Promoting investment in the Republic of Croatia
The Act on Investment Promotion and Development of Investment Climate was passed in 2012. This Act contains incentive measures for investment and for the timely implementation of necessary investment activities. The Act determines the method and deadlines for completing all required investment activities with a view to implementing a successful investment project within the statutory time limits in the Republic of Croatia.
The Act ensures the necessary legal framework which creates the preconditions for increasing the number and quality of investment projects which will be implemented in the Republic of Croatia in order to introduce new equipment and modern technologies, increase employment levels, raise the training level of employees, develop products and services involving higher added value, increase entrepreneurial competitiveness, balance the regional development of the Republic of Croatia and to dispose of resources and use territorial capital in a more effective way. The Act has been harmonized with the EU acquis communautaire.
Since the Act on Investment Promotion and Development of Investment Climate came into force the Ministry of Economy has received 96 applications for the use of incentive measures. The total estimated value of the 96 project submittals equals approximately 8.5 billion Kuna. The number of estimated new jobs created is 6220.
Since the Act on Investment Promotion and Development of Investment Climate came into force the Ministry of Entrepreneurship and Crafts has received 300 applications for the use of incentive measures. The overall value of the 300 submitted projects adds up to 11 billion Kuna. The estimated number of newly created jobs is 6309.
The Act on Investment Promotion and Development of Investment Climate is currently being amended according to express procedures, primarily to be in line with the Commission Regulation (EU) No 651/2014 of 17 June 2014, which states which categories of incentives are compatible with the internal market, in accordance with Articles 107 and 108 of the Treaty. New provisions will enter into force in 2015.
The main alterations of this Act refer to the abovementioned harmonization with EU legislation. Furthermore, profit tax incentives in cases without providing additional employment are cancelled. The minimum number of newly created jobs now depends on the investment level:
– a minimum investment of 150.000,00 Euro requires at least 5 newly created jobs
– a minimum investment of 50.000,00 Euro requires at least 3 newly created jobs in micro enterprises, or
– a minimum investment of 13.000.000,00 euro requires at least 10 newly created jobs for employees with university qualifications connected to the investment project.
Moreover, incentive measures are no longer to be limited only to production-processing activities; the definition of activities related to tourist services is amended in order to avoid ambiguous interpretations of the Act, and the Act is amended in order to meet the requirements of the Industrial Strategy of the Republic of Croatia 2014-2020.
Tax allowances are being introduced for up to 10 years from the initial time of investment, depending on the investment threshold and in accordance with the requirement for creating new jobs related to the investment:
– for investments up to 1.000.00,00 Euro, the income tax rate is reduced by 50%, if the investment project created 5 new jobs
– for investments between 1.000.00,00 and 3.000.00,00 Euro, the income tax rate is reduced by 75%, if the investment project created10 new jobs
– for investments above 3.000.00,00 Euro, the income tax rate is reduced by 100%, if the investment project created 15 new jobs.
A special category is assigned to initial investments in real and intangible assets made by newly founded companies in the minimum amount of of 13.000.00 Euro with that they have to create of 10 new jobs for employees with university qualifications and that are related to the investment. This kind of investment requires that an Agreement on the Project Preparation and Implementation is signed with the respective authorised ministry.
This agreement regulates the project’s technical planning and implementation, period of investment, completion schedule of individual commitments, guarantees by beneficiaries of the incentive and the mechanisms of protection for the Republic of Croatia in case of delay, termination of project or changes to certain parts of the investment project according to each phase of the project.
In conclusion, this is the first time the investor will have an opportunity to sign an agreement with the state, which will ensure the same tax conditions as they were at the beginning of the investment. The state will guarantee unaltered conditions for 10 years, and should any changes arise, the investor’s commitments will be covered by the authorized ministries.