International Company Relocation Opportunities: Croatia
Croatia embraces foreign investments despite ongoing challenges. It’s eager to reach a senior level with potential investors and resolve problems. Croatia’s economic strength includes its EU membership, advanced infrastructures, a fixed exchange rate, and low inflation. Generally, the most auspicious investment sectors have been banking, pharmaceuticals, telecommunications, and tourism.
The country experienced economic growth for a decade after the war ended in 1995. However, since 2008, the country's investment activity has substantially decelerated and remained at medium level regardless of the economy’s rise from recession in 2015 and the comparatively robust development in 2016.
Croatia’s banking system survived the GFC but has recently been saddled with costs associated with the law that permits debtors to convert loans in Swiss Francs into euros. The country sustains a huge government bureaucracy, an incompetent judicial system, low regulatory openness, and poor performance in SOEs. These factors are responsible for the poor economic growth performance that affect foreign direct investments.
Croatia has been a member of the European Union since 2013. It improved constantly and will eventually create new investments and trade opportunities. Although the country has been granted an opportunity to use a considerable amount of money from EU funds, direct payments from the EU do not cover everything. Croatia and other new member states of the EU have vied to engross European Union funds that will help boost economic development.
On October 2016, the present Croatian government started its leadership and swore to undergo the administrative and legislative process to lessen investment barriers, streamline administration and bureaucracy, and make EU funding programs efficient. The new PM is a former European Parliament member. The Prime Minister motioned his pledge to a broad range of structural reforms across member states with recommendations provided by international financial institutions and the EU.
The current Minister of Finance is a respected corporate professional and an Ex-Finance Ministry officer. Furthermore, the new Croatian government ratified a tax system reform reducing personal income taxes for most citizens and introducing a corporate tax rate reduction applicable to small-medium enterprises. The government is dedicated to promoting structural reforms as well as sustaining state assets privatization, to fully implement the new public procurement law, and to ameliorate public administration.
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The Croatian government is correspondingly dedicated to addressing complaints of persistent investors with regards to high parafiscal charges, stringent labor laws, the complicated and slow permitting process, and the slow legal system that’s sometimes unstable. There have been uncertainties in dealing with difficulties from key groups and vested interests.
- Croatia is ranked as the 55th least corrupt nation out of 176 countries in 2016’s Corruption Index reported by Transparency International.
- Croatia is ranked 43rd among 190 economies in doing business ease in 2017, reported by the World Bank.
- Croatia is ranked 47th among 128 countries and economies in 2016’s Global Innovation Index.
Foreign Investment: Amenability and Limitations
Regulations on FDIs: The country is amenable to FDIs, and its government prioritizes engrossing foreign investors. Domestic and foreign investors are guaranteed fair treatment and equal protection.
There have been no specific laws or common practices that differentiate against American investors. However, politician and bureaucratic barriers remain. According to investors, the unstable regulatory system, as well as the absence of structural reforms and administrative procedure transparency is afflicting the country’s investment climate.
Investors were able to restructure large projects through the “Act on Strategic Investment Projects”. Several business groups, including the Croatian Association of Employers and the US Commerce Chamber are in negotiation with the Croatian government about procedures to make it stress-free for investors to do business in the country and to sustain existing investments.
Restrictions on foreign ownership and private property/establishment rights: Business law in Croatia permits all entities, both domestic and foreign, to own and establish businesses as well as to participate in all types of remunerative works. The government places limitations on foreign control or ownership of facilities for education, publishing, rail transport, ski instruction, freight forwarding, maritime transport, inland water transport, and aircraft ground handling.
On the other hand, there has been no certain legislation sector that secures non-discriminatory market access, except for some typical professional (veterinarian, lawyer, engineer, auditor, and architect) requirements. More than 90% of banking is controlled by foreigners and has no FDI screening mechanism. Under the Croatian Constitution Article 49, the state ensures all entrepreneurs the same legal status on the market.
Evaluations of other investment policies: The Croatian Economy Profile of 2017 was published by the World Bank.
Facilitation in Business
The Croatian government’s HITRO HR offers e-services available for 24 hours. However, registration during holidays and weekends can be delayed for quite a few days. Offices of HITRO HR are situated in over 60 towns and cities in Croatia.
To activate a business, a company is required to sign up with the Public Notary, the State Bureau of Statistics, the Tax Administration, with Pension and Health agencies, and with the Commercial Court to get a corporate identification number (CIN). The time frame for business registration is 4 days.
Croatia’s Company Registration Procedure was rated 4/10 by the Global Enterprise Agency. In Doing Business Ease, Croatia is ranked 95th among 190 nations in the business registration category.
Outbound investments: The Croatian government has no mechanism based on government incentive regulations for outward investments. Domestic investors are allowed to invest overseas without any restrictions.
