CROATIA GUIDE

Croatia – The Economy

The economy of Croatia is a developing high-income service-based economy with the tertiary sector accounting for 60% of total gross domestic product (GDP).

The Croatian economy was badly affected by the financial crisis which, together with slow progress of economic reforms, resulted in six years of recession and a cumulative decline in GDP of 12.5%. Croatia formally emerged from the recession in the fourth quarter of 2014 and had a continuous GDP growth since.

The Croatian economy reached pre crisis levels in 2019, but due to the Coronavirus pandemic its GDP had decreased by 8.4% in 2020, growth picked up in 2021 when Croatia recorded biggest GDP growth since 1991.

However, Croatia bounced back supported by strong private consumption, the better-than-expected performance of tourism industry and the boom merchandise exports, that in the first nine months of 2021 amounted to 13.3 billion euros, an annual increase of 24.6 per cent. This made 2021 Croatian export’s record year as the score from 2019 was exceeded by 2 billion euros.

Tourism is one of the main pillars of the Croatian economy, comprising 19.6% of Croatia’s GDP. Croatia is working to become an energy powerhouse with its floating liquefied natural gas (LNG) regasification terminal on the island of Krk and investments in green energy, particularly wind energy, solar and geothermal energy, having opened 17 MW Velika 1 geothermal power plant in Ciglena in late 2019, that is the largest power plant in continental Europe with binary technology and starting the work on the second one in the summer of 2021.

The government intends to spend about $1.4 billion on grid modernization, with a goal of increasing renewable energy source connections by at least 800 MW by 2026 and 2,500 MW by 2030 and predicts that renewable energy resources as a share of total energy consumption will grow to 36.4% in 2030, and to 65.6% in 2050.

In 2021, Croatia joined the list of countries with its own automobile industry, with Rimac Automobili’s Nevera started being produced. The company also took over Bugatti Automobiles in November same year and started building its new HQ in Zagreb, titled as the ‘Rimac Campus’, that will serve as the company’s international research and development (R&D) and production base for all future Rimac products, as well as home of R&D for future Bugatti models.

The company also plans to build battery systems for different manufacturers from the automotive industry.

The state controls a part of the economy, with substantial government expenditure. The European Union is Croatia’s most important trading partner. Croatia provides social security, universal health care, and tuition-free primary and secondary education while supporting culture through public institutions and corporate investments in media and publishing.

Croatia joined the World Trade Organization in 2000, NATO in 2009 and became a member of the European Union on 1 July 2013.

Small and Medium-Sized Companies

Small and medium sized enterprises (SMEs) account for about 99% of all enterprises in Croatia, In 2020, Croatian SMEs accounted for 63.7% of value added and 67.4% of employment in the ‘non-financial business economy’.

Croatian SMEs employ an average of 4.8 people, surpassing the EU average of 3.9. However, the average productivity of Croatian SMEs, defined as value added per person employed, is €20,800, less than half the EU average of €44,600.

The country is among the best performing EU Member States in internationalization activities. As reported by the Flash Eurobarometer 2020, 39% of Croatian SMEs export to other EU countries, which is significantly higher than the EU average of 23%.

The country lags behind the EU average on business digitalization. Croatia scored below or close to the EU average in all six components of the Digital Economy and Society Index in 2020. Croatian SMEs also lack sufficient ICT specialists.

On the sustainability measures taken by SMEs, Croatian businesses perform below the EU average in all eight categories of the Flash Eurobarometer on SMEs.

Compliance Highlights

• The Tax Administration – the administrative organization within the Ministry of Finance whose basic duty is to implement tax regulations and regulations concerning the payment of obligatory contributions. The Tax Administration can perform tasks related to recording, determining, monitoring, collection and enforced collection of taxes which belong entirely to the local and regional government and other public levies stipulated by law.
  
  The main duties of the Tax Administration are:
  • Normative activities
  • Maintaining official records
  • Assessment and collection of taxes and obligatory contributions
  • Tax audit
  • Enforced collection
  • Taxpayers services
  • Misdemeanor procedure
  • Monitoring the implementation and drafting laws from the scope of games of chance and entertainment games.
    
