Croatia’s EU membership has enhanced its economic stability and provided new opportunities for trade and investment. Despite having access to a substantial amount of EU funds, the Croatian economy has yet to gain the full benefits of membership in terms of growth and sustainability. Croatia will receive more than $30 billion in EU funding through 2030, which has the potential to provide a significant boost to the economy, if the government directs the funds to productive activities that stimulate job creation and growth. Croatia joined the European Exchange Rate Mechanism (ERM II) in July 2020, and the government is committed to eurozone accession by mid-2024.
The Croatian economy had experienced a five-year period of growth and stability, but the COVID-19 pandemic coupled with three devastating earthquakes that caused more than $20.3 billion worth of damage to Zagreb and central Croatia led the economy to contract by 8.4 percent in 2020. The budget deficit reached approximately 7.4 percent in 2020. 8.4 percent in 2020. The tourism sector, which directly accounts for 12 percent of Croatia’s GDP and indirectly as much as 20 percent, achieved only 50 percent of the prior year’s revenues. The government doled out more than $1.5 billion in job-retention and economic stabilization measures. Unemployment in January 2021 was at 7.1 percent, only slightly higher than the average rate in 2019. The European Commission estimates that the Croatian economy will grow 5.3 percent in 2021 and 4.6 percent in 2022.
The economy is burdened by a large government bureaucracy, underperforming state-owned enterprises, and low regulatory transparency, all of which contribute to poor performance and relatively low levels of foreign investment. The Croatian government has taken some positive steps to reduce para-fiscal fees and taxes and to simplify procedures for opening a business. However, it has been slow to implement additional steps to reduce barriers to investment, streamline bureaucracy and public administration, and reform the judiciary. The government continues to implement economic reforms designed to create sustainable economic growth and development, to connect education to the labor market, and to sustain public finances.
The government is willing to meet at senior levels with interested investors and to assist in resolving problems. Prime Minister Andrej Plenkovic, elected to a second consecutive term in July 2020, is a former member of the European Parliament and has signaled his commitment to wide-ranging structural reforms in line with recommendations from the EU and global financial institutions. His government is working with the World Bank and other international institutions to improve the business climate and to attract investment. Relative strengths in the Croatian economy include low inflation, a stable exchange rate, and developed infrastructure.
Historically, the most promising sectors for investment in Croatia have been tourism, telecommunications, pharmaceuticals, healthcare, and banking. Investment opportunities are growing in Croatia’s robust IT sector, and the coming years will offer new opportunities related to energy transition. Starting in 2020, Croatia offers visas for so-called “digital nomads” to work in Croatia without having to pay local taxes in order to attract individuals with bigger spending capabilities and connections to strong IT sectors abroad.
|TI Corruption Perceptions Index||2020||63 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||51 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||41 of 128||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||$184||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita (USD)||2019||$28,388||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Croatia is generally open to foreign investment and the Croatian government continues to make efforts, through financial incentives, to attract foreign investors. All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below. However, bureaucratic and political barriers remain. Investors agree that an unpredictable regulatory framework, lack of transparency, judicial inefficiencies, lengthy administrative procedures, lack of structural reforms, and unresolved property ownership issues weigh heavily upon the investment climate.
Croatia is partnered with the World Bank on the “Croatia Business Environment Reform” project which intends to help Croatia implement various business reforms. The Ministry of Economy and Sustainable Development Directorate for Internationalization assists investors. For more information, see: . The Strategic Investment Act fast-tracks and streamlines bureaucratic processes for large projects valued at USD 10.7 million or more on the investor’s behalf. Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.
Limits on Foreign Control and Right to Private Ownership and Establishment
Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities. Article 49 of the Constitution states all entrepreneurs have equal legal status. However, the Croatian government restricts foreign ownership or control of services for a handful of strategic sectors: inland waterways transport, maritime transport, rail transport, air to ground handling, freight-forwarding, publishing, ski instruction, and primary mandated healthcare. Apart from these, the only regulatory requirements to market access involve occupational licensing requirements (architect, auditor, engineer, lawyer, veterinarian, etc.), about which detailed information can be found at . Over 90 percent of the banking sector is foreign owned.
