Country report Croatia

Economic overview

Croatia’s goal is to introduce the euro as the official currency starting from January 1, 2023 and this will only be possible if all the adjustments are made and all the required measures are implemented. One of the main prerequisites is to continue with a manager

monetary policy not only for the introduction of the euro, but, more importantly, for a healthy and sustainable recovery and economic growth “. The Minister of Finance and Vice President of the Government of the Republic of Croatia, Zdravko Marić, interviewed by Tribuna Economica, talks about the Eurozone, the Euro, PNRR and post-pandemic.

Through the Recovery and Resilience Mechanism, the European Union has allocated 6.3 billion euros in grants to Croatia, which represent almost 12% of GDP. The prerequisite for the use of the funds was agreed at European level by defining first the reforms and then the private and public investments linked to the reforms themselves, implemented through grants or financial instruments. In the Croatian PNRR, the most significant emphasis is placed on reforms that aim at increasing the competitiveness of the economy and green and digital transformation. The funds will be used for the modernization of business operations and, consequently, for increasing the competitiveness of the private sector.

The Ministry of Finance, on the decision of the Croatian government, will be in charge of monitoring the operational implementation of the National Recovery and Resilience Plan, coordinating the achievement of the main objectives of the Plan, stimulating a timely updating of reforms and investments. The Ministry of Finance will also have the role of supporting the competent sectoral institutions. The fact that our National Plan contains 76 reforms and 146 investments shows how complex and responsible the task of the Ministry of Finance is.

Main sectors of industry

The Croatian economy is centered on the service sector, which contributes 70% to GDP. The Croatian economy can be defined as a post-industrial economy: it is also a consequence of the war, which seriously damaged the structures and infrastructures of the secondary sector (the industrial sector contributes 25% of GDP). Agriculture, equal to 5% of GDP, is of lesser importance than in other Balkan countries. Given the variety of the conformation of the Croatian territory, the primary sector is however very diversified, although the country is now a net importer of agricultural products.

Furthermore, Croatia is poor in raw materials and energy resources, which makes it dependent on imports for about two thirds of the energy consumed. Since 2000, the then government led by the Social Democrats has implemented a project to upgrade and build new infrastructures, which led the country to have more than 400 km of new highways, especially between Zagreb and the tourist centers on the Dalmatian coast. Tourism represents one of the major revenues, given the extent of the coast and the numerous islands on the Adriatic.

Thanks to EU funds (156 million in 2012), Croatia was able to make investments to modernize the company and build new infrastructures. In particular, the six major ports and the railway system were upgraded. This made it possible to increase the number of rail passengers by 50% compared to the period immediately following the war.

A strong element of the Croatian economy is the shipbuilding industry, a sector in which the country is among the first in Europe and in the world, even if it cannot compete with Asian manufacturers such as China and South Korea.

The European Union, and in particular Italy, Germany and Slovenia, are Croatia’s first trading partners, together with Bosnia-Herzegovina, Russia and China.

Taxation for businesses in Croatia

There are many advantages that you can take advantage of when you decide to open a company in Croatia. These are concessions that in most cases allow you to lower taxes in the face of investments and staff hiring.

Croatia has a modern tax system, which adopts a tax structure similar to that of other states of the European Union. In particular:

  • Individuals are subject to state and local income tax;
  • Businesses are subject to tax on profits or corporate income. The individual entrepreneur with business activities can exercise the option between tax on profits or income tax.

The Croatian tax system has a structure substantially in line with other European countries and the financial authorities have adopted, also in anticipation of EU entry, a series of measures to restore public finances, in consideration of the internal imbalances between the various Croatian regions that risk favoring price increases and capital uncertainty.

Precisely to promote the development of some territories, numerous free zones have been established in Croatia which recognize particularly advantageous conditions for certain economic activities. Also in the form of tax incentives, in addition to the fact that imports and exports are not subject to any restrictions and are exempt from customs duties.

tax concessions are granted – reduction of income taxes to 10% for a maximum period of 10 years for companies with investment projects exceeding € 1 million. However, companies that foresee the creation of at least 5 new jobs.

For investments between 1 and 3 million euros, the income tax will be reduced to 5% for a maximum period of 10 years. With the condition of the creation of at least 10 jobs.

For investments exceeding 3 million euros and the creation of at least 15 new jobs, full relief from income tax (0%) is envisaged for a period of 10 years.

Investing in Croatia

Strong points:

  • EU member state: on 1 July 2013 Croatia joined the European Union;
  • Market access – strategic geographical position: Croatia is easily accessible from Italy by virtue of an excellent motorway network that covers almost the entire country;
  • Skilled and cost-competitive workforce: boasts a high level of education and availability of skilled work in specific sectors. The technical and scientific competences are also excellent and the knowledge of English, German and Italian is widespread. Labor costs are below the European average;
  • Economic reforms: the current government has among its priorities the completion of privatizations and the launch of large energy and infrastructure projects, especially in the transport sector.

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