LEGAL FRAMEWORK FOR INVESTMENTS IN THE REPUBLIC OF CROATIA
The following text shall present certain novelties in the Croatian legislation, the purpose of which is to enhance foreign investments in Croatia, to lower the unemployment and to increase the collection efficiency.
I SIMPLE LIMITED LIABILITY COMPANY
Changes and amendments of the Corporations Act from 2012 have enabled foundation of a company with at most 3 activities, 3 members of a company and 1 member of the management board. This company is called simple limited liability company or, in short, simple LTd.
The lowest amount of the legal capital of this company is 10,00 Kuna, and the lowest face amount of a business share is 1,00 Kuna. Legal capital and business shares must be in full amounts in Kuna. At the end of the year ¼ of the profit of simple Ltd must be transferred in the legal reserve so that the legal capital of the company is in that way increased up to 20.000,00 Kuna, when a simple LTd. becomes a regular Ltd.
Every amount of 1,00 Kuna of the face amount of a business share represents one vote, as long as the legal capital of the company doesn’t reach at least 20.000,00 Kuna.
Total costs, both public notary’s and court’s costs, for foundation of a simple Ltd. amount approx. 100,00 € and the whole process lasts approx. 2 days.
The main purpose of this form of a company is to encourage natural persons to become entrepreneurs with minimal costs and risks and fast foundation of a company, as well as maximum support of the country for them to also become the employers.
II INVESTMENT PROMOTION ACT
The Government of the Republic of Croatia has, during 2012, passed the new Investment Promotion Act which purpose is also to enhance the investments in legal persons in Croatia, as well as to increase the employment of the unemployed in the Republic of Croatia.
1. Incentives for micro-entrepreneurs
For the investments of micro-entrepreneurs in the amount of minimum 50.000,00 €, the incentives holder’s profit tax rate is decreased for 50% (current profit tax rate in Croatia is 20%) during the time period of 5 years from the beginning of the investment, with the condition that 3 new workplaces, in relation to this investment project, are opened within one year from the beginning of the investment. Therefore, in this case, the profit tax is decreased for the micro-entrepreneur from 20% to 10% for a maximum period of 5 years from the beginning of the investment.
2. Tax incentives
For the investments up to 1 million Euros the profit tax rate is decreased on 10% for a time period of 10 years with a condition that 5 new workplaces, in relation to this investment project, are opened.
Further on, for the investments in the amount of 1 to 3 million Euros the profit tax rate is decreased on 5 % within a time period of 10 years with a condition that at least 10 new workplaces, in relation to this investment project, are opened.
At the end, for the investments higher than 3 million Euros the profit tax rate is decreased for 100% within 10 years with a condition that at least 15 new workplaces, in relation to this investment project, are opened. Therefore, in this case, the investor wouldn’t pay any profit tax for the time period of 10 years from the beginning of the investment.
It is also possible to enable incentives holder these tax incentives without the obligation of opening new workplaces but with a condition that he/she constantly modernizes the technological process and current production line or machinery.
3. Incentives for justified expenses for opening new workplaces related with the investment project
The incentives holder who ensures the opening of new workplaces related with the investment project in those counties of the Republic of Croatia where the registered unemployment rate is up to 10%, shall be granted non-refundable financial aid for the justified expenses for opening new workplaces related with the investment in the amount of up to 10% of the justified expenses for opening a new workplace, but in the maximum amount of 3.000 Euros in Kuna counter value per every new workplace opened.
Similarly, in those counties where the registered unemployment rate is from 10% to 20%, non-refundable financial aid is granted in the maximum amount of 6.000,00 € per every new workplace opened, and in those counties where the registered unemployment rate is higher than 20%, non-refundable financial aid is granted in the maximum amount of 9.000,00 € per every new workplace opened.
III NEW ENFORCEMENT PROCEEDINGS ACT OF 2012
According to the new Enforcement Proceedings Act of 2012, the enforcement of the writ of execution on the enforcement debtor is conducted by Croatian Financial Agency FINA instead of the court. FINA is a financial agency in charge of overall payments in the Republic of Croatia. The past has shown that FINA is much more efficient with seizure of financial funds than the court. Therefore FINA is now conducting all enforcements on the enforcement debtors’ accounts.
As soon as FINA receives a blank promissory note, a writ of execution or certain enforceable certificate (as well as a final ruling), it then seizes all accounts and savings deposits that an enforcement debtor has in all banks in Croatia on the ground of his personal identification number.
Legal remedies of the enforcement debtor do not prevent the enforcement. In this way the creditor has a possibility to settle his claim in a short time period, from the financial funds of the debtor that he has in all banks in Croatia.
If, however, the enforcement debtor has insufficient financial funds on his accounts in Croatia, the banks shall, according to FINA’s order, block any payments from all accounts and savings deposits of the debtor, up to the amount set in FINA’s order.
Blank promissory note is still the basic instrument of insurance for one’s claim, besides from mortgage. It is extremely widespread considering that for the cost of approx. 100 Euros the creditor gets the possibility to collect up to 1 million Kuna by simply filing the promissory note to FINA.
New Enforcement Proceedings Act regulates the enforcement of the European Enforcement Order. The enforceable certificate verified according to the Regulation in one of the EU member states as European enforcement order, is enforced in Croatia under the same conditions as a domestic enforceable certificate. There is no need to conduct separate proceedings for recognition and enforcement of a foreign certificate.