Croatia does not have a foreign investment screening mechanism, but the government designated the Ministry of Economy and Sustainable Development Internationalization Directorate as the “National Contact Point” for reviewing direct investments and responding to requests for information from EU Member States or the European Commission, per European Union Directive 2019/452.
Other Investment Policy Reviews
The Croatian government offers two e-government options for on-line business registration, and , both of which provide 24-hour access. Start.gov.hr provides complete business registration for a limited liability company (d.o.o.), simple limited company (j.d.o.o.) or company, without any need to physically enter a public administration office. The procedure guarantees a short turnaround on requests and provides deadlines by which the company can expect to be registered. The Start.gov.hr procedure eliminates fees for public notaries, proxies, seals, and stamps, and reduces court registration fees by 50 percent. Hitro.hr also provides on-line services but maintains offices in 60 Croatian cities and towns for those who want to register their business in person.
In 2020, the Global Enterprise Registration website ( ) rated Croatia’s business registration process 4 out of 10, while the latest available 2020 World Bank Ease of Doing Business report ranks Croatia as 114 out of 190 countries in this category. The government pledged to improve conditions for business registration and continues to identify areas for removing burdensome regulations and processes. Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.
Croatian foreign direct investment totals approximately USD 24.6 million in the United States, according to Croatian National Bank figures. The government does not promote or incentivize outward investment. Croatia has no restrictions on domestic investors who wish to invest abroad.
3. Legal Regime
Transparency of the Regulatory System
Croatian legislation, which is harmonized with European Union legislation (acquis communautaire), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulation can be complex and time-consuming, although the government is working to remove unnecessary regulations. The complete text of all legislation is published both on-line and in the National Gazette, available at: . There are no informal regulatory processes, and investors should rely solely on government-issued legislation to conduct business.
The Croatian Parliament promulgates national legislation, which is implemented at every level of government, although local regulations vary from county to county. Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation. Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval. The approved act becomes official on the date defined by Parliament and when it is published in the National Gazette. Citizens maintain the right to initiate a law through their district Member of Parliament. New legislation and changes to existing legislation which have a significant impact on citizens are made available for public commentary at . The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure.
Croatia adheres to international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses. Publicly listed companies must adhere to these accounting standards by law.
Croatian courts are responsible for ensuring that laws are enforced correctly. If an investor believes that the law or an administrative procedure is not implemented correctly, the investor may initiate a case against the government at the appropriate court. However, judicial remedies are frequently ineffective due to delays or political influence.
The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforced order. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. Enforcement proceedings are regulated by the Enforcement Act, last amended in 2017, and by laws regulating its execution, such as the Act on Implementation of the Enforcement over Monetary Assets, amended in 2020. The legislation incorporates European Parliament and European Commission provisions for easily enforcing cross-border financial claims in both business and private instances. Enforcement proceedings are conducted on the basis of enforcement title documents which specify the creditor and debtor, the subject, type, scope, and payment deadline.
More information can be found at . Various types of regulation exist, which prescribe complicated or time-consuming procedures for businesses to implement. Reports on public finances and public debt obligations are available to the public on the Ministry of Finance website at: .
International Regulatory Considerations
Croatia, as an EU member, transposes all EU directives. Domestic legislation is applied nationally and – while local regulations vary from county to county — there is no locally-based legislation that overrides national legislation. Local governments determine zoning for construction and therefore have considerable power in commercial or residential building projects. International accounting, arbitration, financial, and labor norms are incorporated into Croatia’s regulatory system.
Croatia has been a member of the World Trade Organization (WTO) since 2000. Croatia submits all draft technical regulations to the WTO, in coordination with the European Commission.
Legal System and Judicial Independence
The legal system in Croatia is civil and provides for ownership of property and enforcement of legal contracts. The Commercial Company Act defines the forms of legal organization for domestic and foreign investors. It covers general commercial partnerships, limited partnerships, joint stock companies, limited liability companies and economic interest groupings. The Obligatory Relations Act serves to enforce commercial contracts and includes the provision of goods and services in commercial agency contracts.
