, and one with less than 50 percent 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 2018, show that SOEs employ a total of 69,509 people and have net revenues totaling USD 9.6 billion and assets of USD 44.7 billion. The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.
CERP also oversees 347 companies; of these, the state owns from 10 to 49 percent of 77 companies, and under 10 percent of the remaining 251 companies. By statute, CERP must divest the state from these companies. Lists of SOEs are published on the websites of the Ministry of State Owned Assets at https://imovina.gov.hr/ and on CERP’s website at http://www.cerp.hr/.
County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available. The 2020 European Union 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 Programme (https://ec.europa.eu/info/funding-tenders/funding-opportunities/funding-programmes/overview-funding-programmes/structural-reform-support-programme-srsp_en) for strengthening the functioning of state-owned enterprises. 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 Concluding Statement of the 2019 IMF Article IV Mission from December 2019 concluded that “management and performance needs to continue on the path of more modernization, so that enterprises in core areas support the productivity of the economy.”
A new Corporate Governance Code went into force in October of 2019 and is available at https://zse.hr/userdocsimages/legal/2019/ZSE_Kodeks_ENG_02.pdf. 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 State Owned Assets and the Center for Reconstruction and Sales. There are no restrictions against foreigners participating in privatization tenders. The banking sector, telecommunications, and Croatia’s largest pharmaceutical company were purchased by foreign investors when Croatia initiated its privatization process in the late 1990’s. The bidding process is public and terms often 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 State Owned Assets passed a new plan for Management of Sate Owned Property in 2020, which can be found only in Croatian at: https://imovina.gov.hr/UserDocsImages//dokumenti/Izvjesca//Godišnji%20plan%20upravljanja%20državnom%20imovinom%20za%202020.%20godinu.pdf-2020.pdf.
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.
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, and was implemented in October 2019. It introduces 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. 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.
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.
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: https://www.hgk.hr/documents/kodeksposlovneetikehrweb581354cae65c8.pdf.
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, which as yet remain unproven.
Croatia has not signed but has requested to join 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 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.
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 April 2019 for 2019-2020 to complement it. 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 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 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, 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 firstname.lastname@example.org
Office for the Suppression of Corruption and Organized Crime
Gajeva 30a, 10000 Zagreb, Republic of Croatia
+385 1 4591 874 email@example.com
Trg Bana Josipa Jelacica 15/IV, 10000 Zagreb, Republic of Croatia
+385 1 4825 444 firstname.lastname@example.org
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.
11. Labor Policies and Practices
Croatia has an educated, highly skilled, and relatively high-value labor force as compared to regional averages, but remains relatively low cost as compared to the entire EU. Employment is regulated by the constitution, international conventions, treaties, labor law, collective agreements, and employment agreements.
The World Bank estimates the grey economy accounts for 35 percent of GDP. Unemployment rates are falling; Croatia ranked 10th among EU member states in January 2020, though the COVID-19 crisis may significantly impact this position.
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. 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, food production, and tourism sectors. Foreign or migrant workers do not play a significant role in any field and the government has increased quotas for foreign workers to address labor shortages. Croatia continues to experience a brain drain, with an estimated 60,000 Croatians (mostly young and educated) leaving the country annually. The Government maintains the www.mjere.hr website with information regarding measures to keep workers in Croatia. These measures are divided into nine categories and include financial support for employers and the self-employed, and for training and seasonal work programs. A large portion of the funding is intended to be directed at policies for active employment, while a portion will fund specialized programs for groups that have a harder time entering the labor market.
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 be eligible 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. The baza.kolektivni-ugovori.info website provides an updated database of collective agreements signed in 1995 to date.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
Development projects in Croatia may be eligible for International Development Finance Corporation (DFC) political risk insurance. DFC’s active portfolio in Croatia is USD 500,000. Additionally, Croatia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). For more information see www.miga.org.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
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)