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Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.

Expanding to countries such as Croatia – which is characterized by a productive and competitive workforce, multi-layered employment and tax laws, a resilient infrastructure network linking to the rest of Europe, with leading sectors in agriculture, energy, tourism, manufacturing, construction, and industry – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.

Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.

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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.

CountryCroatia (the Republic of Croatia)
No. of States/Provinces20 counties
Principal CitiesZagreb, Split, Rijeka, Osijek, Zadar, Slavonski Brod, Pula, Sesvete, Karlovac, & Varaždin
Local CurrencyCroatian kuna (HRK)
Major ReligionCatholic
Date Formatd. m. yyyy. or d. mmmm. yyyy.
Time ZoneCentral European Time (GMT+2)
Country Dial Code+385
Population4.059 million
Border Countriesthe Adriatic Sea (southwest), Slovenia and Hungary (north), Bosnia and Herzegovina and Serbia (east), a short border with Montenegro, and it shares maritime borders with Italy.
Tax Year1 January – 31 December (calendar year)
VAT %25%
Minimum Wage€623.7 per month
Taxpayer Identification NumbersPersonal Identification Number (OIB, “osobni identifikacijski broj”)
VAT ID Number
Leading Sectorschemicals and plastics, machine tools, fabricated metal, electronics, pig iron and rolled steel products, aluminum, paper, wood products, construction materials, textiles, shipbuilding, petroleum and petroleum refining, food and beverages, tourism
Main importscrude petroleum, packaged medicaments, cars, blood, antisera, vaccines, toxins and cultures, and refined petroleum
Main exportscrude petroleum, packaged medicaments, refined petroleum, blood, antisera, vaccines, toxins and cultures, and electrical transformers
Main trading partnersGermany, Italy, Slovenia, Bosnia and Herzegovina, Hungary, and Austria
Government TypeUnitary parliamentary republic
Current Prime MinisterZoran Milanović (President), and Andrej Plenković (Prime Minister)

The Main Sectors of the Croatian Economy

Croatia focuses on the following key sectors, which all have a significant impact on the country’s economy:

  1. Services – The tourism sector in the Republic of Croatia is one of the most important branches of the economy. According to official figures, the sector employs more than 99,000 people in over 20,000 companies.

    The indented Adriatic coast offers opportunities for nautical, family, elite, gastronomic and health tourism. The region’s great natural wealth and the centuries-old cultural heritage are features which the tourism industry can offer both in the Adriatic region and interior of the country.

    Numerous foreign investors have recognized the competitiveness of Croatia such as Accor, Hilton, Sheraton, Regent, Kempinski, Rezidor and Falkensteiner.)

  2. ICT – Siemens, Ericsson Nikola Tesla, Microsoft Croatia, Oracle, Atos IT Solutions and Services, Constellation Software Group (IN2) and Danieli Systec are just some of the eminent international corporations that have recognized Croatia’s human resource capacities.

    Besides foreign investors, numerous internationally recognized Croatian companies have seen rapid development, such as Infobip, Infinum, Microblink, Infodom, Agrivi, Q, Span, Electrocoin, Serengeti and Sedam IT, which are regularly found on the Financial Times’ list of Europe’s fastest-growing companies and the Deloitte’s list of the 50 fastest growing technology companies in Central Europe.

    The sector is expanding and employs more than 53,000 people across more than 11,000 companies.

  3. Agriculture – Due to readily available water, moderate climate and fertile land, the territory of the Republic of Croatia has been recognized since ancient times as ideal for the production of food and beverages.

    Agriculture in Croatia is carried out in less than 1/4 of the country’s land area, and it accounts for less than 1/10 of the country’s GDP.

    Currently, most other agricultural land is privately owned, and most landholdings are very small for profitable production. Slavonia is the most fertile agricultural region in Croatia and is often referred to as the granary of Croatia. Farming in Slavonia is characterized by capital-intensive, large-scale land holdings and market-oriented production.

  4. Manufacturing – The manufacturing industry in Croatia has a long history that dates back to the 19th century when several industry branches were developing the country such as wood industry, food processing, shipbuilding, footwear and leather processing, and textile production among others. Presently, manufacturing in Croatia is largely based on food and beverage, which account for 24% of the total manufacturing revenue in the country.

  5. Industry, construction, and energy – Industrial production in Croatia has an important place in the country’s total production. The most prominent forms are manufacturing, the petrochemical industry and shipbuilding. Some companies were closed down in the process of transition, or were damaged in the war, while others only partially adapted to world production trends. This mostly applies to the textile, leather, metal, and timber industries as well as some large shipyards.

    There is also significant production in the construction and energy sectors. Some industries, however, continue to achieve positive results and are active in foreign trade.

    The value of the sales of industrial products in 2019 was HRK 139.5 billion (EUR 18.6 billion), of which HRK 57.7 billion was in exports (EUR 7.7 billion). According to their total revenues, the leading industrial branches are the production of food, drinks, and tobacco, and these are followed by the chemical and oil industries.