The Croatian constitution provides for an independent judiciary. The judicial system consists of courts of general and specialized jurisdictions. Core structures are the Supreme Court, County Courts, Municipal Courts, and Magistrate/Petty Crimes Courts. Specialized courts include the Administrative Court and High and Lower Commercial Courts. A Constitutional Court determines the constitutionality of laws and government actions and protects and enforces constitutional rights. Municipal courts are courts of first instance for civil and juvenile/criminal cases. The High Commercial Court is located in Zagreb and has appellate review of lower commercial court decisions. The Administrative Court has jurisdiction over the decisions of administrative bodies of all levels of government. The Supreme Court is the highest court in the country and, as such, enjoys jurisdiction over civil and criminal cases. It hears appeals from the County Courts, High Commercial Court, and Administrative Court. Regulations and enforcement actions are appealable and adjudicated in the national court system.
On January 1, 2021 the government established a High Criminal Court, headquartered in Zagreb, which will be responsible for adjudication of second instance appeals against decisions made by County Courts in cases that involve criminal acts.
The Ministry of Justice and Public Administration continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of judicial cases. The World Bank approved a USD 110 million loan to Croatia for the Justice for Business Project in March 2020, specifically for the purpose of supporting ICT infrastructure upgrades, court process improvements, and other reforms that will improve justice sector services to improve the business climate. This effort will be led by the Ministry of Justice and Public Administration, in coordination with the Economy Ministry and the Construction Ministry, from 2020 to 2024.
Reforms are underway, but significant challenges remain in relation to land registration, training court officers, providing adequate resources to meet the court case load, and reducing the backlog and length of bankruptcy procedures. Investors often face problems with unusually protracted court procedures, lack of clarity in legal proceedings, contract enforcement, and judicial efficiency. Croatian courts have decreased the number of civil, criminal. and commercial cases and decreased the disposition time for resolution of those cases, however there is still a significant case backlog. The 2020 European Commission Country Report for Croatia assessed that the length of court proceedings continues to be a burden for business.
Laws and Regulations on Foreign Direct Investment
There are no specific laws aimed at foreign investment; both foreign and domestic market participants in Croatia are protected under the same legislation. The Company Act defines the forms of legal organization for domestic and foreign investors. The following entity types are permitted for foreigners: general partnerships; limited partnerships; branch offices; limited liability companies; and joint stock companies. The Obligatory Relations Act regulates commercial contracts.
The Ministry of Economy and Sustainable Development Internationalization Directorate ( ) facilitates both foreign and domestic investment. The directorate’s website offers relevant information on business and investment legislation and includes an investment guide.
According to Croatian commercial law a number of significant or “strategic” business decisions must be approved by 75 percent of the company’s shareholders. Minority investors with at least 25 percent ownership plus one share have what is colloquially called a “golden share,” meaning they can block or veto “strategic” decisions requiring a 75 percent vote. The law calls for minimum 75 percent shareholder approval to remove a supervisory board member, authorize a supervisory board member to make a business decision, revoke preferential shares, change company agreements, authorize mergers or liquidations, and to purchase or invest in something on behalf of the company that is worth more than 20 percent of the company’s initial capital. (Note: This list is not exhaustive.)
Competition and Anti-Trust Laws
The Competition Act defines the rules and methods for promoting and protecting competition. In theory, competitive equality is the standard applied with respect to market access, credit, and other business operations, such as licenses and supplies. In practice, however, state-owned enterprises (SOEs) and government-designated “strategic” firms may still receive preferential treatment. The Croatian Competition Agency is the country’s competition watchdog, determining whether anti-competitive practices exist and punishing infringements. It has determined in the past that some subsidies to SOEs constituted unlawful state aid, however state aid issues are now handled by the Ministry of Finance. Information on authorities of the Agency and past rulings can be found at . The website includes a “call to the public” inviting citizens to provide information on competition-related concerns.
Expropriation and Compensation
Croatian Law on Expropriation and Compensation gives the government broad authority to expropriate real property in economic and security-related circumstances, including eminent domain. The Law on Strategic Investments also provides for expropriation for projects that meet the criteria for “strategic” projects. However, it includes provisions that guarantee adequate compensation, in either the form of monetary compensation or real estate of equal value to the expropriated property, in the same town or city. The law includes an appeals mechanism to challenge expropriation decisions by means of a complaint to the Ministry of Justice and Public Administration within 15 days of the expropriation order. The law does not describe the Ministry’s adjudication process. Parties not pleased with the outcome of a Ministry decision can pursue administrative action against the decision, but no appeal to the decision is allowed.