Mutual Investment Contracts and Tax Agreements
Croatia entered into investment contracts with the U.S and with other countries listed below, although some agreements have been signed but are yet to be enforced:
Argentina, Albania, Austria, Belarus, Azerbaijan, Belgium, Bulgaria, Bosnia Herzegovina, Cambodia, Chile, Canada, China, Chile, Cuba*, Denmark, Czech Republic, Finland, Egypt, France, Germany, Greece, Hungary, Indonesia*, India, Iran, Italy, Israel, Jordan, Latvia, Kuwait, Libya, Luxembourg, Lithuania, Macedonia, Malta, Malaysia, Moldova, Morocco*, Mongolia*, Oman, Netherlands, Poland, Qatar*, Portugal, Romania, San Marino, Russia, Serbia, Slovenia, Slovakia, South Korea, Sweden, Spain, Switzerland, Turkey, Thailand, Ukraine, Zimbabwe*, United Kingdom. (*signed but yet to take effect)
The Croatian-U.S. BIT took effect in June 2011. It governs all types of investments made by U.S nationals. The contract satisfies major U.S goals for this kind of agreements. Additional information regarding BITs and the Croatian-U.S. BIT text is available online.
Croatia is a constituent of the EU and does not hold a mutual taxation agreement with the United States. It enforces prevention of dual tariffs with twenty-seven member countries and has double taxation contracts with the nations below:
Armenia, Albania, Azerbaijan, Bosnia Herzegovina, Belorussia, Montenegro, Georgia, Chile, India, Iran, Indonesia, Iceland, Jordan, Israel, South Africa, Quatar, Canada, China, Kuwait, South Korea, Macedonia, Morocco, Malaysia, Mauritius Russia, Moldova, San Marino, Serbia, Syria, Switzerland, Turkey, Ukraine, and Turkmenistan.
As of present, taxation system amendments have decreased business taxes and income. The Croatian government devoted time to streamline the tariff regime for improved business and increased investments. In July of 2015, Croatia initiated the binding tariff opinion process which removed last-minute modifications to tax laws that could negatively affect investment expenditures.
The total number of “para-fiscal” tariffs, better known as “non-tax” levies, is an additional obligation to business, and the financial community is presently collaborating with the states to decide which fees need to be removed.
The Legal System
The regulatory framework and its transparency: Local and foreign investors both enjoy equal and fair treatment with regard to all market related laws. Croatian laws are congruent with the EU legislation and are able to sustain transparent regulations and encourage a financial environment that treats all financiers equally.
The Croatian state enforces international accounting guidelines and adheres to international procedures via the approval of the Law of Accounting, applicable to every accounting enterprise. Laws and bureaucracy can be complicated and tedious, but the government proactively eliminated unnecessary policies. Informal legislative procedures are non-existent, and investors must depend entirely on state-issued laws to conduct their business.
Croatia’s Parliament implements all national laws at every government level throughout the nation, although domestic laws vary from district to district. New laws and amendments to existing laws which can potentially impact citizens are accessible for public discussion. After the government obtained the draft bill, part of the session agenda was to release the full law to the public on the government’s online site for comments.
Croatia’s courts are tasked to ensure regulations are correctly implemented. If a financier alleges the legal and administrative process as inappropriately executed, he or she may file a dispute against the Croatian state in the proper court.
All laws are published online. The incumbent government promised to enforce legal changes and reforms in order to simplify business processes, but analogous announcements from it are yet to be enforced.
Ministerial obligations help organize legislations. Working experts assist in creating draft legislations for the administration which decides to either approve or reject the draft bill. If approved, it will be submitted to the Parliament for a final determination. A bill becomes official once the Parliament approves it and will be enforced on the date determined by it.
The Croatian state joined UNCTAD in 1992.
International Legal Concerns
Croatia adheres to all European Union regulations as part of its member obligations. Domestic laws are enforced on a national level and no local legislation is allowed to override them. Local government units supervise construction zoning and are capable of delaying investment projects. Foreign arbitration, accounting, labour, and financial standards are integrated into Croatia’s legal system.
The country fulfils its member duties to the WTO, which it joined in 2000, and has never been involved in any dispute cases as a respondent, third party, or complainant.
Regulatory regime and constitutional autonomy: Croatia’s legal framework allows property ownership and the execution of legal agreements.
The Obligatory Relations Act was designed to implement commercial contracts, including the provision of services and goods in commercial company agreements, while the Company Act outlines the types of legal structures for foreign and domestic investors, as well as facilitates limited partnerships, limited liability entities, economic interest organizations, joint stock businesses, and general business partnerships.
The constitution of Croatia allows for an autonomous judiciary which consists of specialized jurisdictions and general courts. Essential networks are County Courts, the Supreme Court, Petty/Magistrate Crimes Courts, and Municipal Courts. There are also specialized courts that consist of Lower and High Commercial Courts and the Administrative Court.
The Constitutional Court decides on the legality of policies and state actions, as well as implements and protects constitutional rights. First-instance courts are municipal courts that govern criminal/juvenile cases as well as civil ones.
Zagreb hosts the Commercial High Court which undertakes appellate analysis of legal determinations made by lower courts. The Administrative Court covers all administrative determinations of all government levels.
Croatia’s highest court is the Supreme Court, with power over all criminal and civil cases. It addresses appeals made by Administrative courts, County, and High Commercial Courts. The Croatian government vows to implement judiciary reforms, including the court officer’s training, reduction of cases backlog, expediting insolvency procedures, and land reform registration.
Croatia’s national court arbitrates, regulates, and implements appealable actions.
