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# 					2022 Investment Climate Statements: Croatia			

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													EXECUTIVE SUMMARY											

                -  EXECUTIVE SUMMARY 
                -  1. Openness To, and Restrictions Upon, Foreign Investment                    -  Policies Towards Foreign Direct Investment 
                  -  Limits on Foreign Control and Right to Private Ownership and Establishment 
                  -  A. The Organization for Economic Cooperation and Development (OECD) last published an investment policy review for Croatia in June 2019: https://www.oecd.org/publications/oecd-investment-policy-reviews-croatia-2019-2bf079ba-en.htm. 
                  -  Business Facilitation 
                  -  Outward Investment 
                -  2. Bilateral Investment and Taxation Treaties                    -  Bilateral Taxation Treaties 
                -  3. Legal Regime                    -  Transparency of the Regulatory System 
                  -  International Regulatory Considerations 
                  -  Legal System and Judicial Independence 
                  -  Laws and Regulations on Foreign Direct Investment 
                  -  Competition and Anti-Trust Laws 
                  -  Expropriation and Compensation 
                  -  Dispute Settlement 
                  -  Bankruptcy Regulations 
                -  4. Industrial Policies                    -  Investment Incentives 
                  -  Foreign Trade Zones/Free Ports/Trade Facilitation 
                  -  Performance and Data Localization Requirements 
                -  5. Protection of Property Rights                    -  Real Property 
                  -  Intellectual Property Rights 
                -  6. Financial Sector                    -  Capital Markets and Portfolio Investment 
                  -  Money and Banking System 
                  -  Foreign Exchange and Remittances 
                  -  Sovereign Wealth Funds 
                -  7. State-Owned Enterprises (SOEs)                    -  Privatization Program 
                -  8. Responsible Business Conduct                    -  Climate Issues 
                -  9. Corruption                    -  Resources to Report Corruption 
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## EXECUTIVE SUMMARY

Croatia’s EU membership has enhanced its economic stability and provided new opportunities for trade and investment. Characteristics that make Croatia an attractive destination for foreign investment include a geostrategic location with diverse topography and temperate climate, well-developed infrastructure, and a well-educated multilingual workforce. The Croatian government settled a longstanding investment dispute with a U.S. investor in December 2021.  Historically, the most promising sectors for investment in Croatia have been tourism, telecommunications, pharmaceuticals and healthcare, and banking. Investment opportunities are growing in Croatia’s robust IT sector, and the coming years will offer new opportunities related to the energy transition. Croatia also offers visas for so-called “digital nomads” to work in Croatia for up to one year without having to pay local taxes.

Despite the ongoing effects of the COVID-19 pandemic, the economy experienced a robust rebound of 10.4 percent growth in 2021.  Tourism in 2021 exceeded all expectations, and the sector, which accounts for as much as 20 percent of GDP, achieved 88 percent of record-breaking 2019 revenues. Throughout the pandemic, the government distributed more than $1.5 billion in job-retention and economic stabilization measures that significantly helped maintain employment. Unemployment in January 2022 was at 7.8 percent. In early 2022, the government announced nearly $800 million worth of measures to help citizens and businesses cope with rising energy costs. The European Commission estimates the Croatian economy will grow 4.8 percent in 2022 and 3.0 percent in 2023.

Croatia will receive more than $30 billion in EU funding through 2030, including approximately $7 billion through the EU’s Recovery and Resilience Facility (RRF), which has the potential to provide a significant boost to the economy if the government directs the funds to productive activities that stimulate job creation and economic growth. The government intends to spend approximately 40 percent of RRF funds in support of climate-related and clean energy objectives, including initiatives to improve energy efficiency in public and private buildings, accelerate development of renewable sources of energy, modernize the electricity distribution and transmission grid to facilitate the integration of renewable energy sources, and promote greater investments in geothermal energy. Croatia joined the European Exchange Rate Mechanism (ERM II) in July 2020, and the government expects to enter the eurozone on January 1, 2023. Croatia also received an invitation from the OECD in early 2022 to begin the accession process.

