Investment Opportunities in Croatia (part 1)

With its strategic location, stable political environment, growing economy and talented workforce, Croatia offers a number of opportunities for companies looking for new markets and growth opportunities. The country offers an attractive business environment that is worth considering.

Why Croatia

• Excellent geostrategic position

Three major pan-European corridors pass through Croatia, making it the shortest route between Western Europe and Asia, Eastern Europe and the Mediterranean. Situated in South-Eastern Europe, bordering Italy, Slovenia, Hungary, Serbia, Bosnia and Herzegovina and Montenegro, Croatia is ideally located to enter the EU market, as well as the markets of South-Eastern Europe. The close proximity to other EU capitals (Budapest, Vienna, Ljubljana) facilitates access to large European markets and the acquisition of new customers.

• Value for money

Eurostat data — The statistics of the European Union clearly show that Croatians provide one of the highest value for money in the European Union.

• Skilled and competitive workers

Many foreign companies already operating in Croatia recognize the Croatian workforce as highly skilled, experienced and multilingual. According to a 2024 survey, 78% of Croatians claim to know at least one foreign language, most often English. Croatia is among the countries with the highest rate of people aged 20 to 24 with upper secondary education (Eurostat). The number of students graduating from higher education institutions has been steadily increasing in recent years.

• Member of the EU, the Eurozone and the Schengen Agreement

Doing business in Croatia gives you access to the EU internal market of 450 million customers. Since joining the European Union on 1 July 2013, Croatia has been able to use significant amounts of money from EU structural funds. Since 2014, approximately 1.5 billion euros have been allocated annually. Most of these funds are used to support small and medium-sized businesses. Companies established in Croatia by foreign investors can compete for EU funds on equal terms with national ones.

Since Croatia joined the eurozone on 1 January 2023, investors and companies also operating in the eurozone do not incur currency conversion costs.

Moreover, Croatia joined the Schengen area on 1 January 2023. According to research, the abolition of document checks at borders allows saving on trade costs for goods of approximately 0.4% to 0.9% of the trade value.

Thanks to the Pelješac Bridge (financed by EU funds and built by the China Road and Bridge Corporation), Croatia is fully connected for the first time in history, reducing transport times and costs (especially in the summer months, i.e. the peak tourist season). The bridge provides a permanent link between the southeastern Croatian semi-exclave and the rest of the country, bypassing Bosnia and Herzegovina's short coastal strip at Neum, as well as border crossings and document checks.

After joining the eurozone and the Schengen area, Croatia is working towards joining the Organisation for Economic Co-operation and Development (OECD).

• Security, political and economic stability

According to the Institute for Economics and Peace, Croatia is one of the safest countries in the world, with a noticeably low crime rate. Moreover, Croatia is a member of the EU and has enjoyed important political and economic stability for the past 25 years.

• Croatian IT sector

The Croatian economy is largely based on services, and the IT sector has been one of the most promising in recent years. It is not only famous names like Infobip and Nanobit, but also a number of other small and medium software companies that do an excellent job and cover a wide range of technologies.

• High quality of life

Croatia is a truly unique country - nowhere else in the world do three different climate zones - continental, mountainous and Mediterranean - meet within a distance of only 400 km (the distance between the north and south of the country). From the hilly and gentle Zagorje in the north, through the vast fertile plains of Slavonia in the east, Lika and Gorski Kotar, rich in forests and rivers, to Dalmatinska Zagora, bordered by mountain ranges and typical Dalmatian karst, all the way to its jagged coastline stretching from Istria to southern Dalmatia with more than a thousand islands, Croatia is truly a treasure of the world.

The abundance of cultural events and historical heritage, the proximity to other European cultural and business centers, clean water and air, traditional and organic farming and a healthy Mediterranean lifestyle create all the necessary conditions for a pleasant and quality life anywhere in Croatia.