Regulations and policies on direct foreign investments: No special laws exist to cater specifically to foreign investments. The same laws govern both local and foreign market players in Croatia.
The Company Law outlines the types of legal frameworks for foreign and local investors. Foreign nationals may establish the following business types: limited partnerships, general partnerships, joint stock entities, limited liability businesses, and branch offices. The law on obligatory relations facilitates commercial agreements.
Anti-Trust Regulations and Competition
The Competition Law establishes policies and procedures for protecting and encouraging competition. Theoretically, the quality of competition is the general principle applied in relation to market accessibility as well as credit and several other commercial functions, such as supplies and licenses.
However, in practice, “strategic” and government-owned companies may be seen as receiving preferential treatment. Croatia’s Competition Agency serves as its competition watchdog. It decides whether practices employing anti-competition methods exist and enforces applicable punishments for violations.
It was previously revealed that some government-owned firms have received subsidies that constitute illegal government aid. The agency’s website includes information on past determinations and authorities, as well as an appeal to the Croatian people to report any competition-related issues and concerns.
Compensation and expropriation: Croatia's government does not have any expropriation cases since 1991. The Croatia-US Investment Treaty includes both indirect and direct expropriations. It was formed to protect against expropriation acts excluding instances wherein they are for public use. It maintains a due process, non-discriminatory approach, and is subject to quick and efficient compensation.
Croatia's government formed a policy on Compensation and Expropriation which authorizes it to expropriate properties under various circumstances, security and economic-related cases to be exact. The law assures just compensation, whether in the form of equal value of a real property or monetary compensation.
An appeal is included in the process in case the owner would like to challenge the order. The policy does not have a description of the Ministry's process about the investigation, which is one of their concerns. Concerned parties who are not satisfied with the Ministry's decision may file a case opposing the decision, but an appeal is prohibited.
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New York conference and ICSID convention: No specific policies pertain to the Convention in Washington which formed the Settlement Centre for Disputes on Investments. However, an Enforcement Act which can be found in Article 19 states decisions of a foreign court may be enforced if they satisfy the terms of execution and recognition as recommended by a foreign law or agreement.
State-investor dispute settlement: The country signed with the following foreign conferences regulating the enforcement and approval of foreign business judgments: the Protocol on Judgment Conditions in 1923, the Geneva Conference on Enforcement of Foreign Decisions in 1927, the New York Conference on Execution and Acceptance of Foreign Decisions in 1958, and the European Conference on Foreign Business Judgment in 1998. Croatia's government approved the Convention of ICSID in 1998.
The implementation of policies on Arbitration in the country is applicable to both foreign and national proceedings. Parties involved in cases may appoint representatives of their choice as indicated in 12th Article of the Arbitration Law which promotes the independence of official representatives.
Croatia's government expresses its recognition on binding foreign arbitration which can be considered a tool to resolve disputes. For instance, Croatia started two arbitration cases which involve a private business in the oil industry. Article X (part of the Croatia-US BIT) helps foreign arbitration of specific types of disputes on investments.
Foreign Courts and International Business Arbitration
Providing a different approach on resolving disputes is recognized by the Business High Court, the Commercial Zagreb Court, and by 6 district courts within the country. Non-disputed verdicts are re-assigned to public law offices in order to lessen the backlog. This process results in a reduction of enforcement cases.
Both arbitration and mediation services are not utilized in general. However, these services can be availed through the help of Croatia's Economy Chamber. This office has become a regular arbitration court since 1965 and complies with UNCITRAL processes.
At present, there are no arbitration issues which involve US firms with an exception of one case of a US-affiliated company for more than 3 years. The Mediation Office has been active since 2002. The Law on Arbitration includes domestic, enforcement, and recognition of arbitration decisions, as well as on the jurisdictional process and matters.
After a court decides an arbitration case, it is being enforced immediately by an official order. If the due date passed and no payment was received, the winning party needs to inform the Business Court, which is now responsible for imposing the ruling. Decisions on arbitration may be appealed in three months.
The Enforcement Act's Article 19 states decisions of a foreign court can only be imposed if the parties "comply with the terms for execution and recognition as recommended by a foreign agreement." The Act was formed to lessen the responsibilities of courts through endorsing several tasks like financial claims collection and Financial Agency seizures.
This office is also designated to compensate claimants as soon as the court releases its decision. FINA is also authorized to seize properties and a process settlement with the legal entity or the individual who is due to receive the claims. The Justice Department is suggesting the reorganization of the court which is envisioned to become more efficient and to lessen the number of pending cases.
In 2016, the WB recognized Croatia's efforts in making contracts simpler by using an automated system to process assets' public sales and organize the process of enforcement in the country.
There were no reports on investment disputes which involved state-owned enterprises except for the case of Hungary's oil corporation versus Croatia's government. A disagreement started when the Croatian gas and oil firm (INA) implemented their purchase agreement.
Regulations on Bankruptcy
The Bankruptcy Law is similar to foreign laws and complies with the EU's regulations and the UN's Commission on Foreign Trade Law. All parties involved in the proceedings, domestic and foreign, are equally treated as far as the Bankruptcy Law is concerned. The WB in 2017 put Croatia 3 spots higher than their previous ranking in 2016, from 54 to 57. Insolvency is not a crime in Croatia.