The Croatian government has taken some positive steps to improve the business climate, but it has been slow to reform the judiciary, which is most often mentioned as one of the greatest barriers to investment. In addition, the economy is burdened by a large government bureaucracy, underperforming state-owned enterprises, and low regulatory transparency. The COVID-19 pandemic accelerated digitalization efforts, which has helped decrease excessive bureaucratic procedures for both citizens and companies. Government reforms also seek to liberalize the services market, diversify capital markets and improve access to alternative financing, and reform tax incentives for research and development. Croatia’s labor laws provide strong protections to workers and there are no risks to doing business responsibly in terms of labor laws and human rights. The government is willing to meet at senior levels with interested investors and to assist in resolving problems.

 

							1. Openness To, and Restrictions Upon, Foreign Investment					

### Policies Towards Foreign Direct Investment

Croatia is generally open to foreign investment and the Croatian government continues to make efforts, through financial incentives, to attract foreign investors.  All investors, both foreign and domestic, are guaranteed equal treatment by law, with a handful of exceptions described below.  However, bureaucratic and political barriers remain.  Investors highlight that an unpredictable regulatory framework, lack of transparency, judicial inefficiencies, lengthy administrative procedures, lack of structural reforms, and unresolved property ownership issues all weigh heavily upon the investment climate.

Croatia is partnered with the World Bank through European Commission Directorate-General for Structural Reform Support on the “Croatia Business Environment Reform” project which intends to help Croatia implement various business reforms. The Ministry of Economy and Sustainable Development Directorate for Internationalization assists investors, including by offering services such as providing information on investment opportunities, offering support through all phases of business development, organizing tours of investment locations and arranging meetings, and promoting Croatia as an investment destination.  For more information, see: http://investcroatia.gov.hr/.  The Strategic Investment Act fast-tracks and streamlines bureaucratic processes for large projects valued at $10.7 million or more on the investor’s behalf.  Various business groups, including the American Chamber of Commerce, Foreign Investors’ Council, and the Croatian Employers’ Association, are in dialogue with the government about ways to make doing business easier and to keep investment retention as a priority.

### Limits on Foreign Control and Right to Private Ownership and Establishment

Croatian law allows for all entities, both foreign and domestic, to establish and own businesses and to engage in all forms of remunerative activities.  Article 49 of the Constitution states all entrepreneurs have equal legal status.  However, the Croatian government restricts foreign ownership or control of services for a handful of strategic sectors:  inland waterways transport, maritime transport, rail transport, air to ground handling, freight-forwarding, publishing, ski instruction, and primary mandated healthcare.  Apart from these, the only regulatory requirements to market access involve occupational licensing requirements (architect, auditor, engineer, lawyer, and veterinarian, etc.), about which detailed information can be found at http://psc.hr/en/sectoral-requirements/.  Business services such as consulting, marketing, creative industries, accounting (bookkeeping), and IT are not licensed. Relevant international comparison of the level of regulatory restrictiveness (including for Croatia and the U.S. which is represented by NY and TX) is available at https://www.oecd.org/economy/reform/indicators-of-product-market-regulation/. Over 90 percent of the banking sector is foreign owned.

Croatia does not have a foreign investment screening mechanism, but the government designated the Ministry of Economy and Sustainable Development Internationalization Directorate as the “National Contact Point” for reviewing direct investments and responding to requests for information from EU Member States or the European Commission, per European Union Directive 2019/452.

### A. The Organization for Economic Cooperation and Development (OECD) last published an investment policy review for Croatia in June 2019: https://www.oecd.org/publications/oecd-investment-policy-reviews-croatia-2019-2bf079ba-en.htm.

The latest International Monetary Fund Article IV Staff Report from September 2021 includes a broad overview of economic and financial developments and is available at:

https://www.imf.org/en/Publications/CR/Issues/2021/09/10/Republic-of-Croatia-2021-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-465424

The American Chamber of Commerce in Croatia publishes position papers on various topics related to the economy and investment climate, which can be found at: https://www.amcham.hr/en/position-papers-d207. 

The European Commission’s Country Report Croatia 2020 assesses the country’s economic situation and outlook: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1584545612721&uri=CELEX%3A52020SC0510.

****B.  Prior to the COVID-19 pandemic, there were no civil society organizations that provided useful reviews of investment policy related concerns.  In March 2020, the Voice of Entrepreneurs business association was formed to advocate for economic measures and reforms to stimulate private sector growth.  The association has not yet published its policy recommendations.  

