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Investing in Croatia
1. Buying a home
The following information has been gathered from
information published by the Croatian Government, which may be updated from
time to time. It is important to check before proceeding with anything.
Provided the condition of reciprocity is met,
foreign physical persons or legal entities are free to acquire and dispose of
property (real estate and movable property) in the Republic of Croatia.
Regardless of whether a foreign entity performs an activity in Croatia or not,
the acquirement of real estate ownership rights by a foreigner has to be
approved by the Ministry of Justice. However, EU citizens no longer need
Ministry permission for the purchase of residential property.
2. Commercial Investment
TYPES OF INVESTMENT FOR FOREIGN LEGAL
ENTITIES
Foreign legal entities in the Republic of Croatia are allowed to:
- Invest capital on a contractual basis;
- Invest capital in a company;
- Invest capital in a bank, savings institution or insurance company;
- Start up as a sole trader or craftsman;
- Acquire the right to exploit natural resources or other assets of
interest to Croatia;
- Take part in Build-Operate-Transfer (B.O.T.) deals and in
Build-Own-Operate-Transfer (B.O.O.T.) deals.
According to the Company Act, foreign entities
are allowed to establish the following either alone or with domestic legal
entities:
- Public limited liability companies;
- Limited partnerships;
- Joint-stock companies;
- Limited liability companies;
- Silent partnerships.
Foreign persons are allowed to acquire shares
and ownership stakes in existing joint-stock and limited liability
companies.
All such companies are required to be registered
in the Court Register of the competent Commercial Court, dependant on the
location of the company's headquarters.
When establishing a joint-stock company or a
limited liability company, a foreign investor may either invest money, goods or
rights. The minimum capital required when establishing a joint-stock company
is 20,000 Kunas.
A joint-stock company may also be established by
a single natural person or legal entity.
The minimum capital required when
establishing a limited liability company is 5,000 Kunas, while the minimum
ownership stake is set at the domestic currency equivalent of 200 Kunas. A
company may be established by one or more persons.
A foreign natural person is allowed to operate
as a sole trader in the Republic of Croatia provided he/she holds a work permit
and the condition of reciprocity is met. Before starting to engage in
handicrafts, the person is required to obtain a trading licence, which is
issued by the competent County office, dependant on where the headquarters of
the particular handicraft is located. Preferential crafts are approved by the
competent Ministry, dependant on the type of handicraft.
REPATRIATION OF
PROFITS
The issue of transferring profits to a foreign
country is regulated by the Foreign Exchange System, Foreign Exchange
Transactions and Trade in Gold Act. According to this Act, the transfer of
profits is unrestricted and may be effected after all legal obligations in
Croatia have been met.
If a company with profits to be transferred has
its own foreign currency income from exports of goods and/or services, then the
transfer of profits may be effected through the company's own foreign currency
account held at an authorised local bank.
A foreign investor may opt to keep the profits
in Croatian currency in his or her domestic currency account held at an
authorised local bank. In addition to the transfer of profits to a foreign
country and payments in Croatia, the profits can be used for loans to domestic
entities in accordance with the law, and for transfers into domestic currency
accounts of other foreign persons.
OWNERSHIP RIGHTS OF FOREIGN
PERSONS OR LEGAL ENTITIES
If a foreign person establishes a company in the
Republic of Croatia, the company is considered to be a domestic legal entity
and it may acquire real estate ownership rights irrespective of whether the
real estate is acquired for business operations or for another purpose. Foreign
persons are also allowed to acquire mortgage rights on real estate.
Provided the condition of reciprocity is met,
foreign physical persons or legal entities are free to acquire and dispose of
property (real estate and movable property) in the Republic of Croatia.
Regardless of whether a foreign entity performs an activity in Croatia or not,
the acquirement of real estate ownership rights by a foreigner has to be
approved by the Ministry of Justice, unless they are EU citizens.
BUSINESS OPERATIONS OF FOREIGN
COMPANIES
The Company Act provides special stipulations
covering foreign companies (registered outside the Republic of Croatia) and
sole traders (recognised outside the Republic of Croatia) who carry out
business activities within the territory of the Republic of Croatia.
Foreign companies and foreign sole traders
enjoy, in principle, the same rights as domestic legal entities in their
operations within the territory of the Republic of Croatia. The only condition
that must be met when starting such operations is that a subsidiary must be
established.
Subsidiaries do not have the status of legal
entities. All the rights and obligations stemming from their business
operations are transferred to the founding company. A subsidiary may engage on
behalf of the mother-company in all the operations that are included in the
company's business activity.