Article III of the U.S.-Croatia Bilateral Investment Treaty (BIT) covers both direct and indirect expropriations. The BIT bars all expropriations or nationalizations except those that are for a public purpose, carried out in a non-discriminatory manner, in accordance with due process of law, and subject to prompt, adequate, and effective compensation.
ICSID Convention and New York Convention
In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID). Croatia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration: the 1923 Geneva Protocol on Arbitration Clauses; the 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions; the 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions; and the 1961 European Convention on International Business Arbitration.
Investor-State Dispute Settlement
The Croatian Law on Arbitration addresses both national and international proceedings in Croatia. Parties to arbitration cases are free to appoint arbitrators of any nationality or professional qualifications and Article 12 of the Law on Arbitration requires impartiality and independence of arbitrators. Croatia recognizes binding international arbitration, which may be defined in investment agreements as a means of dispute resolution.
The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, and jurisdictional matters. Once an arbitration decision has been reached, the judgment is executed by court order. If no payment is made by the established deadline, the party benefiting from the decision notifies the Commercial Court, which becomes responsible for enforcing compliance. Arbitration rulings have the force of a final judgment but can be appealed within three months.
In regard to implementation of foreign arbitral awards, Article 19 of the Act on Enforcement states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law.” The Act on Enforcement serves to decrease the burden on the courts by passing responsibility for the collection of financial claims and seizures to the Financial Agency (FINA), which is responsible for paying claimants once the court has rendered a decision ordering enforcement. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. More information can be found at .
Article Ten of the U.S.-Croatia BIT sets forth mechanisms for the resolution of investment disputes, defined as any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the BIT with respect to a covered investment.
Croatia has no history of extra-judicial action against foreign investors. There are currently two known cases, pending for years, regarding U.S. investor claims before Croatian courts. Both investors have also announced plans to file claims at international arbitration courts, citing the U.S.-Croatia BIT as the basis for the action.
International Commercial Arbitration and Foreign Courts
Alternative dispute resolution is implemented at the High Commercial Court, at the Zagreb Commercial Court, and at the six municipal courts around the country. In order to reduce the backlog, non-disputed cases are passed to public notaries.
Both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965. Arbitration is voluntary and conforms to UNCITRAL model procedures. The Chamber of Economy’s Mediation Center has been operating since 2002 – see .
There are no major investment disputes currently underway involving state-owned enterprises, other than a dispute between the Croatian government and a Hungarian oil company over implementation of a purchase agreement with a Croatian oil and gas company. There is no evidence that domestic courts rule in favor of state-owned enterprises.
Croatia’s Bankruptcy Act corresponds to the EU regulation on insolvency proceedings and United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency. All stakeholders in the bankruptcy proceeding, foreign and domestic are treated equally in terms of the Bankruptcy Act. The last available World Bank Ease of Doing Business 2020 rating for Croatia in the category of resolving insolvency was 63 out of 190 countries. Bankruptcy is not considered a criminal act.
The Financial Operations and Pre-Bankruptcy Settlement Act helps expedite proceedings and establish timeframes for the initiation of bankruptcy proceedings. One of the most important provisions of pre-bankruptcy is that it allows a firm that has been unable to pay all its bills to remain open during the proceedings, thereby allowing it to continue operations and generate cash under financial supervision in hopes that it can recover financial health and avoid closure.
The Commercial Court of the county in which a bankrupt company is headquartered has exclusive jurisdiction over bankruptcy matters. A bankruptcy tribunal decides on initiating formal bankruptcy proceedings, appoints a trustee, reviews creditor complaints, approves the settlement for creditors, and decides on the closing of proceedings. A bankruptcy judge supervises the trustee (who represents the debtor) and the operations of the creditors’ committee, which is convened to protect the interests of all creditors, oversee the trustee’s work and report back to creditors. The Act establishes the priority of creditor claims, assigning higher priority to those related to taxes and revenues of state, local and administration budgets. It also allows for a debtor or the trustee to petition to reorganize the firm, an alternative aimed at maximizing asset recovery and providing fair and equitable distribution among all creditors.
