Our experience and longtime research on foreign investments confirm that Eastern European countries offer a wide variety of opportunities, especially for small and medium enterprises. Besides their strategic geographical position, the Balkans represent an economic bridge between Western and Eastern Europe: they benefit from very convenient tax and social security systems, with substantial tax breaks for investing enterprises and a very competitive cost of labor. Moreover, the establishment of companies is pursuant to European laws and regulations.
What follows is a summary of opportunities offered by Croatia.


Croatiais a European Union member state from July 1, 2013, but it is not part of the Schengen area. Its surface area is 56,594 km2with a population of 4,200,000 inhabitants. Its capital is Zagreb and the official currency is the CroatianKuna. Croatia is a semi-presidential republic.

Tax System

Croatia has a modern tax system, with a taxation policy similar to other European Union member states.

Natural persons taxation is regulated by the “Income Tax Act” (Official Gazette of RC ‘Narodne novine’ Nr. 177/04, 73/08, 80/10, 114/11, 22/12, Decision CCRC 120/12, 144/12, 125/13, 148/13, 143/14). Natural persons are subject to a state tax on incomes and other local levies.
Resident taxpayers must pay their dues wherever their earnings are originated, and income taxes include the following categories:

  • Employment wages;
  • Self-employment incomes,including company and professional revenues;
  • Real estate incomes and estate revenues;
  • Capital incomes (Profit Tax);
  • Diverse incomes.

Tax rates vary from 12%to 40%,according to the following:

  • For incomes up to 26,400.00 Kunathere is a 12% rate;
  • For incomes between 26,401.00 and 132,000.00 Kunathere is a rate of 25%;
  • For incomes over 132,000.00 Kunathere is a 40% rate.

Company business taxes are regulated by the“Profit Tax Act” (Official Gazette of RC ‘Narodne novine’ Nr. 177/04, 90/05, 57/06, 80/10, 22/12, 148/13, 143/14)and by further regulations concerning profit tax (Official Gazette of RC ‘Narodne novine’ Nr. 95/05, 133/07, 156/08, 146/09, 123/10, 61/12, 146/12, 160/13, 12/14, 157/14).

Companies are subject to income taxes, according to the following categories:

  1.  Companies, natural and legal persons who reside in the Croatian Republic and conduct economic activities aimed at generating income.
  2. Established organizations property of a non-resident subject.
  3. Natural persons who generateincomes pursuant to income tax regulations, in case they declare to generate enterprise income rather than natural person’sincome, and apply taxation accordingly.
  4. Entrepreneurs who generate income fromsmall enterprises or from similar activities, divided into the following categories:
    a) total incomes during the preceding fiscal year exceeding3,000,000.00 Kuna,or in case:
    b) they fall into one of the three following categories:
    – total income over 400,000.00Kuna during the preceding fiscal year;
    – long-term enterprise operations value estimated over 2,000,000.00 Kuna;
    – employing more than 15 people during preceding the fiscal year.
    The enterpriseincome tax standard rate is 20%.

Withholding tax rates are the following:

  • 15% (standard rate);
  • 12% (for dividends and company revenues distribution);
  • 20% (for all services paid to non-residents with registered office in non-EU countries, where the standard rate on profits is less than 12.50%).

The Value Added Tax is regulated by a specific Value Added Tax Law (Official Gazette of RC Narodne novine Nr. 73/13, 148/13, 143/14; Decision CCRC 99/13, 153/13), and a Value Added Tax Ordinance (Official Gazette of RC Narodne novine Nr. 79/13, 85/13 – amended, 160/13, 35/14, 157/14).
The VAT standard ratefor most goods and services is 25%. However, there are two reduced rates:

  • a 5% rate is applied to some commodities, or specific goods considered as essential;
  • a second reduced rate of 13%.

There are some tax exemptions: social assistance services, bank and insurance operations, medical assistance, postal services, transportation services, transit of goods through free trade zones, and other services and goods.

Cost of Labor

The Croatian government decrees the minimum gross monthly wage at3,017.61 Kuna (approximately € 400),which constitutes the base for calculating the amount of retirement and social security contributions. Said contributions are compulsory both for the employee(20%)and for the employer(15.20%).

Company Tax Relieves

Industrial production benefits from tax relieves on the following sectors:building of new infrastructures; energy saving restructuring of old buildings and plants; purchase and improvement of new equipment; new ICT technologies.
Contributions may be granted with a rate of 50%-60% eligible costs, from a minimum of 500,000 Euros to a maximum of 3,500,000 Euros.

State incentives:

  • enterprise investments for a minimum of 540,000 Euros, generating no less than 10 jobs, benefit from a 10% income tax rate for10 years;
  • investments of at least 1,350,000 Euros generating no less than 30 jobs benefit from a 7% income tax rate for 10 years;
  • investments of at least2,700,000 Eurosgenerating no less than 50 jobs benefit from a 3% income tax rate for 10 years.

