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Country - Croatia
Corporate Vehicles
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A. DIRECT INVESTMENT
The general provisions of the Croatian Company Act specify that foreign investors are individuals or entities that are non-resident in Croatia. Foreign investors may, however, subject to reciprocity, establish companies or acquire rights and obligations in Croatia. Reciprocity is not required if the foreign investor is resident in a member state of the World Trade Organisation.
There are two ways to carry out investment in real estate in Croatia: without a permanent establishment in Croatia (subject to obtaining the prior consent of the appropriate authorities) or with a permanent establishment.
In the case of investment without a permanent establishment, a foreign buyer will require the prior consent of the Ministry of Justice, which involves a rather slow and complex procedure.
Under the Stabilisation and Association Agreement concluded between Croatia and the EU, Croatia assumed an obligation to make the acquisition of real estate in Croatia easier for EU residents. A transitional period of four years from 1 February 2005 was agreed, during which the precondition of reciprocity will be removed. Other restrictions and exceptions for EU residents remain in force until Croatia's full admission to the EU.
B. INDIRECT INVESTMENT THROUGH CORPORATE VEHICLES
The commonest way to avoid obtaining consent from the Ministry of Justice is to establish a company in Croatia. A foreign investor establishing a Croatian company acquires the same legal rights and obligations within that company as a Croatian national and the company is regarded as an ordinary Croatian legal entity.
Two types of corporate vehicle can be used for investment in real estate in Croatia: a limited liability company (d.o.o.) and a joint stock company (d.d.).
1. Limited liability company (društvo s ograničenom odgovornošću - d.o.o.)
Minimum capital
HRK 20,000.
Set-up costs
EUR 4,000.
Time required to become operative
Approximately 15 days.
Costs per annum for corporate and accounting compliance
Costs depend on the size of the company, its business activities and the number of employees. The minimum is likely to be EUR 2,500.
Corporate governance
The shareholders' assembly is entitled to make decisions on any issue concerning the company, including those which fall within the remit of other corporate bodies. The shareholders' assembly must be convened at least once a year.
The management board is authorised to represent the company and to manage its day-to-day affairs. The company may be managed by one or more directors with sole or collective authority. A sole shareholder may also act as a sole director.
The supervisory board is the controlling body of the d.o.o. Setting up a supervisory board is mandatory for d.o.o.s only in the following situations:
- if prescribed by a specific act;
- if the number of employees in a year exceeds 300;
- if the share capital of the company exceeds HRK 600,000 and it has more than 50 shareholders;
- if the company uniformly manages joint stock companies or limited liability companies which are obliged to have a supervisory board or the company holds directly more than 50% of the share capital in these companies, and in both cases the number of employees in a company, or the average for all companies together, exceeds 300; and
- if the company is a partner in a limited partnership, and the average number of employees in the company and the limited partnership jointly exceeds 300.
Regulatory control
Annual reporting to the commercial court on changes in membership is required.
Annual submission of a financial report to the Financial Agency (HANFA) is required.
Taxation of current income in Croatia
Corporate income tax is payable at 20% on income after the deduction of expenses.
Taxation of distribution of current income to investors
For tax-resident shareholders dividends are not regarded as taxable income.
For non-tax-resident shareholders there is no withholding tax on dividends.
Taxation of capital gains
Capital gains on the sale of real estate assets are taxable.
For a d.o.o. capital gains are fully taxable at the 20% corporate income tax rate.
Capital gains on the sale of a participation in a d.o.o. are not taxable.
Capital gains made by individuals from the sale of real estate are subject to a 25% flat rate tax on the purchase/sale price difference. However, no tax is due if the property has been owned for more than three years or if the taxpayer lived in the property prior to sale.
Real estate transfer tax
This is payable at a rate of 5% of the purchase price.
2. Joint stock company (dioničko društvo - d.d.)
Minimum capital
HRK 200,000.
Set-up costs
EUR 6,000.
Time required to become operative
30 days for "simultaneous" incorporation (incorporation without a public offer of shares).
Costs per annum for corporate and accounting compliance
Costs depend on the size of the company, its business activities and the number of employees. The minimum is likely to be EUR 15,000.
Corporate governance
The shareholders' assembly is the main corporate body and is entitled to make decisions on any issue concerning the company, including those within the remit of other corporate bodies. The shareholders' assembly must be convened within the first eight months of each business year.