In April 2017, the Croatian government passed the “Law on Extraordinary Appointment of Management Boards for Companies of Systematic Importance to the Republic of Croatia,” when it became clear that Croatia’s largest corporation, Agrokor, was in crisis and would likely go bankrupt. The Law allowed the Government, in this instance, to install an Emergency Commissioner to restructure the company, which resulted in the creation of the Fortenova Group that took on the core business of the former Agrokor food and retail company.
5. Protection of Property Rights
The right to ownership of private property is enshrined in the Croatian Constitution and in numerous acts and regulations. A foreign natural or legal person incorporated under Croatian law is considered to be a Croatian legal person and has the right to purchase property. The Ownership and Property Rights Act establishes procedures for foreigners to acquire property by inheritance as well as legal transactions such as purchases, deeds, and trusts. Croatia has a well-functioning banking system, which provides mortgages, while courts and cadaster offices handle property records.
However, real property ownership can be particularly challenging in Croatia owing to unique titling issues, separate ownership of buildings and the land on which they sit, reciprocity laws, special treatment of agricultural land and coastal regions, and zoning disputes more generally. For all of these reasons, investors should seek competent, independent legal advice in this area. The U.S. Embassy maintains a list of English-speaking attorneys ( ). The Ministry of Economy Directorate for Investment, Industry and Innovation helps those seeking information about property status in Croatia.
While the cadaster offices reliably maintain records, there is a portion of property in Croatia which has changed hands without appropriate documentation for various reasons, including avoidance of paying the title transfer fees or hiding wealth. Historically, individuals and companies spent years in court attempting to resolve improper real estate documentation. For this reason, potential buyers should seek to verify that the seller possesses clear title to both the land and buildings (which can be titled and owned separately).
In order to acquire property by means other than inheritance or as an incorporated Croatian legal entity, foreign citizens must receive the approval from the Ministry of Justice and Public Administration. Approval can be delayed, owing to a lengthy interagency clearance process. While EU citizens are afforded the same rights as Croatian citizens in terms of purchasing property, the right of all other foreigners to acquire property in Croatia is based on reciprocity.
In the case of the United States, reciprocity exists on a (sub-federal) state-by-state basis. Croatia’s Ministry of Foreign and European Affairs has confirmed the existence of positive reciprocity for real estate purchases for residents of the following states: Alabama, Arizona, Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas Louisiana, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming.
Alternatively, for U.S. citizens from Arkansas, Hawaii, Kentucky, Minnesota, Mississippi, New Hampshire, Oklahoma and Vermont, property acquisition is only allowed with the condition of Croatian permanent residence. Residents of other states could face longer waiting periods. The Foreign Ministry has confirmed that Croatian nationals can purchase real estate throughout the United States without restrictions. A foreign investor, incorporated as a Croatian legal entity, may acquire and own property without ministry approval, with the caveat that the purchase by any private party of certain types of land (principally land directly adjacent to the sea or in certain geographically designated areas) can be restricted to foreign investors for purposes of national security.
Inheritance laws have led to situations in which some properties have claims by dozens of legal owners, some of whom are deceased and others who have emigrated and cannot be found.
It is also important to verify the existence of necessary building permits, as some newer structures in coastal areas have been subject to destruction at the owner’s expense and without compensation for not conforming to local zoning regulations. Investors should be particularly wary of promises that structures built without permits will be regularized retroactively. The Act on Legalization of Buildings and Illegal Construction is intended to resolve ambiguities regarding ownership of real estate.
Land ownership is distinct from ownership of buildings or facilities on the land. Investors interested in acquiring companies from the Ministry of Physical Planning, Construction, and State Assets should seek legal advice to determine whether any deal also includes the right to ownership of the land on which a business is located, or merely the right to lease the land through a concession. Property may be mortgaged. Inconsistent regulations and restrictions on coastal property ownership and construction have also provided challenges for foreign investors in the past. Croatian law restricts construction and commercial use within 70 meters of the coastline.