The Pre-Bankruptcy Act and Financial Operations work together to make the process quicker. They are responsible for creating a timetable in bankruptcy proceedings. Another significant provision of pre-insolvency is it allows the company to continue with their regular business while the proceeding is held. It gives the company the opportunity to somehow recover and possibly prevent closure.
A Commercial Court is the authorized office where bankruptcy proceedings happen. A tribunal makes the decision of when the bankruptcy process starts, assigns a trustee, evaluates complaints of creditors, ratifies the settlement and is responsible for setting the date when the proceeding shall be closed.
A judge monitors the trustee and the activities of the committee (creditor), which is assigned to secure the creditors' interests and discusses matters back to the creditors. The provision was established to prioritize the claims of creditors, categorize the hierarchy of priority associated with revenues and taxes of the state, of the administration and local budgets. It allows the person to file a petition, find time to re-establish the company, and maximize potential recovery by giving equal and fair compensation to all his creditors.
Policies on Industries
Investment incentives: In 2015, the Policy for promoting investments was amended. It provided incentives to businesses related to processing and manufacturing activities, innovation and development, investment support events and value added services.
The policy includes the following benefits: tax benefits for small businesses, tax benefits for large, medium, and small enterprises, new jobs are given incentives for costs associated with an investment program, incentives for training costs associated with an investment program, additional support for innovation and development events, investment support for events and prime added value services, capital costs incentives associated with an investment program, labour intensive incentives for investment programs given to new enterprises with at least a minimum of 14 million USD.
The incentive qualifiers are beneficial to businesses that are officially listed in Croatia with at least a minimum of 53 USD (fixed assets value) on top of opening at least three new jobs solely for microenterprises (10 staff or less) and 160000 USD when the company is able to add 5 more jobs for large, medium, and small businesses.
There is a substantial amount of reduction in taxes from revenues which is dependent on the amount of investment and jobs created. Half of the reduction is applicable up to 10 years to businesses which have an investment of 1 million USD (53,000 USD for microenterprises) including opening a minimum of 5 new positions. The reduction eventually rises to 75% for businesses which have an investment of 1.1 up to a maximum of 3 million USD (with a job opening of 10 jobs), and up to 100% for firms which have an investment of more than 3 million USD and have created 15 new positions minimum.
Incentives are also given to the opening of new jobs which range from about 1,200 USD up to a maximum of 9,500 USD, depending on business criteria. There is a monetary incentive of 10 percent relating to expenses which can help open new job opportunities, with a financial support of a maximum of 3,100 USD per opening of a new post in areas which have an unemployment rate of a maximum of 10 percent.
It increases up to 20 percent if there are new jobs opened in areas which have an unemployment rate of 10 up to a maximum of 20 percent, which have a monetary support of 6,300 USD. A financial grant of 30 percent is given to businesses which created new posts with an amount of 9,500 USD per new job opening in areas which have an unemployment rate of more than 20 percent.
Incentives are given to provide assistance to employee's training and education related to business which could shoulder up to half of the training and educational expenses, or a maximum of 60 percent for disabled employees' training.
There are additional incentives for innovation and development events which have an impact on developing new or improving regular products, manufacturing processes, production series, business support operations like customer service, business process outsourcing, or distribution and logistics related to investment programs in production including ICT and programming centres.
These also include premium value added services like tourism and hospitality accommodation amenities that have 4 or 5 star ratings, heritage hotels, as well as other accommodations primarily intended to recreate historical and cultural visions. Other support services include different tourism agendas, like health, congress, nautical, cultural, entertainment, and recreation theme parks, ecological programs, and other new programs in tourism which are considered to be of prime value. These also include management, education and consulting services, industrial services, and creative support services.
Capital cost incentives for investment programs are granted to investments amounting to more than 5 million USD, as long as the business generated about 50 new jobs within the span of 3 years since it started. About 10 percent of the construction expenses of a factory and the construction of a facility or of buying new equipment in areas where the unemployment rate ranges from 10 to 20 percent are available.
This approach goes up to 20 percent of investment expenses (a maximum of 1 million USD) in areas where the rate of unemployment is more than 20 percent, as long as 40 percent of the business is composed of equipment and at least a minimum 50 percent of equipment is part of modern technology.
As for labour-related incentive programs, they are offered as long as the company created new work positions within the first 3 years of their operations. An added 25 percent is given if new positions are opened for approved investment programs which lead to creating about 100 new posts. It goes up to 50 percent if the company hires 300 more employees and to 100 percent when it’s able to create 500 jobs or more.
Investment incentives are given to new enterprises with a minimum of 13 million USD in value, as long as 10 university degree qualifications are opened for certain positions within the organization.
Strategic Investment Programs in Croatia took effect during the last quarter of 2013. This policy accelerated and monitored processes for programs which were expected to have a strategic approach according to the 12 terms and conditions indicated in the policy.
Strategic programs include private and public investments, tourism, energy, infrastructure, transport, postal services, electronic communication, public utilities, environmental protection, forestry, agriculture, fishery, water management, culture, health care, defense, science, education, technology and judiciary. Private business programs are investments related to Processing and Production Events, Innovation and Development Events, Investment Support Events, High Value Added Services, Energy Sector Events, as well as Infrastructure Activities associated with Fisheries and Agriculture. A program can be taken as strategic when it has an impact on a generation of employment, enhances manufacturing or operational standards, creates technological advancements, offers sustainability and has a positive impact on the country's economy.
