Investment Environment

Incentive measures for investment projects in the Republic of Croatia are regulated by the Act on Investment Promotion (OG, No. 102/15, 25/18, 114/18, 32/20, 20/21) and are applicable to projects in:

• manufacturing-processing activities
• development and innovation activities
• business support activities
• high added value services

Minimum investment required in order to become a beneficiary of incentive measures:

• € 50,000 together with creating at least 3 new jobs for microenterprises
• € 150,000 together with creating at least 5 new jobs for small, medium and large enterprises
• € 50,000 together with creating at least 10 new jobs for ICT system and software development centers
• € 500,000 for investment projects in modernising and increasing business process productivity

* depending on the size of the investor

In order to be granted the status of a beneficiary of incentive measures a microenterprise, small, medium, large enterprise or a natural person liable to income tax, intending to use support for initial investment should apply for incentive measures to the Ministry of Economy and Sustainable Development, before the beginning of investment (start of the investment – the start of construction works or the first assumed obligation in the sense of the equipment work order, excluding the preparatory feasibility studies).

The minumum period for maintaing the investment and newly created jobs linked to investment is five years for large enterprises, amd three years for small and medium-sized enterprises, but no less than period of use of the incentive measures.

No less than 25% of justified expenses of investment have to be secured by holder of incentive measures and cannot contain any kind of aid granted by the state.

The application to be granted a status of a beneficiary of incentive measures must be submitted to the Ministry of Economy and Sustanable Development before the start of investment!

Ministry of Economy and Sustainable Development

Address: Grada Vukovara 78, 10000 Zagreb, Croatia

Telephone: +385 1 6106 111

The Act prescribes following incentive measures:
 

New vacancies have to be filled within 3 years after the start of investment.

Minimal period for maintaining investment project:

• SME - 3 years
• Large enterprises - 5 years

*Mandatory period for retaining new jobs

• SME - 3 years
• Large enterprises - 5 years

 – Eligible costs of opening new workplace are calculated as gross wage over a period of two years

 – New workplaces related to an investment have to be kept for 5 years for large enterprises or 3 years for SMEs after the investment is finished and have to be opened in the period of 3 years after the construction finishes.

4. Incentives for eligible costs of training related to investment project

• The beneficiary of incentive measures shall be approved a non-repayable grant for training of employees in the newly created jobs linked to the investment project.
• The maximum aid intensity does not exceed 50% of eligible cost and can be increased up to 70% of eligible cost as follows:

- by 10 percentage points if the training is conducted for disabled workers

- by 10 percentage points if the aid is granted to medium-sized enterprise

- by 20 percentage points if the aid is granted to small and micro entrepreneurs

• Eligible costs include:

– trainers’ costs spent in conducting the training

– expenses related to trainers and trainees directly related with the project of education, such as travel expenses, operating costs directly linked to the project, depreciation of tools and equipment, if used exclusively for the training project (accommodation costs are excluded)

– costs of advisory services related to the training project

– costs related to trainees and general indirect costs (administrative costs, rent, overheads) occurred for the hours of training that trainees spend in training.

5. Additional incentives for specific business activities

Additional incentive measures are approved for investment in the following business activities:

- development-innovation activities

- business support activities

- high added value services

Non-refundable aid for the creation of new workplaces created is increased as follows:

For investment in the development and innovation activities, a non-repayable grant is approved for the purchase of equipment/ machinery in the amount of 20% of the actual eligible costs, and in the maximum amount of €500,000 in equivalent HRK value, provided that the purchased machinery represents high technology equipment.

6. Incentive measures for capital expenses of investment project

Eligibility: over €5 milion and more then 50 new jobs opened within the period of 3 years after the start of investment

9. Incentive measures for the modernisation of business processes - automation, robotisation and digitalisation of production and manufacturing processes

This incentive measure refers only to investment projects in manufacturing and processing activities. Minimum investment required in order to become beneficiary of this incentive measure:

• €500,000 for investment projects in modernising and increasing business process productivity

Tax system in the Republic of Croatia is based on and divided into two major clusters: direct and indirect taxes. Direct taxes are paid in person or by an employer (personal income or corporate income tax) whereas the final burden of the indirect taxes (such as VAT and excise duties) is borne by the end-user (buyer) of products and services.

When considering the level of government authority, the tax system in the Republic of Croatia consists of a group of government, county, municipal or local, shared taxes as well as taxes and fees on games of chance and any winnings.

Some of the important taxes in Croatian tax system:

According to the Act on Investment Promotion (OG 102/2015, 25/2018, 114/18, 32/20, 20/21), corporate income tax can be reduced to 0% if the prescribed conditions are met.
*detailed table for each municipality and city is available on this link.

