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Successfully investing in Croatia

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published on 19 May 2021 | reading time approx. 3 minutes

 

 

How do you assess the current economic situation in Croatia?

Due to the consequences of the crisis caused by a Covid-19 pandemic, the Croatian economy recorded a decline in economic activity of 8.4 per cent in 2020. However, the forecasts of the Croatian government and economic experts are optimistic and a quick return to successful paths of previous years is expected. It should be remembered that Croatia has had continuous economic growth during which a GDP growth rate of approx. 2,7 per cent in 2018 and 2,9 per cent in 2019 was recorded.

Moreover the extraordinary circumstances that befell the whole world intensified Croatia's government committment to create favourable framework conditions and a positive environment for foreign direct investments, with the strategy for recovery which primarily relies on digitisation with a Green Plan.

  

How would you describe the investment climate in Croatia? Which sectors offer the largest potential?

The Republic of Croatia has large investment potential. Key sectors are: car industry, ICT sector, pharmaceutical industry, food industry, metal industry, energy sector and tourism. This is mainly attributable to the geographical location of Croatia in Southeastern Europe. Access to the Adriatic Sea along the long coastline, a very well-developed motorway and rail network, as well as good flight connections offer potential investors the opportunity, on the one hand to invest in the tourism industry on the coastline and on the other hand to build production facilities in the country's interior. The widely popular issue of renewable energies is far from being exhausted yet and is certainly interesting for entrepreneurs having expertise in this area.

The north-western region of the country offers the largest competitive advantages because Croatia's capital city Zagreb – the Croatian economic hub – is located in this region. Other two relevant regions include Central and Eastern Croatia as well as the Adriatic Coast. The central-eastern part offers good investment opportunities for agriculture and the coastal region mainly for tourism.

Other factors that attract foreign investors include natural resources, well-developed financial services and high-quality telecommunications infrastructure. Also, Croatia has attractive tax incentives, double taxation agreements with many countries and is part of the EU's single customs area..
   

What challenges do German companies face during their business ventures into Croatia?

The bureaucratic system is the hurdle that businesses are faced with in Croatia. The biggest challenges for a German entrepreneur seeking to do business in Croatia will surely be bureaucracy and the particularly pronounced formalism. Depending on the area of entrepreneur's activity, it is necessary to obtain various approvals, permits and consents to operate a business in Croatia. It should be noted that the procedure of issuing the above documents often takes longer than expected. The Croatian authorities and courts often contend with the directly applicable EU regulations; therefore, if a German entrepreneur wants to invoke the EU regulation, this will certainly involve a greater deal of persuasive effort on his/her part than would be the case in a comparable situation in the Federal Republic of Germany.

However, a major positive change from the last years has been the successful digitization of  the public and private sectors which now can provide quick information that can be of great help to investors.

    

Croatia's government is enacting major innovations in a 5th round of tax reform aimed at boosting employment and wages. What does this mean for engagement in Croatia?

A 5th round of tax reform is a continuation of government policy of relieving both citizens and entrepreneurs. The total effect of the previous four rounds of tax reform (from 2017 to 2020) is higher than 8.2 billion Croatian Kuna and it is expected to exceed 10 billion.

The latest changes in the taxation of income are aimed at increasing the net income from the income of natural persons.

Also, according to the new legal changes, there will be a reduction of the profit tax rate from 12 to 10 per cent for taxpayers who earn up to 7.5 million Croatian Kuna. It is estimated that a reduced tax rate of 10 per cent will cover more than 93 per cent of taxpayers.

   

Are there any local differences in the implementation of applicable laws? If so, how does this affect businesses?

Although the applicable laws and regulations are the same throughout the Republic of Croatia, there are cases where the implementation and interpretation of laws varies depending on the location and region. Therefore, also the local circumstances should be examined in advance, if possible, in order to avoid any unexpected situations. If differences do exist, they will be mainly visible in the fact that the authorities will set different requirements for starting your business, even though the requirements are laid down in the laws or in the implementing regulations. In that regard, it is recommended to seek prior advice from experienced local specialists in areas such as law and taxes. Basically, however, it should be noted that the differences in the implementation of applicable laws are slowly becoming less significant, which is good news not only for potential investors.
  

In your opinion, how will Croatia develop?

Despite the crisis, Croatia's economic potential has not been shaken. Access to funds from EU, ie from the so-called Mechanism for Recovery and Resilience Facility (RRF) and implementation of the National Recovery and Resilience Plan (NPOO), under which Croatia can withdraw 6.3 billion Euros in grants and 3.6 billion Euros in soft loans over the next five years is great oportunity for investment in the private sector. A stimulating investment environment will lead not only to the growth of domestic but also foreign investment.

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