Foreign investments in the Republic of Croatia are regulated by the Company Act which came into force on January 1, 1995. According to this Act, foreign investors have the same rights, obligations and legal status within an enterprise as domestic investors, provided the condition of reciprocity is met.
Foreign investors can acquire rights to additional guarantees which are not given to domestic investors. The Constitution of the Republic of Croatia states that rights acquired through capital investments cannot be withdrawn by law or any other legal act. It also insures free repatriation of profits and free repatriation of capital on disinvestment.
Total foreign investments in Croatia from 1993 until mid 1997 amounted to 833.6 m USD, 36% of which was accounted for by the pharmaceutical industry. The main foreign investors were: Asea Brown Bovery, Coca-Cola Amatil, Ericsson, Heidelberger Zement, Siemens, Societe Suisse de Ciment Portland, Tuborg, etc..
Foreign legal entities in the Republic of Croatia are allowed to:
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 the domestic currency equivalent of 30,000 DM, while the minimum nominal value of a share is set at the domestic currency equivalent of 10 DM.
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 the domestic currency equivalent of 5,000 DM, while the minimum ownership stake is set at the domestic currency equivalent of 200 DM. 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.
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.
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 Foreign Affairs.
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.
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.
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 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:
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
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.
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
Personal allowances (800 HRK in other areas of Croatia) amount to:
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.
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.