Investment legislation

Several laws regulate the investment environment in Croatia. These include the following:

• The Croatian Companies Act,
• The Investment Promotion Act,
• The Act on Strategic Investment Projects of the Republic of Croatia.

Foreign investors with a registered office or place of residence in a country that is not a member of the WTO must meet the condition of reciprocity.

13 global value chains have been identified that represent an opportunity for specialization and investment attraction in the Republic of Croatia. For each of these 13 strategic sub-areas or 13 industries, strategic segmentation and action plans have been developed so that the business sector can focus on those segments of the economy that are assessed as globally competitive and profitable. These are biopharmaceuticals, health services, sustainable food production and processing, intelligent transport systems and information and communication technologies.

The Constitution of the Republic of Croatia provides a number of guarantees for foreign investors. In particular, it stipulates that all rights acquired through capital investment will not be restricted by law or other legal act, and that foreign investors are guaranteed free transfer and repatriation of profits and invested capital.

Foreign direct investment is an important factor in increasing competitiveness and is a driving force for entering global value chains, through which investors and their investments can provide specialized knowledge and technology and help Croatian industry to adapt.

A foreign person wishing to acquire ownership of real estate in Croatia may do so only if there is a mutual opportunity for Croatian persons to do the same in the foreign person's country. This restriction does not apply to citizens and legal entities from Member States of the European Union. Such persons acquire ownership of real estate subject to the preconditions applicable to the exercise of ownership by citizens of the Republic of Croatia and legal entities with their registered office in the Republic of Croatia, with the exception of tax-exempt real estate, i.e. agricultural land defined by a special law and protected areas under a special law. A foreign investor may establish a company in Croatia, which as a domestic legal entity may acquire real estate without restrictions.

The Croatian government is preparing to establish a comprehensive system for screening foreign direct investment (FDI) by adopting a new Foreign Direct Investment Screening Act. The Act will align the current Croatian legal framework with Articles 3 and 4 of EU Regulation 2019/452, ensuring compliance with the European Union standards for investment screening. The draft Act is not yet available to the public. According to the Croatian Government's 2025 legislative action plan, the new Act and its implementation are currently in the hands of the Ministry of Finance, with its completion expected in the first quarter of 2025.

The Implementing Regulation of Regulation (EU) 2019/452 entered into force on 2 October 2020. This implementing regulation established only the National Contact Point and the Interministerial Commission as competent authorities for the coordination mechanism under the EU Foreign Direct Investment Screening Regulation. It did not introduce any screening mechanism.

As envisaged in the 2025 legislative action plan, the main provisions of the new Act will cover the scope of critical infrastructure and the types of activities subject to screening, the responsibilities of public authorities and public institutions, notification requirements, confidentiality and data protection measures, and transparent decision-making deadlines. By creating this mechanism, Croatia aims to protect its critical infrastructure and transparently and effectively assess potential risks associated with foreign investment in line with EU standards.

Tax measures in investment legislation

According to the Law on Promotion of Investments and Improvement of the Investment Environment, foreign investors are granted a number of tax incentives. The most important tax measures provided for in Croatian legislation regarding foreign investment include:

• Reduction of corporate income tax rate to 0% subject to certain conditions;
• Implementation of a number of double taxation treaties;
• Real estate transfer tax is not paid if the real estate is acquired by a Croatian company or corporation;
• Exemption from tax on reinvested profits;
• Foreign recipients of EU dividends do not pay income tax on dividends and shares in profit at a rate of 12% if they own at least 10% of the capital for an uninterrupted period of 24 months;
• State support for research and development projects.

Measures to stimulate investment projects

Measures to stimulate investment projects in the Republic of Croatia are regulated by the Investment Promotion Act (OG 63/22, 136/24) and concern investment projects in:

• production and technology activities,
• development and innovation activities,
• business support activities,
• high value-added services activities.

