FOREIGN INVESTMENT

Last update: June 26, 1995

The legal base for foreign investments has been established by the Constitution of Croatia. It guarantees ownership rights and introduces market economy. The three essential guarantees are:

the rights gained by the investment of capital can not be reduced either by laws or by any other legal acts;
the foreign investor is guaranteed the unrestricted transfer of profits;
the foreign investor is guaranteed the unrestricted repatriation of capital.

The Croatian Company Act, inherited from former Yugoslavia, is one of key legal documents on which Croatian economic system is based and is valid until 1st of January 1995 when new Company Act will replace it entirely. Existing law deals with the rights of economic agents in a very general way and insufficiently, so that many gaps remain. In addition, this law does not provide for a full legal security against different forms of deviant behavior. On the other hand, ius dispositivum in the field of company law is very extensive and the foreign persons are thus given the possibility of regulating the relations within their company in Croatia, in the same way as they would do it in their own country with some minor differences.

To fill all the remaining gaps and make the Croatian Company Act more complete, the new Company Law has been passed. The Company Law comes into force on January 1, 1995, whereby the current Company Act will be fully repealed. Also, all the laws regulating economic relations in Croatia will be or are already brought into line with the Company Law.

Depending on a form and business field of investment, the following principal regulations should be mentioned:

Constitution of the Republic of Croatia
Company Act
Foreign Investment Law
Banking Act
Law on Insurance
Law on Institutions
Law on Concessions
Accounting Act
Auditing Act
Notary Public Act
Profit Tax Act
Income Tax Act
Law on Obligations
Customs Act
Regulations on Labor Relations, especially Foreigners Employment Act.

Positive things for potential investors:

the twenty-five years long tradition of private enterprise

very well trained, relatively inexpensive and highly skilled labor force

high standards of education

good geographic location and transportation network between Western and Central Europe

Croatia welcomes foreign investment because both investors and the Croatian economy benefit. Following foreign investors, to name just a few, have confidently invested in Croatia and her prosperous economy:
INTERBREW of Belgium owns 33% of the Zagrebacka pivovara (Brewery),
Ericsson of Sweden negotiates buyout of 49% of Nikola Tesla (communications),
SOCIETE SUISSE de CIMENT PORTLAND of Switzerland owns 51% of Tvornica cementa Koromacno (cement),
MESSER GRELSHIEM of Germany owns 60% of Montkemija (chemicals),
TUBORG CARLSBERG of Denmark owns 60% of Panonska pivovara (brewery), etc.

FISCAL POLICY AND TAXATION REGULATIONS

In order to get fiscal policy hand-in-hand with the restrictive monetary policy in support of the anti-inflation program the Government has been faced with important budgetary implications. It has been clear that the current revenues are inadequate to meet all public sector expenditures in the situation of state of war and expenditures for refugees and exiles amounting US$ 50 million per month. Therefore, some additional steps should have been taken towards necessary control of priority expenditure.

The specific fiscal policy measures to be used in the period of stabilization are:

: - transformation of loss-making enterprises; - positive effects of low inflation rate on real tax revenues; - positive effects from lowering the high taxation rates on broadening tax basis and tax avoidance; - collection of proceeds from selling the state property

Taxation

Inside the reform of fiscal system, the Croatian Parliament has adopted the following laws:

Tax Administration Law
Income Tax Law
Profit Tax Law
Sales Tax Law

Moreover, preparatory work is currently under way on introduction of VAT (Value Added Tax).

In Croatia there are several types of tax at present:

Corporate Income Tax (Profit Tax 25%)
Income Tax, (Personal Income Tax 25-35%)
Turnover Tax on Goods and Services (Sales Tax has 8 tariffs from 5-140%),
Turnover Tax on Gambling and Betting, (5-40%)

Double taxation relief

The Republic of Croatia provides tax relief in the form of double taxation agreements with other countries. Croatia adheres to the international agreements avoiding double taxation. The Republic of Croatia has double taxation agreements with following countries:

Belgium
China
Czech Republic
Cyprus
Denmark
Egypt
Great Britain
Finland
France
Germany
Hungary
Italy
Malaysia
Netherlands
Norway
Philippines
Poland
Romania
Sri Lanka

Please feel free to forward us any comment, suggestion, or question.
Zeljko.Kardum@zse.com.hr, public and goverment relations.

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