Witholding tax

Withholding tax is a tax on profits earned by a non-resident in the Republic of Croatia. The taxpayer is an entity that makes disbursements to a non-resident legal entity whereas the tax base is considered as a gross fee, paid by the resident to the non-resident.

The withholding tax is paid for:

• interest rates (not applying to commodity and banking credits);
• bonus sums and shares in profits;
• royalties and other intellectual property rights such as reproduction, patents, licenses, brand names, designs, models, production procedure and formulas, designs;
• market research services, tax and business consultancy and auditing services.

Withholding tax is paid at the rate of:

• 15% (with the exception of bonus sums and shares in profits for which the withholding tax is paid at a rate of 10%)
• 10 % – bonus sums and shares in profits
• 20% – for all types of services which are paid to entities with the headquarters, head office or supervising office in countries considered tax havens or financial centers, except EU member countries and countries that Croatia has signed and applies treaties of avoidance of double taxation, providing that the above mentioned country has been published in the State Register (issued by the Finance Minister) and are not member country of the European Union.

More information and details about the Croatian tax system can be found on the website of the Tax Administration of the Ministry of Finance.

Double Taxation Treaties

The Republic of Croatia has signed over 50 treaties of avoidance of double taxation. The complete list of countries that Croatia has double taxation avoidance contracts can be found here.

Tax exemptions*

• Reinvested profit – when the profit is invested into the share capital of the company and the share capital increase is registered with the Commercial Court (profit reinvested with aim to increase the share capital, which is not realized in the banking e.g. financial non-banking sector), the tax base is reduced by the reinvested amount
• Withholding tax is not paid if the paid fee is credited as income of the resident permanent unit of foreign entrepreneur
• Withholding tax on dividends and shares in profit – foreign recipients of dividends from the EU are not paying withholding tax on dividends and shares in profit at the rate of 10% if they own at least 10% of the capital for a continuous period of 24 months
• Real estate transfer tax – is not paid when a property is brought into a company as equity stake or to increase the share capital (in accordance with the provisions of the Companies Act). This tax is also not paid when a property is acquired in the procedure of acquisition, merger or demerger of the company (in accordance with the provisions of the Companies Act)
• State aid for education, research and development projects – can be used by the profit tax payers (resident permanent unit of foreign entrepreneur) as an additional reduction of the tax base. Dividends and shares in profit based on capital interest up to HRK 12,000 per annum are not subject to personal income tax

*These tax exemptions are examples chosen for informative purpose. They do not represent all of the existing tax exemptions in the Croatian tax system.
 

The educational system in the Republic of Croatia is divided into preschool education, elementary education, secondary education and higher education.

Preschool education

Preschool education in the Republic of Croatia encompasses education and care of the children of preschool age, realized though educational, health care, nourishment and social care programs for children from six months of age until school age.

Elementary education

Elementary education in the Republic of Croatia lasts for 8 years and it is compulsory and free for all children between the ages of six and fifteen (this refers to all children with permanent residence in the Republic of Croatia, irrespective of their citizenship). There are around 860 elementary schools on the territory of the Republic of Croatia.

Secondary education

Secondary education is implemented through a network of more than 700 secondary schools that are divided according to the program they offer as follows:

1. Gymnasiums (general or specialised) – offer a program that lasts at least four years
2. Vocational or trade schools (technical, industrial, trade and others) – offer a program that lasts from one to five years, and programs of from one to two years
3. Art schools (music, dance, visual arts and others) – offer a program of at least four years

Higher eduaction

Croatia has three types of higher education institutions: universities (sveučilišta), polytechnics (veleučilišta) and colleges of applied sciences (visoke škole). Croatian education system is harmonized with the EU education system (Bologna). There are currently 128 higher education institutions in Croatia.

The Croatian higher education system comprises:

• 8 public universities
• 2 private universities
• 11 public polytechnics
• 4 private polytechnics
• 3 public colleges
• 22 private colleges

The Croatian higher education system has a long educational tradition preserved primarily through the work of its public universities, which are (in alphabetical order): J.J. Strossmayer University of Osijek, Juraj Dobrila University of Pula, University North, University of Dubrovnik, University of Rijeka, University of Split, University of Zadar and University of Zagreb.

There is a possibility of studying some degree programes entirely taught in a foreign language and these are offered by the following institutions:

English:

International Graduate Business School Zagreb, Josip Juraj Strossmayer University of Osijek, University of Rijeka, University of Split, University of Zagreb, Zagreb School of Economics and Management, University of Zadar, University of Dubrovnik, Juraj Dobrila University of Pula

Hungarian and German:

Josip Juraj Strossmayer University of Osijek

Italian:

Juraj Dobrila University of Pula

Source: www.mzos.hr; www.studyincroatia.hr