Aid cannot be granted for:

• fisheries, aquaculture and primary agricultural production;
• steel, coal, synthetic fibres and transport sectors and related infrastructure;
• energy production, distribution and infrastructure;
• broadband infrastructure;
• research infrastructure;
• shipbuilding sector;
• financial and insurance sector;
• health, social welfare and education sectors;
• trade sectors;
• construction and real estate sectors;
• water management, waste management and environmental remediation sectors;
• mining and quarrying sectors;
• transport and storage sectors;
• tourism, accommodation services and food preparation and serving activities.

Incentives include:

• tax incentives for micro-entrepreneurs;
• tax incentives for small, medium and large enterprises;
• grants to cover eligible costs arising from the creation of new jobs associated with investment projects;
• grants to cover eligible training costs associated with investment projects;
• grants for development and innovation activities;
• business support activities, as well as activities providing high added value services;
• grants for capital costs of investment projects;
• grants for labor-intensive investment projects;
• stimulation of investment projects arising from economic activation of inactive assets owned by the Republic of Croatia;
• tax incentives for modernization of business processes - automation, robotization and digitalization of production and manufacturing processes.

Public Private Partnership

Public-private partnership (PPP) projects are long-term public-private partnership projects in which the private sector assumes construction and financial risks, as well as service or demand. When a public building is finally delivered under a PPP model, not only the construction costs are taken into account, but also the lifetime costs, which in addition to the construction costs also include the costs of maintenance and replacement of the materials used, as well as financing and income from potential commercial activities, i.e. income from third parties.

The decision to choose a PPP model over a traditional (budget) model is based on the calculation of the savings achieved by using a specific PPP model. In other words, the use of a PPP model is considered justified if the total lifetime costs of the PPP option are lower than those of the traditional (budget) option, expressed as current value. In such cases, the choice of a specific public-private partnership model results in achieving the value for money principle for taxpayers. However, in addition to the total lifetime costs, the financing costs must also be included in the feasibility calculation. To ensure a transparent and comprehensive report on all business operations, a financial model is created.

The preparation of any public project, regardless of the project completion model, should begin with the development of a public investment program for a medium-term period, for example, 3-5 years. In this program, depending on its maturity, specific projects are identified that are ready for implementation.

One of the most important competencies of the Ministry of Economy after the conclusion of the PPP contract is the control over the implementation of the PPP project previously entered into the Register of PPP Contracts, in accordance with the provisions of the Regulation on the structure and maintenance of the Register of Public-Private Partnership Contracts. Activities to control the implementation of the PPP project are carried out throughout the entire project implementation period and are based on the report on the implementation of the PPP project submitted to the Ministry of Economy by the public partner.

Foreign Trade Zones / Free Ports / Trade Facilitation

There are six duty-free zones in Croatia, two of which are on land and four are in sea ports. In the zones, both domestic and foreign investors are treated equally. After Croatia joined the European Union, many of these zones were converted into industrial/business zones, which also offer investment incentives.

Free economic zones in the territory of the Republic of Croatia are created on the basis of concessions granted by the Government of the Republic of Croatia in accordance with the provisions of the current Croatian legislation.

Goods can be delivered to free economic zones and used for production, processing, storage of goods, wholesale trade, strategic business support, creation of centers for technological development and innovation, as well as for the provision of non-banking services. Retail trade activities are not allowed in the territory of the FEZ.

The management of free zones is carried out by concessionaires in accordance with the founding act, which is concluded with the latter. Users of the free economic zone, along with the founder of the zone, can be legal entities - residents of Croatia, as well as other countries, as well as individuals. Users of the SEZ conclude an agreement with the founder of the zone, on the basis of which they can carry out economic activity in the zone. If an enterprise carries out only part of its activity in the SEZ, such activity must be accounted for separately.

Value added tax on goods transported to the SEZ is paid only when the goods leave the SEZ and when their final destination is the EU market, including the Croatian internal market. If third countries are a bridge for the supply of goods from the SEZ, such goods are exempt from VAT.