The least amount of investment thought of as strategic is around $21 million. Investments higher than this amount are still considered strategic and allowed a faster registration and permitting process. An investment can be considered strategic if it has a value of more than $3 million and is carried out in some aided areas, within the 1st cluster of the regional (local) self-government or within the 1st and 2nd clusters of the local government, corresponding to the governing law of local development in Croatia, and if the investment is within the sectors of fisheries or agriculture. A project that’s possible for co-financing from EU programs and funds can have at least $10 million as a minimum cost.
The Construction Law lets investors secure permits by an electronic licensing system. This is an innovation because it’s tedious to get permission through the normal process. The investor can get a license good for 3 years which allows 3% alteration in the depth of a project from beginning to end. Investors interested or looking for a property that can be used in a Greenfield investment should check business-zone files managed by the Investment and Competitiveness Agency.
Trade Facilitation/ Free Ports / International Trade Zones
Currently, Croatia has 12 operational Free Zones
Both local and international investors are given equal treatment within FTZs. When Croatia joined the EU in 2013, most operating FTZs throughout the country were slowly replaced by Business/Industrial Zones. These zones also provide investment incentives.
Data localization and performance requirements: The Croatian legislation does not enforce performance or employment requirements for local or foreign investors, even for Board directors or senior management posts in private corporations.
Though there’s a clear process of getting business visas, it can be time-consuming and inconvenient. Global investors should educate themselves on the Foreign Act provisions. Questions about work permits or visas should be communicated to the consulate in Croatia or to the embassy in the US. The US Embassy located in Zagreb manages a website that offers information about this subject.
The Croatian government does not impose conditions to allow investments nor forced localization rules for shareholders investing in technology or goods. There is no enforcement process for performance prerequisites.
It is not required for Global IT developers to provide surveillance, access, or to submit source code. There’s no extent that stops companies from easily conveying customer or business related information beyond Croatia’s area. No requirements are necessary for stockholders to keep or maintain data inside the country’s territory.
Property Rights Protection
Real estate: Private property ownership is a right recognized in the Constitution of Croatia and in several regulations and acts. Foreign legal persons assimilated under the laws of Croatia are deemed to be Croatian legal persons capable of buying property.
The Law on Ownership and other Real Property establish processes for foreign nationals to acquire inherited properties and legal transactions (ex. Deeds, trust, and purchases). The country is implementing a traditional banking system, providing mortgages while cadastral offices and courts manage dependable property records.
Authorization of the Justice Ministry for immigrants is required for property acquirement by means and not by inheritance or by being an incorporated legal entity in Croatia. Authorization at some point is delayed due to the long process of Inter-Agency Clearance.
EU citizens were given equal rights as citizens of Croatia with regard to purchasing property. However, reciprocity is the basis for the property acquisition rights of foreigners in Croatia. Reciprocity with the U.S is by state.
The Ministry of European and Foreign Affairs of Croatia has affirmed the reciprocity for foreign property buyers from Oklahoma, Iowa, West Virginia, Washington, Virginia, Texas, Tennessee, Rhode Island, North Dakota, North Carolina, New York, New Jersey, Nevada, Montana, Michigan, Massachusetts, Maine, Louisiana, Idaho, Georgia, Florida, Delaware, Connecticut, Colorado, California, Arkansas, Alaska, Arizona and Alabama. There could be a longer waiting time for other states’ residents. However, the Ministry affirms Croatian residents can buy real state in any of those states with no constraints.
Nevertheless, a legal entity in Croatia and foreign investors may own and acquire property without the approval of the ministry, with warnings about possible restrictions to purchasing private property on some land types, particularly on those near the ocean or in some geographically classified areas.
Possible buyers should verify if the land is categorized as construction or agricultural land before buying it. The Law of Agricultural Land should be measured before purchasing land, because it allows extra charges of a maximum 50% of the land value to be redirected from agriculture.
The Agency for Agricultural Land and the local governments are working together to review possible purchases of agricultural land. However, the Law of Agricultural Land does not cover privately owned agricultural land sales. They are currently treated exclusively as the topic of the agreement for sale by both parties.
Nonetheless, agricultural land buyers should be cognizant of possible unresolved land legacy issues. Lands in Croatia are either privately or publicly owned.
The Croatian land registration system is re-engineered. It is currently an ongoing process. The country is still processing cases which are ready for trial but yet to be disposed.
Possible investors should pursue a complete description of property rights prior to purchasing property. The country’s land registry and records are also accessible online. There are uncertain and inconsistent property claims, making it indispensable to validate if the seller has a clear title of both buildings and land (which could be owned and titled separately).
The Inheritance Act caused property claims by several legal title holders. Some of them are dead and others migrated and could not be located. Unoccupied legally owned property cannot be changed to a legal or physical entity. Croatia is ranked 62nd among 190 nations in doing business ease in 2017 under the category of ease of property registration reported by the World Bank.