When purchasing land for construction purposes, potential buyers should determine whether the property is classified as agricultural or construction land. The Agricultural Land Act provides for additional fees for re-zoning of up to 50 percent of the value of the land that is diverted from agriculture to construction purposes. The Agricultural Land Agency works with local governments to review potential agricultural land purchases. The sale of privately owned farmland is treated solely as the subject of a sales agreement between the parties. Buyers of this type of land should still proceed with caution and be aware of potentially unresolved legacy issues with land ownership. Land in Croatia is either publicly or privately owned and cannot be transferred to squatters solely based on physical presence.
The Ministry of Justice and Public Administration and the State Geodetic Office co-manage the National Program for Resolving Land Registration and Cadaster Issues. This program includes a One Stop Shop system, which is a single point for accessing land registry and cadaster data. For more information see where information is available in English.
Croatia is also working with the World Bank on implementation of the Integrated Land Administration System project (ILAS) to modernize the land administration and management system in order to improve the efficiency, transparency and cost effectiveness of government services. Croatia continues to process a backlog of cases and potential investors should seek a full explanation of land ownership rights before purchasing property.
The last published World Bank Ease of Doing Business 2020 report ranked Croatia as 38th out of 190 countries on ease of registering property, up 13 spots from the 2019 ranking of 51st.
There is no property tax in Croatia.
Intellectual Property Rights
Croatian intellectual property rights (IPR) legislation includes the Patent Act amended in January 2020, the Trademark Act, the Industrial Design Act, the Act on the Geographical Indications of Products and Services, the Act on the Protection of Layout Design of Integrated Circuits, and the Act on Copyrights and Related Rights, which was entirely rewritten in 2020. The Law on Protecting Unpublished Information with Market Value went into force in 2018. These acts define the process for protecting and enforcing IPR in Croatia. Texts of these laws are available on the website of the State Intellectual Property Office at ). All of the laws are harmonized with EU legislation. The Law on Protecting Unpublished Information with Market Value went into force in 2018.
Croatian law enforcement officials keep public records of seized counterfeit goods. According to a 2020 report from the Customs Office, officials stopped 581 international imports related to IPR violations, that resulted in a total of 805 procedures for temporary detainment of goods for a total of 427,873 items. Customs also issued 169 domestic violations and seized 95,933 counterfeit goods. They initiated seven criminal proceedings against individuals involved in violation of trademark rights. Croatian customs officials and the Ministry of Interior work together to locate and seize infringing goods.
Although some areas of IPR protection and enforcement remain problematic, Croatia is currently not included in the U.S. Trade Representative’s Special 301 Report or the Notorious Markets List. Problem areas are piracy of digital media and counterfeiting. Due to its geographic location, Croatia is also a transit route for various illegal products bound for other countries in the region. There have been no problems reported with regard to registration of IPR in Croatia by American companies. The American Chamber of Commerce maintains dialogue with the Croatian government on IPR issues.
As a WTO member, Croatia is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Croatia is also a member of the World Intellectual Property Organization (WIPO) and party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. For a list of international conventions to which Croatia is a signatory, consult the State Intellectual Property Office’s website at .
6. Financial Sector
Capital Markets and Portfolio Investment
Croatia’s securities and financial markets are open equally to domestic and foreign investment. Foreign residents may open non-resident accounts and may do business both domestically and abroad. Specifically, Article 24 of the Foreign Currency Act states that non-residents may subscribe, pay in, purchase, or sell securities in Croatia in accordance with regulations governing securities transactions. Non-residents and residents are afforded the same treatment in spending and borrowing. These and other non-resident financial activities regarding securities are covered by the Foreign Currency Act, available on the central bank website ( ).
Securities are traded on the Zagreb Stock Exchange (ZSE), established in 1991. Regulations that govern activity and participation in the ZSE can be found (in English) at: . There are three tiers of securities traded on the ZSE. The Capital Markets Act regulates all aspects of securities and investment services and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). The Capital Market Act was amended in 2019 and went into force on February 22, 2020. The amendments include the increase from USD 5.4 million to USD 8.7 million for mandatory publication of share prospectus, changes to administrative obligations, and a decrease in fees for issuing securities. These amendments also give HANFA more authority over corporate management of those companies listed on the capital market. All legislation associated with the Capital Market act can be found (in English) at: .
There is sufficient liquidity in the markets to enter and exit sizeable positions. There are no policies that hinder the free flow of financial resources. There are no restrictions on international payments or transfers. As such, Croatia is in accordance with IMF Article VIII. The private sector, both domestic and foreign owned, enjoys open access to credit and a variety of credit instruments on the local market, on market terms.