Tenders with reduced interest rates: there is a 1.95% interest rates for a maximum loan of 1,500,000 Euros and a reimbursement period of 18-120 months.
Fundable expenses are the following:

  • expenses for tangible and intangible investments;
  • current working capital, combined with tangible and intangible investments up to a maximum of 30% of its total value.

Employer incentives, as follows:

  • reimbursementof 50% of contributions paid during the first year of employment, and 30% during the second year, for employees no older than 26 years, and mothers with children less than 3 years old.

Company Incorporation

In the Croatian legislation (“Enterprise Law” Official Gazette nr. 11/93; amendments and integrations as perOfficial Gazettenr. 34/99, 121/99, 52/00,118/03, 107/07, 146/08, 137/09, 152/11, 111/12 and 68/13) companies are divided into two big categories:

  • Persons’ companies (general partnership and limited partnership);
  • Capital companies (joint stock companies and limited liability companies).

Foreign investors can establish any kind of company, be it with or without Croatian partners.

Limited liabilities companies.The main features of this kind of company are the following:
– a limited liability company’s capital stock is divided into a number of shares (paid-in);
– each shareholder contributes to the capital stock with only one paid-inoperation;
– paid-in shares are not necessarily equivalent;
– the company may comprise of one person only;
– shareholders have limited company liabilities;
– the minimum capital stock is € 2,700;
– at least half of the capital stock must be deposited prior to company registration;
– founding shareholders quotas (not necessarily the same amount);
– the minimum capital stock shareholder’s quota may not be less than200 Kuna;
– capital stock quotas must be paid in full, and may be in cash, in goods and in non-cash securities, all valued at their cash equivalent.

Joint stock companies. These companies have their capital stock divided into shares, and may comprise of natural or legal persons. All stocks may be in the possession of a unique stockholder. The minimumcapital stock is 200,000.00 Kuna (€ 26,670). A joint stock company may issue stocks with a minimum nominal value of 10.00 Kunaper stock, or stocks without nominal value. It may issue diverse classes of stocks, that is common or preferred stocks, the latter offering special rights with regard to dividends, payable incomes and voting operations. Stocks may be issued as securities (tangible securities) or in electronic format (intangible securities). Joint stockcompanies’ bodies are regulated by their Articles of Association, and are divided into two administration systems:
– double board system (two-tier system),comprising of the board of directors and the supervisory board;
– single board system (one-tier system), with a board of directors only.

General partnership.These companies comprise of two or more partners who pursue a common, shared goal on behalf of the company. Each partner has unlimitedand mutual liability towards company’s creditors through its entire capital. Each natural or legal personmay be partner.

Limited partnership. In this type of company two or more persons conduct businesses with a common, shared economic goal. At least one of the partners (general partner) has unlimited liability for company’s obligations, while at least one of the partners(limited partner) has limited liability according to its share of deposited capital. Limited partnership companiesundergo the same regulations of general partnership companies, if not specifically regulated differently. Incorporation acts must specify general and limited partners.Management may only be held by general partners, while limited partners shall not operate as managers andcannot oppose managers’ decisions, except when said decisions go beyond standard business practices.

In order to establish a company in Croatia, a foreign legal person must file an authentic copy of its registration at the Company Register of its country of origin, and provide a sworn translation into Croatian of said document.
Non-resident natural persons must provide an authentic copy of their passport. In case of personal appearance before a notary public, the latter will make a copy of the passport and seal-stamp it. In case of absence thereof, an authentic copy of the passport must be provided, with a sworn translation by a certified interpreter.
It is also necessary to write an incorporation document:

– in case there is more than one partner, this document will be structured as an incorporation deed;
– in case there is only one founding partner, it is enough to write an incorporation declaration.

All the above written documentation must be in Croatian (foreign language deeds must be translated, as Croatian is the only admitted language). Due to theserequirements, non-resident investors must provide a sworn interpreter and two witnesses. The sworn interpreter translates orally (reading) the incorporation deed, and the notary public provides for a transcription, specifying that the incorporation deed has been read to the non-resident partner. It is therefore not necessary to translate the entire incorporation deed into Croatian. All legal documents must be sealed and signed by a notary public.

After having written the incorporation deed, it must be filed and registered at the County Commercial Court where the company will be based. This procedure is commenced after having notified the Court in writing. Said notice with a request to register company data, including all required documents and certifications, will be sealed by a notary public and must be filed by an authorized person.

After registration there is the need to provide an official company seal, which may be orderedonly after registrationapproval. Subsequently, it is requiredto file said documentation to the National Institute for Statistics in order to categorizethe company according to its activity, and receive a statistical ID number and activity code.

After the County Commercial Court and the local National Institute for Statistics office, it is then necessary to register the company at the local Internal Revenue office.
It is then possible to open a bank account both in Croatian Kuna and in a foreign currency; all capital stock cash must be deposited in Croatian Kuna(in case there was a previous deposit in a foreign currency).
Costs related to establishing a commercial company in Croatia may vary according to the kind of company. For a limited liability company the total is approximately € 700 (not including local consulting for the incorporation deed, and sworn translation expenses).

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