It is important to validate if there is a building permit because some newly developed structures in seaside regions have been subjected to demolition at the expense of the owner without reimbursement for non-compliance with zoning procedures. Investors must be cautious of assurances that structures constructed without certifications will be legalized retroactively. The legislation for Buildings Built without a Permit was amended in 2012, aimed to resolve uncertainties concerning real estate ownership.
Ownership of facilities or buildings on land is different from land ownership. Investors who are interested in purchasing enterprises from the State Property Management Office should search for legal help to identify if a deal includes land ownership rights based on location.
Unpredictable regulations and limitations on construction and ownership of beachfront property have caused problems for FDIs before. Legislation limits commercial use and coastal construction inside 70 m. of the shoreline.
Therefore, it is strongly recommended to seek proficient advice on this matter. The United States Embassy upholds a record of lawyers that speak English.
Croatian IP Laws are comprised of the Trademark Act, Patent Act, Copyright & Related Rights Act, Layout-Designs of Integrated Circuits Protection Act, Industrial Design Law, Law on the Protection of Services’ and Products’ Geographical Indications. These laws define the procedures for protecting as well as implementing Intellectual Property Rights.
There have been no new regulations ratified in 2016 regarding IP. Records of counterfeit goods being seized are kept by officials. Based on the 2016 Customs Office report, the total of seized counterfeit goods was 102,595, with 493 minor cases related to seizure and 17 criminal cases. The Croatian Interior Ministry and customs officers are working together to track down and seize goods.
In the latest Special 301 Report of the United States, Croatia is not included in the Watch List neither in the famous market report. However, some scope of Intellectual Property protection is still challenging. The areas of concern remain focused on digital media piracy and counterfeiting.
Moreover, the country is also a transit path for numerous contraband items heading to other European countries because of its geographic position. American companies have not reported any difficulties concerning Intellectual Property registration in the country.
However, in 2016, there were recommendations from AmCham Croatia to the government of Croatia to improve the implementation of IP Protection in the country based on their conferences with their associates with regard to Intellectual Property treatment.
The country is a member of WTO and WIPO and is also part of the TRIPS Agreement.
The performance of SOEs in Croatia is inconsistent, with several big problem cases prevailing, including highway companies, the national railway, and the country’s major manufacturer of fertilizer. Based on Croatia’s database of government-controlled assets, the GoC reflects company participation ranging from cured meat providers and textile firms to food manufacturers, all of which are one hundred percent government-owned and with sizes ranging from thirty to over five thousand employees.
Croatia fought for its independence between 1991 and 1995, which primarily influenced its decision to nationalize 2,171 formerly “socially-controlled” Yugoslav businesses, instead of taking the same economic route taken by numerous other formerly socialist nations in East Central Europe - colossal privatizations and deep, extensive reforms to its government-owned industries. Croatia’s Republic, according to the latest report, owns shares in nearly 400 businesses, which - as of 2015 – has a 32 billion USD estimated value in state holdings.
The Competitiveness and Investments Agency provides information online on a selection of privatized assets, while the Department of SOEs has comprehensive information on future developments, tenders, procurement, and related items on their website. The state appoints a manager to govern SOEs, although both the past and the current government have announced their intention publicly to hire independent professionals instead of maintaining government-appointed management.
State-owned enterprises receive the same fair treatment and market-based benefits as any other Croatian company, and - in relation to credit - are subject to the same high rates of interest.
Competence in Commercial Conduct
The law outlines and regulates a set of general expectations and guidelines for efficient business conduct. Croatia’s Agency in Financial Services and Supervision initiated the Business Administration Code of Ethics that all participants of Zagreb’s Stock Exchange (ZSE) are required to observe, while Credit Institutions, the Audit Law, Company Act, and the Accounting Law laid down business rules of governance.
Publicly listed firms must attach their yearly business governance reviews on ZSE’s online site. Based on a corporate governance report conducted in 2016 by the European Development and Reconstruction Bank, Croatia’s institutional system is relatively effective and supports good business governance.
There have been no controversial or notorious incidents of private industry’s activities affecting human rights in Croatia. Local regulations are executed by the GoC efficiently to prevent labor and human rights violations and to maintain ecological and consumer protection. But these protections are occasionally deemed excessive based on EU standards.
In Croatia, no regulation exists to compel private enterprises to establish an ethics guideline, but the country adheres to all EU policies and includes competent business conduct legislation throughout. Workers Unions serve as watchdogs for competent corporate behaviour, and in the process, will garner public awareness of the issues they consider as hindrances in protecting human rights within the financial industry.
Croatia has yet to join the OECD but participates in supporting the agency’s Due Diligence Guidelines for Efficient Minerals Supply Chains from High-Risk and Conflict-Affected Areas, as the agency considers minerals mined from conflicted regions unlawful. A variety of laws related to environmental and concessions protection, water and forest management, and mining are signed and executed over all mining and extractive businesses with the aim of maintaining superior standards of human rights and environmental protections. All processes for extraction and mining tenders are transparent and available to the public.
The Croatian Republic has competent legislations and punishments to fight corrupt practices. The law on Criminal Procedures and Criminal Codes includes policies related to forfeiture and seizure of assets, and outlines the available instruments granted to investigative agents in order to combat corruption.