The management board is the managing body authorised to represent the company. There can be one or more directors who are appointed by the shareholders' assembly. The directors must all sign documents unless otherwise agreed when the company is incorporated.
The supervisory board is the controlling body of the d.d. It must comprise at least three members and the number of members must always be an odd number.
Regulatory control
Annual submission of a financial report to the Financial Agency (HANFA) is required.
Taxation of current income in Croatia
As for a limited liability company.
Taxation of distribution of current income to investors
As for a limited liability company.
Taxation of capital gains
As for a limited liability company.
Real estate transfer tax
As for a limited liability company.
C. INDIRECT INVESTMENT THROUGH PARTNERSHIPS
1. Partnership (Javno Trgovačko Društvo - JTD)
The JTD is a partnership where all partners have unlimited liability.
Minimum capital
Not applicable.
Set-up costs
EUR 4,000.
Time required to become operative
Approximately 20 days.
Costs per annum for corporate and accounting compliance
Costs depend on the size of the company, its business activities and the number of employees. The minimum is likely to be EUR 4,000.
Corporate governance
The partnership agreement determines the rights and obligations of the JTD members.
Regulatory control
Annual submission of a financial report to the Financial Agency (HANFA) is required.
Taxation of current income in Croatia
As for a limited liability company.
Taxation of distribution of current income to investors
As for a limited liability company.
Taxation of capital gains
As for a limited liability company.
Real estate transfer tax
As for a limited liability company.
2. Limited partnership (komanditno društvo - k.d.)
The k.d. is a partnership with one unlimited liability partner and at least one other partner with limited liability.
Minimum capital
Not applicable.
Set-up costs
EUR 4,000 to 8,000 depending on the nature of the partner with unlimited liability.
Time required to become operative
Approximately 20 days.
Costs per annum for corporate and accounting compliance
Costs depend on the size of the company, its business activities and the number of employees. The minimum is likely to be EUR 2,500.
Corporate governance
The k.d. is managed by a general partner; a limited partner may not oppose the general partner's decisions, unless the general partner exceeds the limits of ordinary business activities.
Regulatory control
Annual submission of a financial report to the Financial Agency (HANFA) is required.
Taxation of current income in Croatia
As for a limited liability company.
Taxation of distribution of current income to investors
As for a limited liability company.
Taxation of capital gains
As for a limited liability company.
Real estate transfer tax
As for a limited liability company.
D. INDIRECT INVESTMENT THROUGH COLLECTIVE INVESTMENT VEHICLES
Management company
A real estate investment fund (Zatvoreni investicijski fond za nekretnine) ("Fund") may only be set up by an investment company specialising in real estate fund management. The company holds and manages the assets of the Fund as trustee on behalf of the shareholders. A Fund may only be set up as a stock corporation (d.d.).
Only a stock corporation (d.d.) or a company with limited liability (d.o.o.) may operate a Fund. A supervisory board is mandatory.
Minimum capital
Management company - HRK 1,000,000.00 as a minimum.
Fund - HRK 5,000,000.00 as a minimum. At least 60% of the net value of the Fund must be invested in real estate.
Set-up costs
Management company - approximately HRK 100,000.00.
Fund - approximately HRK 100,000.00.
Time required to become operative
Management company - approximately one month.
Fund - up to three months.
Costs per annum for corporate and accounting compliance
Management company - 0.2% per annum of the assets of the Fund.
Fund - 3% of the value of the Fund is paid to the management company for managing the Fund.
Corporate governance
The Fund and the management company are supervised by the Financial Agency (HANFA), which issues licences for operation to the company and the Fund.
The management company appoints the custodian bank for the Fund.
Regulatory control
Funds are subject to the control of the Financial Agency (HANFA).
Taxation of current income in Croatia
No taxation of income at the level of the Fund.
E. RULES ON LEVERAGE
Are there any rules which limit the deductibility of interest for third party (bank) financing?
There are transfer-pricing and thin capitalisation rules.
The transfer-pricing rules provide that if prices between related entities are different from those between unrelated entities, the tax base must be calculated at the market rate. The new Corporate Income Tax Act contains methods for determining whether prices are set in line with market conditions.
1. Thin capitalisation rules
Yes. No more than four times the value of the share capital can be borrowed.
2. Withholding tax on interest
No. Withholding tax at the rate of 15% is levied on payments of interest, other than interest on foreign bank loans, loans by non-resident individual shareholders, commercial loans for the purchase of qualifying equipment and commodities, and to holders of government or corporate bonds who are non-resident legal persons.
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