Croatia Subsidiary Entity Set Up

Croatian Entity Set Up

Companies committed to building their global profile have the opportunity of setting up a subsidiary overseas. Establishing a company in a foreign country can be costly, both in time and money, and there is no guarantee that the effort and financial outlay will bring any success.

Foreign companies have the option of opening a legal entity in Croatia in order to run payroll for their staff, with the most popular choice being a private limited liability company.  In Croatia this is known as a Drustvo s Ogranicenom Odgovornoscu, or DOO. The subsidiary, like any local Croatian company, is regulated by the Companies Act and must register according to the entry procedures laid down by the Court Registry Act.

However, expanding overseas is a major step, especially for companies opening a legal entity in a new territory thousands of miles from their home base. If the move fails, companies face the extra expenditure and stress of closing the business, selling property and paying off employees. It is easy to stumble while chasing two objectives – advancing your company at home while crossing the world into new territory.

How to set up a Croatian Subsidiary

Are you planning to establish your business in Croatia? International companies making the move of opening a legal entity to hire staff and run payroll typically choose a private limited liability company. In Croatia, these are known as a Drustvo s Ogranicenom Odgovornoscu, or DOO. Like local companies, they operate under the Companies Act and follow registration procedures according to the Court Registry Act. These include:

• Initially, the parent company must verify that the name chosen for the subsidiary is unique in Croatia. This is done through the Court Registry’s registrar site
• The parent company submits to the Registry its Articles of Association and declaration from its board of intention to open a subsidiary
• There can be a minimum of one founder, an entity or individual
• Application to the Registry is made on form Po. All IDs of founders must be notarized; non-Croatians must have their passport details verified
• Forms are electronically forwarded by the notary to the HITRO.HR office, a government service that enables the communication between individuals and commercial entities with the state administration and various authorities
• All documents are sealed by the notary and forwarded to the HITRO.HR office and the National Bureau of Statistics
• The completed Form RPS is required to obtain registration for the relevant sector with the statistics bureau
• Once logged with the Court Register and the National Bureau of Statistics, the subsidiary must register with the relevant Ministry of Finance Tax Administration office
• After registration is completed, open a business bank account for depositing initial share capital, the minimum required for a DOO being HRK 20,000 (€2,640, US$2,850)
• Obtain Value Added Tax ID and pin number (PIB) from the Tax Administration by supplying incorporation documents and OIB (Personal Identification Number), which applies to individuals and companies. Non-European Union members must have a fiscal representative to handle their VAT affairs
• Once registered, the Company Seal is issued after providing the Certificate of Incorporation

Benefits of setting up a Subsidiary in Croatia

Foreign companies opening a private limited liability subsidiary in Croatia can enjoy a series of benefits from its operation under the Companies Act and Income Tax Act. The subsidiary has a separate legal identity from the parent company and is treated the same as a local company. In general, the parent company’s liability is restricted to the share capital invested in the subsidiary; neither is it responsible for any debts of the subsidiary.

The subsidiary provides the parent company with the potential for further expansion throughout the ‘free market’ European Union and into other central and eastern European nations. Additionally, the subsidiary can ‘test the market’ by following its own business ideas and entering different areas of operation with the parent company. The subsidiary is also free to draw up its own contracts and agreements with clients.

Other benefits for a subsidiary: 

• Easier to obtain potential benefits and incentives and enter contracts with other Croatian or EU companies 
• More impact with clients and suppliers, as subsidiaries imply more permanency than branches 
• Employees feel there is more stability and job security than from being with a branch 

In the wider commercial sense, opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets, in this case, the opportunities offered by European economies.