It is the assumption in all corruption cases that the entirety of the accused’s property was obtained through unlawful means unless the accused can provide evidence for the legal origins of the property in question. In incidents where a 3rd party (spouse, family members, or relatives) has possession of monetary benefits that were obtained in bad faith, they are usually confiscated.
Croatia’s corruption laws are applicable to public officers, foreign and local investors, and their political affiliations and family members. The country’s Criminal Code governs money-laundering, influence trading, bribing of private industries, concealment, obstructing justice, embezzling of private assets, and abuse of political power. The legal system designed to fight corruption was enhanced further in 2010. The law on Suppression of Corrupt Practices and Organized Criminal Activities has extensive authority to indict fraudulent tax associated with corruption and organized crime.
Below are some of the subsequent legislations that were passed in order to suppress corrupt practices: the Act on Public Procurement, Bill on State Attorney’s Agency, The Budget Act, the Law on Confiscation of Property Obtained through Illegal Activities and Offenses, the Act on Prevention of Money Laundering, Judge’s Code of Conduct, Court’s Act, the Act of Financial Criminal Accountability, the Act on Prevention of Conflicts of Interest, Act on Protection of Personal Data, Law on Witness Protection, Public Services Act, and the Law on Freedom of Accessible information. The Labor Law includes protection for whistleblowers, but has yet to prove its effectiveness.
Croatia is part of GRECO, an organization that conducts peer monitoring and permits its members to evaluate anticorruption works on an ongoing basis. Croatia became an INTERPOL member since 1992, where it participates locally via SECI, RAI, and SEPCA. Croatia is also affiliated with the European Unions’ Judicial Cooperative Group Eurojust, and has signed a treaty with the United Nations’ Convention against Corrupt Practices.
Croatian laws grant protection to non-government organizations or NGOs engaged in directing public attention to, and conducting formal inquiries on, incidents of corruption. The state watchdog GONG is a politically neutral citizens’ group established in 1997 to help facilitate citizens in various initiatives, monitor election procedures, promote active communication between the public and their chosen government officials, provide education on human rights and social duties, and manage public advocacy drives. The Social Development Cooperation is another active NGO involved in the fight against corruption.
The commercial sector has historically been linked to corruption in construction, public funds, and healthcare. Recently, the community has not referred to it as a barrier to FDI.
Years after its accession to the European Union, Croatia has devoted itself to massive attempts to implement a comprehensive institutional or legal anti-corruption system. The GoC adopted numerous anti-corruption tactics, with a recent strategy taking effect in 2015. Prosecutors in Croatia have obtained corruption determinations against several high-ranking state officials, which included former ministers, senior supervisors from SOEs, and a former prime minister.
Reporting corruption: Croatia’s USKOK is the state prosecutor’s agency for suppressing organized crime and corruption. It’s responsible in prosecuting cases and facilitating police investigations. USKOK’s headquarters is located in Zagreb and has minor offices in Osijek, Split, and Rijeka. Additionally, PN-USKOK directs investigations on corruption-related cases.
Criminal judges who specialize in these cases are located in the biggest county courts in the country, in Rijeka, Zagreb, Osijek, and Split. They are tasked with adjudicating on organized criminal and corrupt activities, all of which will be highly prioritized by Croatia’s legal system.
The Interior Minister, Tax Administration, the Department of Justice’s Anti-Corruption agency, and the Department for the Prevention of Money Laundering are all given the important job of preventing and combating corruption. In 1997, a citizen’s society organization called GONG was established to help promote public participation among citizens and encourage them to take part in political issues and processes.
Portfolio investment and capital market: The country’s financial markets and securities are equally open to foreign and domestic investments. Foreign citizens may open accounts as nonresidents and can do business either locally or abroad.
Nonresidents may pay in, subscribe, sell, or purchase securities in Croatia with guidelines determining transactions. Residents and non-residents are given equal treatments in borrowing and spending. The Foreign Exchange Regulation Act covers all nonresident financing activities concerning securities.
Since 1991, they are exchanged on the ZSE. The ZSE has 3 tiers of traded or exchanged securities. The Law on Capital Markets controls every aspect of investment services as well as securities. It also defines the liabilities of HANFA.
The markets’ liquid assets are sufficient to enter as well as to exit large positions. There have been no guidelines that encumber financial resource flows. Currently, there are no limitations on transfers and payments for transferring money overseas, under the Article VIII Acceptance by IMF members. The private sector, either foreign or domestic, has access to financing or credit and various types of credit instruments in the country’s local market.
The banking and money system: At present, the banking sector of Croatia is tremendously privatized, competitive, sophisticated, consolidated, and has a growing variety of domestic and foreign business products and consumers. German, French, Austrian, or Italian firms own more than 90% of banks.
The first registered American bank in Croatia is the Addiko Bank in 2016. During the latest global financial crisis, the banking sector was not affected and remained strong.
Over 90% of the total assets of the banking sector are foreign owned. There were 5 savings banks and 25 commercial banks with total assets of 407 billion HRK ($61.7B) in March 2017.