  6. Creative & Cultural Industry – The creative and cultural industry is one of the fastest growing sectors in the European Union, and Croatia is also growing stronger in this industry. The creative industry encompasses a number of activities – music, publishing, media, design, architecture, photography, as well as the film and video game industries.

    There are about 9,800 companies operating in this sector, employing some 26,000 people.

  7. Pharmaceuticals – The pharmaceutical industry in the Republic of Croatia is an industry with a long tradition. The know-how and experience of the workforce promises successful future development of the industry and related sectors. In addition, the pharmaceutical industry is one of the sectors of the Croatian economy experiencing intensive investments in research and development.

    Additionally, internationally known companies such as Hospira (a member of the Pfizer Group), ACG Europe (a member of the ACG Worldwide group) and Dechra Group (Genera) have recognized the efficacy and knowledge of Croatian workers.

    The production of pharmaceutical preparations in Croatia continues a trend of strong growth and has a significant impact on production in the entire industry. Today’s pharmaceutical sector employs more than 5,000 people in 51 companies.

  8. Automotive – Development of the Croatian automotive industry is based on a long tradition in related sectors, such as metal processing, welding, glass and plastic production and engineering. Croatian entrepreneurs engaged in the production of automotive parts have a tradition in high-precision manufacturing with zero failure tolerance, and their main competitive advantage is their excellent product quality.

    Croatia can also boast of the electric cars production, such as Nevera by Rimac Automobili, presented in June 2021. The automotive industry employs over 8,900 people in 470 companies.

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
  • Contracts are indefinite by default unless a fixed-term contract is justified in specific circumstances.
  • In this case successive fixed-term contracts cannot exceed three years, including the initial contract
  • A gap of up to two months between fixed-term contracts does not circumvent the three-year rule
  • Probationary periods cannot be for more than six months and can be terminated by the employer with seven days’ notice

The main contract types/agreements that affect employment in Croatia include:

  1. Open-ended Employment Contracts: Unless otherwise specified, an employment contract is considered open-ended, permanent, and indefinite. Employment continues until terminated mutually or by complying with relevant procedures.
  2. Fixed-term Employment Contracts: These ‘temporary’ contracts apply where there is a defined duration for the contract, or it relates to a specific project or to temporarily replace a permanent member of staff. Under the Labor Act fixed-term contracts, either singly or consecutively, cannot exceed three years. A gap of up to two months between contracts does not break the three-year rule.
  3. Collective Bargaining Agreements: These operate at industry and company level in conjunction with tripartite agreements between government, trade unions and employers. The Labor Act rules that where different agreements refer to the same workers or sectors, the most beneficial agreement for employees always applies.

Payroll – Tax Contributions and Benefits

Income Tax:

Individual resident taxpayers are liable for their worldwide profits, while those considered non-residents are taxed only on income sourced in Croatia. Tax residents are individuals who reside in Croatia for 183 days in one or two tax years, or who have real estate at their disposal for the same period, even if they do not physically live in them. Those who do not fulfil these criteria are deemed non-residents.

The tax year is the calendar year; married couples cannot submit joint returns and must file independently. Returns are submitted by the end of February following the tax year, with outstanding taxes paid within 15 days of receiving an assessment from the Tax Administration.

Health and Social Insurance: The social security program in Croatia covers health insurance and pension provision. The Ministry of Health is responsible for administering the health system and the functions of the Health Insurance Fund (HZZO). The first stop for members of the fund is with their general practitioner who has a HZZO contract, and who then refers patients for tests, clinical treatment, hospital appointments and specialist treatments.

Healthcare contributions are mandatory for employers on behalf of their employees. All residents must have health insurance even if they prefer to pay for private insurance, while European Union and European Economic Area citizens can be covered by state insurance from their home country.

Employed individuals and their employers contribute to the system, with employees contributing 20% of gross income to the pension fund, split 15% to pillar 1 and 5% to pillar 2 of the pension system. Employers contribute 16.5% of gross salaries to health insurance.

Sick Leave and Benefit: Sickness benefit for up to 42 days is paid by the employer at no less than the statutory 70% of the average salary over the previous six months, although it is not uncommon for employers to pay the full net salary. After 42 days, ‘income replacement benefit’ is paid by the Croatia Health Insurance Fund (HZZO) to compensate the employer. Employees must supply a medical certificate within three days of starting sick leave, including date for likely return to work.

Paid Vacations: The entitlement is for 20 days paid leave per calendar year, after six months continuous work with the employer, excluding any public holidays or other statutory non-working days. Collective agreements or contracts can allow for more. Leave must include one period of two weeks and any unused allowance must be taken by June 30 of the following year. If a contract is terminated, the employee is entitled to financial compensation for unused holiday.

Public Holidays: There are 15 national non-working public holidays celebrated in Croatia. Employees who are required to work on a public holiday are entitled to extra pay, which is typically negotiated in the bargaining agreement.


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