Entering the Croatian Market
The Republic of Croatia ticks many boxes for international companies planning to enter the economy, either with investment or by establishing their own legal entities in the country.
Membership of the European Union (EU), since 2013, the World Trade Organization and United Nations has boosted its international footprint. By the end of 2022 Croatia was expected to be part of the Schengen Agreement and was hopeful of membership of the Organization for Economic Cooperation and Development.
Croatia is rated as a high-income, developing service-based economy with a literate, well-educated and skilled workforce, although the employment market faces challenges and skills shortages due to a talent exodus to other EU nations.
However, Croatia has an impressive range of export activity – trading mainly with the EU – focusing on transport equipment, machinery, textiles, chemicals, food products and refined fuels. Plus, of course, Croatia is one of Europe’s leading tourism locations, with a spectacular and rugged coastline on the Adriatic opposite Italy, featuring around 1,200 islands and islets, plus mountains, forests, sprawling plains and lakes.
There are speedier alternatives to launching a subsidiary, however, with Bradford Jacobs opening the door to a hassle-free route into Croatia
Expanding into Croatia
Opening a business in any overseas territory brings issues. Moving staff across the world means lengthy processes to obtain visas and residence permits. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination, and severance? Drawing up an expansion blueprint is not enough. Your business plan will have to answer all these questions.
Croatia has a welcoming business attitude towards foreign investment. But there are always issues surrounding compliance with the relevant legislation. In Croatia this revolves around the Companies Act, the Labor Act, and other laws – plus European Union Directives.
There are other issues, too. Where will you find manufacturers, offices, and distributors?
There is a simple and effective alternative – by partnering a Professional Employer Organization (PEO) and Employer of Record (EOR) such as Bradford Jacobs. This way companies can plot a time-efficient and cost-effective path to locating and employing staff in Croatia. Here we set out some of the necessary steps.
Croatian Business Facts
- Capital – Zagreb
- Population – April 2022, 4.06 million
- Regions – Four cultural regions: Croatia Proper, Dalmatia, Istria and Slavonia with 20 administrative counties, plus the city of Zagreb
- Official Languages – Croatian
- Economy and world ranking – US$67.6 billion by end of 2021. Ranked No.78 out of 196 countries with a GDP per capita of US$16,760
- Leading sectors – Service: 59.35% including tourism. Industry: 21.6% including shipbuilding, construction, petrochemicals, food processing. Agriculture: 3.22% including wine, olive oils
- Main exports – Transport equipment; machinery; textiles; chemicals; fuels; foodstuffs
- Main imports – Machinery; transport and electrical equipment; fuels and lubricants; foodstuffs
- Main trading partners – Italy; Bosnia and Herzegovina; Germany; Slovenia; Austria and Serbia
- Government – Parliamentary system; parliamentary republic
- Currency – Kuna
Advantages and Challenges of the Croatian Market
Advantages of expanding into the Croatian market include:
- Location: Croatia is strategically placed for investors who want to expand into central, eastern and southeastern Europe through its road, rail, air and sea routes and river ports
- Competitive: Offers lower investment and labor costs than the European Union (EU) average
- Workforce: Highly literate well-educated, with over 90% fluent in at least one foreign language
- Trade: Benefits from membership of the European Union’s ‘open market’ among its 27 member nations, with nearly 50 beneficial trade agreements.
- Funding: In the process of receiving 22 billion euros (US$23.1 billion) in period from 2021 to 2027 from the EU and other financial sources
- Adaptability: Croatia’s workforce has proved excellent at absorbing new technologies, particularly in the field of Information Communications Technology
- Business support: Tax incentives and aid for R&D and labor-intensive investment projects
Challenges of expanding into the Croatian market include:
- Vulnerability: Economy is heavily dependent on tourism, which accounts for around 20% of Gross Domestic Product
- Exports: Largely dependent on EU nations
- Labor: Skills shortages in some sectors due to emigration to other EU nations; high youth unemployment of 20% in 2021 and a declining, ageing population
- Legal: Lengthy court procedures for enforcing contracts
Limited Company / Subsidiary or Branch in Croatia?
Foreign companies establishing a legal entity in Croatia generally select a private limited liability company, known as a Drustvo s Ogranicenom Odgovornoscu, or DOO, which is regulated by the Companies Act and must register according to the procedures laid down by the Court Registry Act. This is the ideal format for Small and Medium Enterprises (SMEs) and start-ups to establishing a foothold in the economy.
The private limited company has minimum share capital of HRK 20,000 (€2,640, US$2,850), at least one founder and a management board running daily operations. A supervisory board is required if there are more than 200 employees in any year or if the share capital exceeds HRK 600,000 (€79,312, US$83,640).
Another option is for foreign companies to establish a presence in Croatia by opening a branch, but this is not a legal entity in the country and all its liabilities are the responsibility of the parent company.