The Zagrebackka Banka is the leading bank in the country, with total assets of 124 billion HRK ($18.8B), and 30.04% market share of Croatia’s total bank assets. Erste Bank is the 3rd major bank in the country, with 56 billion HRK ($8.5 B) assets and 13.76% market share. Croatia’s monetary authority holds and manages the HNB.
There are no delays or restrictions in opening bank accounts for nonresidents.
Remittances and Foreign Exchange
Foreign currency exchange: The constitution of Croatia guarantees repatriation of capital invested and profit for an FDI, conversion, and free transfer. Article VII of the IMF also protects money transfers.
The country’s Law on Foreign Exchange allows foreigners to process external payments and uphold foreign bank accounts. The law correspondingly regulates FDIs by allowing them to use earnings retained for new acquisitions or investments, except for financial investments (ex. Investment funds, pensions, and insurance). It also permits Croatian individuals and entities to make overseas investments. Any kinds of investment funds can be converted to any global currency.
The HNB determines the currency exchange rate. It also arbitrates in the foreign exchange market to make sure the Croatian Kuna (HRK) remains steady as a longstanding and explicit policy. The HRK exchange rate is floating freely, but it is tightly related to the euro compared to the US dollar. There is a low risk of significant depreciation or currency devaluation.
Remittance policies: Remittances have no limitations, either by volume or temporal. The Croatian government is not engaging in the manipulation of currency. There were no complaints from U.S companies reported to the United States Embassy Zagreb concerning remittances and transfers.
Sovereign wealth funds: The country does not have sovereign wealth funds.
The country does not support OECD Procedures for Multinational Enterprises, but it actively enforces rules and works together with the OECD in several fields, including the acceptance of the Croatian Competition Agency to the OECD Competition Committee in 2016.
Privatization program: Croatia continues to promote privatizations through the State Owned Assets Ministry which took over the State Administrative Office in 2016. There have been no limitations for foreigners that participate in programs of privatization.
Foreign investors bought the country’s telecommunications, banking sector, and the leading pharmaceutical corporation by privatization. The process of bidding is public and conditions are explicitly outlined in the tender bid documentation. However, difficulties with government and suitable judicial relief can slow project growth. Privatization has no timeline, but the government considers privatization to raise output and lessen the deficit on budget, working to achieve privatization processes faster. In 2017, the Croatian government was planning to vend $20 million worth of stocks and has correspondingly published government real state tenders.
All tenders were published globally. The participation of foreign investors in privatization has no restrictions. The process of bidding is public.
Security and political environment: There is a low political violence risk in the country. Croatia soared in popularity as a democratic and stable country after the dissolution of Yugoslavia as well as the succeeding wars in the region. It is an affiliate of the European Union and NATO. Relationships with bordering countries are good in general, though some differences concerning the residual effects of war and the demarcation line persist.
Labor Practices and Policies
The country has cultivated and qualified labor at a higher cost than regional averages. Labor is controlled by the employment law, the constitution, by treaties, international conventions, as well as employment and collective agreements.
The employment law is the primary piece of regulation that determines employment and proposes general employment guidelines. It also forbids discrimination, issues related to wages and employment, sets conditions for striking, and defines several kinds of leaves of absence similar to maternity leave.
Foreign workers have no important roles in all fields. The informal sector was projected at 35 percent of GDP, estimated by the World Bank. The country has the fifth highest rate of unemployment in the European Union, even though the rate is gradually decreasing.
As of 2017, the ILO methodology used by official figures showed an 11.3% unemployment rate, and a 40% youth unemployment rate. Nevertheless, the Croatian government is dedicated to growing jobs, particularly for youth by means of several EU funded programs. Because of the country’s labor law, it is comparatively costly to employ and dismiss workers compared to the U.S and other European countries with a similar level of growth, according to companies.
At present, there is a report on a shortage of transportation and construction workers. There is a continuing brain drain of workers in the country, due to approximately 60,000 educated and young workers leaving Croatia yearly.
The Croatian legal system does not entail the employment of Croatian citizens. Employers are obligated by law to provide a severance package to laid-off workers because of downsizing or restructuring. The employment law regulates the amounts and conditions of severance packages.
There are 3 conditions to be severance eligible:
- The employee must be terminated by the employer,
- Behavioral issues shouldn’t be the reason for termination,
- Employee should have been working for 2 successive years. The Employment Agency of Croatia is providing unemployment benefits for laid-off worker due to economic reasons.
Employment laws are sternly enforced and cannot be waived to attract or retain investments. Most unions are implementing the collective bargaining system, which represents employees connected with government expenditures and SOEs.
OPIC and insurance investment programs: In the latter part of 2016, the active projects of OPIC have incorporated $38M in information services, as well as for insurance and funding for constructions in the country. Croatia is also affiliated to MIGA.
Written By:Joe Webster
Joe Webster began his journey in the auto transport field by attending the University of Southern California (USC), where he graduated with a Bachelor of Business Marketing.
After college, he started his career in the auto transport industry from the bottom up and has done virtually every job there is to do at A-1 Auto Transport, including but not limited to: Truck Driver, Dispatch, Sales, PR, Bookkeeping, Transport Planner, Transport Manager, International Transport Manager, Brokering, Customer Service, and Marketing. Working with his mentor Tony Taylor, Joe Webster has learned the ins and outs of this industry which is largely misunderstood.
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