Money and Banking System
The banking sector is mostly privatized and is highly developed, competitive, and increasingly offering diverse products to businesses (foreign and domestic) and consumers. French, German, Italian, and Austrian companies own over 90 percent of Croatia’s banks. In 2016, Addiko Bank became the first U.S. bank registered in Croatia by taking over all of Hypo Bank’s holdings in Croatia. The banking sector suffered no long-term consequences during the 2008 global banking crisis. According to conclusions from an IMF Virtual Visit with Croatia in November 2020, the banking sector is generally considered to be one of the strongest sectors of the Croatian economy, “comparable to other Central and Eastern European Countries.” As of September 2020, there were 20 commercial banks and three savings banks, with assets totaling USD 68.24 billion.
The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of USD 18.4 billion and a market share of 27.01 percent. The second largest bank is Italian-owned Privredna Banka Zagreb, with assets totaling USD 14.02 billion and 20.54 percent market share. The third largest is Austrian Erste Bank, with assets totaling USD 10.9 billion and a 15.96 percent market share. According to a December 2020 European Commission report, the non-performing loans (NPL) ratio for Croatia was 5.5 percent in the second quarter of 2020, putting Croatia among the top ten of EU countries for NPL in 2020. The country has a central bank system and all information regarding the Croatian National Bank can be found at . Non-residents are able to open bank accounts without restrictions or delays. The Croatian government has not introduced or announced any current intention to introduce block chain technologies in banking transactions.
Foreign Exchange and Remittances
The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) additionally establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory. Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement ( ).
The Croatian Foreign Exchange Act permits foreigners to maintain foreign currency accounts and to make external payments. The Foreign Exchange Act also defines foreign direct investment (FDI) in a manner that includes use of retained earnings for new investments/acquisitions, but excludes financial investments made by institutional investors such as insurance, pension and investment funds. The law also allows Croatian entities and individuals to invest abroad. Funds associated with any form of investment can be freely converted into any world currency.
The exchange rate is determined by the Croatian National Bank through “managed floating.” The National Bank intervenes in the foreign exchange market to ensure the Euro-Croatian kuna rate remains stable as an explicit and longstanding policy. On July 10, 2020 the European Central Bank and European Commission announced that Croatia had fulfilled its commitments and the Croatian kuna (HRK) was admitted into the Banking Union and European Exchange Rate Mechanism (ERM II), with the exchange rate between the kuna and the euro (EUR) pegged at EUR 1 to 7.53450 HRK. Any risk of currency devaluation or significant depreciation is generally low.
No limitations exist, either temporal or by volume, on remittances. The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.
Sovereign Wealth Funds
Croatia does not own any sovereign wealth funds.
7. State-Owned Enterprises
There are currently a total of 58 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake. The SOEs are managed through the Ministry of Physical Planning, Construction, and State Assets or the Center for Restructuring and Sale (CERP). The Ministry of Physical Planning, Construction, and State Assets oversees 39 “special state interest” SOEs, including 19 wholly state-owned, 13 majority state-owned companies, six listed as “legal entities of special interest,” and one with less than 50 percent state ownership. CERP oversees the other 19 SOEs, of which 11 are wholly state-owned and eight are majority state-owned.
These SOEs cover a range of sectors including infrastructure, energy, real estate, finance, transportation, and utilities. The latest figures available, from 2019, show that SOEs employ a total of 72,256 people and have net revenues totaling USD 9.95 billion and assets of USD 46.6 billion. The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.
CERP also oversees 306 companies; of these, the state owns up to 10 percent of 220 companies, from 10 to 49 percent of 67 companies,50-99 percent of 8 companies, and 100 percent of 11 companies. By statute, CERP must divest the state from these companies. Lists of SOEs are published on the websites of the Ministry of Physical Planning, Construction, and State Assets at and on CERP’s website at .