• The Ministry of Labor, Pension System, Family and Social Policy – carries out administrative and other tasks related to the: labor law, labor market, employment and active labor market policy, unemployment records and employment assistance, work retraining and employability enhancement programs.
  
  The also Ministry carries out tasks related pension insurance system and social security policy, social dialogue and social partnership and relations with employers, trade unions and their associations in the field of employment and labor law.

Laws that Regulate Labor Relationships

Most components of employment law are covered by the Labor Act, with the State Inspectorate having a supervisory role regarding compliance in conjunction with Municipal Labor Courts. Other legislation relevant to employment includes:

• The Labor Protection Act
• The Act on Maternity and Parental Benefits
• The Anti-Discrimination Act
• The Obligations Act
• Credit Institutions Act (regarding pre-hire checks)
• The Minimum Wage Act
• The Protection of Whistleblowers Act
• The General Data Protection Regulation (European Union)
• The Code of Civil Procedure
• The Foreign Persons Act

There are specific laws and conditions, however, that regulate the employment relationship in Croatia, which include:

Discrimination: The Anti-Discrimination Act and Labor Act bar discrimination regarding race, nationality, or ethnicity; gender or sexual orientation; religious, political, or other beliefs; memberships or affiliations; age; social, family, or marital status. Employers are obliged to guard employees from discriminatory acts in the workplace and if they employ more than 20 must publish anti-discriminatory bylaws.

National Minimum Wage: In 2022 the gross minimum wage was HRK 4,866 (€623.70, US$694) or HRK 56,640 (€7,484, US$8,082) based on 12 payments annually. The Government-announced rate is a 10.3% increase over 2021. The minimum applies to all Croatian workers, including Employee Card holders, although some foreign workers must be paid above the national minimum.

Working Hours and Breaks: Article 61 of the Labor Act allows for 40 hours work a week, which can be eight hours a day, or more or less than eight hours a day, depending on the employment contract or collective agreements. Flexible or redistributed working hours should not average more than 40 over 12 months, although on a weekly basis they can be extended to 48 hours or, in exceptional circumstances, 56 hours.

Employees are entitled to a minimum 30-miniutes paid break after working six hours continuously. Full-time employees are entitled to a minimum 12 hours’ rest between consecutive working days, but this can be reduced to eight for seasonal workers. Each week should contain at least 24 consecutive hours’ rest.

Overtime: Employers must request in writing if they require employees to work overtime, which cannot exceed more than 10 hours in a single week or 180 hours annually. Collective agreements may set an annual overtime limit of 250 hours. The Labor Act does not define overtime pay, which should be set by collective agreements or in the employment contract.

Notice Periods: Notice periods depend on length of service, as follows:

• Two weeks for one year’s continuous service
• Six weeks for two years’ service
• Two months for five years’ service
• 10 weeks for 10 years’ service
• Three months for more than 20 years’ service

An extra two weeks is added for employees aged over 50 years; four weeks if they are over 55. This applies to permanent contracts and fixed-term contracts of over two years. Notice periods are halved for breach of obligations by the employee.

Labor Contracts Law

Employees in Croatia are  governed by the Labor Act and supplementary legislation dealing with benefits, entitlements, and compensation. The State Inspectorate is the supervisory body ensuring compliance with regulations. General requirements applying to all contracts include:

• Written employment contracts are a mandatory requirement. Bi-lingual or multi-lingual contracts must include a Croatian version
• An employment agreement between employer and employee is not invalidated by the absence of a written contract
• Employers must give the employee a written confirmation of their agreement before they start work, or it will be assumed an open-ended contract applies
• Employers risk a €13,300 (US$14,287) fine for non-compliance
• Minimum requirements of the contract are: Full details of both parties; description of the role and start date; salary and payment schedule; working hours and breaks; notice period and termination. The contract can simply reference relevant statutes to give this information
• The contract cannot reduce statutory rights or collective agreements and leave employees with reduced benefits and must comply with the Labor Act and the Obligations Act