REPRESENTATIVE OFFICES OF
FOREIGN COMPANIES
According to the Trade Act, a foreign person may
establish a Representative Office for the purpose of effecting market research,
promotional and information activities and its presentation.
A Representative Office does not have the status
of a legal entity and is not empowered to conclude contracts.
A foreign Representative Office may start
operating upon registration in the Register of Foreign Entities held at the
Ministry of Economic Affairs.
For its business operations, a Representative
Office is allowed to hold both foreign and domestic currency accounts in
authorised domestic banks.
CONCESSIONS
Rights to concessions are regulated by the Law
on Concessions. Foreign persons cannot become owners of certain types of real
estate (natural resources and other wealth which is of special interest to the
Republic of Croatia). The decision on whether to grant a concession is made by
the Croatian Parliament or the Government.
A concession cannot be granted for the
exploitation of forests or other assets regulated by special laws if they are
state owned (e.g. maritime property, agricultural land, water resources).
A concession may be granted for a period of up
to 99 years (40 years for agricultural land).
A concession may be granted to a domestic or
foreign legal entity, or natural person on the basis of the results of public
tenders or bid invitations.
The party granting the concession and the
applicant sign an agreement which is inscribed in the Concession Register kept
at the Ministry of Finance.
An annual fee is paid for each Concession
Right.
FREE ZONES
Free Zones can be established in the area of a
seaport, river port, along international roads and in other areas in which
there are conditions for their operations.
All activities may be carried out within such a
Zone (production of goods, refinement of goods, wholesale trade and mediation
in trade, services, etc.), except for retail trade.
A Free Zone, as a rule, may be established on
the basis of a concession granted by the Government of the Republic of Croatia
(Ministry of Economic Affairs, Free Zones Administration).
A concession to establish a Zone is granted on
the basis of a public tender or a public bid collection.
A Zone may be founded by one or more domestic
persons, or by the Government of the Republic of Croatia if a particular
economic interest for the establishment of a Zone exists. Foreign persons
cannot be founders of a Zone.
The founder of a Zone and other domestic and
foreign legal entities and natural persons may be the users of a Zone.
Goods may be freely stored in a Zone. For the
goods stored in a Zone that are not allocated for turnover on the domestic
market, no customs duties or taxes are levied and no other economic obligations
are applied.
Tax benefits for the users of a
Zone:
- users who build or participate in the construction of infrastructure
facilities within a Zone, the amount of which exceeds one million HRK, are
exempted from paying profit tax in the first 5 years of doing business;
- other users in a Zone pay profit tax amounting to 50% of the prescribed
rate, which currently amounts to 35%, i.e. 17.5%;
- the Croatian Government may exceptionally increase tax benefits for a
single Zone, i.e. for the performing of certain activities within a
Zone.
Established Free Zones:
- Krapina-Zagorje Free Zone, Krapina
- Free Zone Kukuljanovo, Rijeka
- Free Zone Osijek, Osijek
- Free Zone Podi, Šibenik
- Port of Rijeka Free Zone, Rijeka
- Free Zone Zagreb, Zagreb
AREAS OF SPECIAL STATE
WELFARE
In order to stimulate economic development and
capital investment in the areas which were temporarily occupied, the Areas of
Special State Welfare Act stipulates a whole range of benefits.
These selected areas are divided into two
groups, i.e. depending on the size of the municipal centre and its distance
from the border. These groups also have an influence on the level of benefits
themselves.
CUSTOMS BENEFITS
The Law establishes customs exemptions for legal
entities and physical persons that have residence status in the areas subject
to special state welfare when importing, delivering or receiving equipment or
parts for the reconstruction or development of activities carried out in these
areas. In such cases approval is required from the Ministry of Reconstruction
and Development.
BENEFITS FOR THE
TAXATION OF INCOME AND PROFIT
The usual protective interest rate is 5%,
however, entrepreneurs in the areas of special state welfare are covered by a
protective interest rate of
- 20% (areas belonging to the first group)
- 15% (areas belonging to the second group)
Personal allowances (800 HRK in other areas of
Croatia) amount to:
- 3,500 HRK (taxpayers from the first group)
- 2,700 HRK (taxpayers from the second group)
BENEFITS FOR
THE TAXATION OF REAL ESTATE
The Act also establishes tax exemptions on real
estate transactions in these areas provided real estate is sold by a legal
entity and used by the buyer for further performing his/her business
activities. Physical persons are also exempted from paying real estate sales
tax if they buy real estate in the same area where they have residence
status.
SHARES
The Croatian Privatisation Fund's shares in
property in the areas of special state welfare may be distributed free of
charge or with discount to physical persons or legal entities who live or start
a business in these areas.
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