County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available. The latest available European Commission 2020 Country Report for Croatia assesses that Croatia made slow progress in selling off holdings in non-strategic companies, and its targets are not ambitious. The European Commission and the European Bank for Reconstruction and Development (EBRD) continue to provide support to Croatia through the Structural Reform Support Program for strengthening the functioning of state-owned enterprises and improvement of corporate governance: . The EC notes that this project created an early warning system to allow Croatian authorities to “identify when a state-owned enterprise is having financial difficulties and to prepare and implement plans to improve financial and operational performance.” The EC concluded “this reform will make state-owned enterprises more resilient and allow the State to act as an informed and active owner.”
The International Monetary Fund (IMF) Staff Virtual Visit with Croatia in November 2020 concluded that “streamlining the role of the state, predominantly through improved SOE governance is necessary.”
The Corporate Governance Code is available at . Croatia is not a member of the OECD but adheres to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas.
Croatia continues to slowly pursue privatization of SOEs through the Ministry of Physical Planning, Construction, and State Assets and the CERP. There are no restrictions against foreigners participating in privatization tenders. When Croatia initiated its privatization process in the late 1990’s foreign investors purchased assets in the banking and telecommunications sectors, as well as Croatia’s largest pharmaceutical company. The bidding process is public, tenders are published online, and terms are clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress for projects. There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output. The Ministry of Physical Planning, Construction, and State Assets drafted the 2021 plan for Management of State Owned Property, as part of the National Strategy for Management of State Owned Property 2019-2025 (only in Croatian: ).
8. Responsible Business Conduct
There is a general awareness of societal expectations regarding responsible business conduct which is regulated by law. The Croatian Financial Services Supervisory Agency has established a Corporate Governance Code of Ethics for all Zagreb Stock Exchange (ZSE) participants, and the Company Act, Audit Law, Accounting Law and Credit Institutions law are the sources for corporate governance provisions. Publicly listed companies are required to upload their annual corporate governance reports on the ZSE website. The existing code, drafted in 2007 by ZSE in cooperation with the Croatian Financial Services Supervisory Agency (HANFA) for companies listed on the ZSE, was updated in a project between the European Bank for Reconstruction and Development, ZSE, and HANFA, which created significant progress on transparency of business operations, avoidance of conflicts of interest, efficient internal control, and effective division of responsibilities.
No high profile or controversial instances of private sector labor rights violations have occurred in Croatia. Forced labor, forced evictions of indigenous peoples, or arrests of and violence against environmental defenders are not permitted by law. The government effectively implements and enforces domestic laws in order to maintain consumer and environmental protection and avoid infringement of human and labor rights. Sometimes these regulations even exceed European Union standards. Croatia implements all EU legislation which requires a due diligence approach to responsible business conduct. Labor unions are considered watchdogs for responsible business conduct and draw attention to issues that they find to be impeding on labor, environmental, or consumer rights in the business sector. In terms of security, the government employs private security companies for security of buildings, however security for defense purposes is handled by official Croatian state authorities, such as the army or police forces.
Croatia became a signatory of the Montreaux Document on Private Military and Security Companies in May 2013. Croatia is not currently a supporter of the International Code of Conduct for Private Security Service Providers, nor a member of the International Code of Conduct for Private Security Service Providers Association.
Although Croatia is not a member, Croatia supports the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and considers minerals from conflict affected areas to be illegal. Croatia does not participate in the Extractive Industry Transparency Initiative. Various laws related to forest and water management, concessions, and environmental protection are implemented in extractive and mining businesses to maintain high environmental and human rights standards. All procedures for mining or extraction tenders are publicly available and transparent.
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
- North Korea Sanctions & Enforcement Actions Advisory
Department of Labor
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
Development projects in Croatia may be eligible for International Development Finance Corporation (DFC) political risk insurance. Additionally, Croatia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). For more information see .
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2020||$58,789||2019||$64,690||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2020||$120.6||2019||$184||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2020||$30.12||2018||$19||BEA data available at
|Total inbound stock of FDI as % host GDP||2020||67%||2020||55%||UNCTAD data available at
* GDP for 2019 and FDI at www.hnb.hr. Note: U.S. Bureau of Economic Analysis (BEA) does not have GDP or FDI data available for 2020 at time of publishing. 2018 is the last available date for Host Country FDI in the U.S.
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$39,375||100%||Total Outward||$$5,546||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
*FDI at www.hnb.hr
Table 4: Sources of Portfolio Investment
Data not available.