### Business Facilitation

The Croatian government offers two e-government options for on-line business registration, www.hitro.hr and start.gov.hr, both of which provide 24-hour access.  Start.gov.hr provides complete business registration for a limited liability company (d.o.o.), simple limited company (j.d.o.o.), or general business, without any need to physically enter a public administration office.  The procedure guarantees a short turnaround on requests and provides deadlines by which the company can expect to be registered.  The Start.gov.hr procedure eliminates fees for public notaries, proxies, seals and stamps, and reduces court registration fees by 50 percent.  Hitro.hr also provides on-line services but maintains offices in 60 Croatian cities and towns for those who want to register their business in person.

In 2021, the Global Enterprise Registration website (www.GER.co) rated Croatia’s business registration process 7 out of 10, up from 4 out of 10 in 2020.  The government pledged to improve conditions for business registration and continues to identify areas for removing burdensome regulations and processes.  Croatia’s business facilitation mechanism provides for equitable treatment to all interested in registering a business, regardless of gender or ethnicity.

The United Nations Conference on Trade and Development (UNCTAD) provides an outline of investment facilitation proposals at https://investmentpolicy.unctad.org/country-navigator/53/croatia.

### Outward Investment

Croatian foreign direct investment totals approximately $85.84 million in the United States, according to Croatian National Bank figures.  The government does not promote or incentivize outward investment.  Croatia has no restrictions on domestic investors who wish to invest abroad.

							2. Bilateral Investment and Taxation Treaties					

Croatia has signed bilateral investment protection treaties or agreements with the following countries: Albania, Argentina, Azerbaijan, Belarus, Bosnia and Herzegovina, Cambodia, Canada, Chile, China, Cuba, Egypt, India, Indonesia, Iran, Israel, Jordan, Kuwait, Libya, Malaysia, Moldova, Mongolia, Montenegro, Morocco, North Macedonia, Oman, Qatar, Russia, San Marino, Serbia, South Korea, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, United States, and Zimbabwe.

As an EU member state, Croatia’s bilateral investment with other EU member states is governed by EU legislation.

The U.S.-Croatian Bilateral Investment Treaty (BIT) has been in force since 2001. The full text of this and all other BITs can be found at: https://investmentpolicy.unctad.org/international-investment-agreements/countries/51/croatia.****

### Bilateral Taxation Treaties

Croatia and the United States do not yet share a bilateral tax treaty, however the two countries concluded negotiations on a treaty for the avoidance of double taxation in March 2022.  The treaty must still be signed by the two governments and ratified by the U.S. Senate before entering into force. As an EU member, Croatia avoids double taxation with the other 26 member states and has dual taxation agreements with 40 other countries, which are listed at https://www.porezna-uprava.hr/bi/Stranice/Dvostruko-oporezivanje.asp.

In March 2022, in response to rising energy prices, the government passed a package of measures to permanently decrease the value added tax (VAT) in four sectors: gas and heat, food and agricultural products, hygiene items, and sports and cultural events. Croatia has a number of so-called non-tax “para-fiscal” or administrative fees, including, for example, levies for use of radio frequencies, monument upkeep, use of water, and use of forests, paid to relevant ministries.  The government has committed to simplifying the tax system to facilitate business operations and foreign investment.  The government offers a binding tax opinion procedure to investors that guarantees a fixed tax rate for a certain period of time and thus eliminates the risk of unanticipated changes to tax law that can affect investment costs.  For detailed information, see:  https://www.porezna-uprava.hr/bi/Stranice/Obvezuju%C4%87a-mi%C5%A1ljenja.aspx .

Croatia is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting and supported the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a minimum corporate tax.

							3. Legal Regime					

### Transparency of the Regulatory System

Croatian legislation, which is harmonized with European Union legislation (*acquis**communautaire*), affords transparent policies and fosters a climate in which all investors are treated equally. Nevertheless, bureaucracy and regulations can be complex and time-consuming, although the government is working to remove unnecessary regulations.  There are no informal regulatory processes, and investors should rely solely on government-issued legislation to conduct business.

The Croatian Parliament promulgates national legislation, which is implemented at every level of government, although local regulations vary from county to county.  Members of Government and Members of Parliament, through working groups or caucuses, are responsible for presenting legislation.  Responsible ministries draft and present new legislation to the government for approval. When the Government approves a draft text, it is sent to Parliament for approval.  The approved act becomes official on the date defined by Parliament and when it is published in the National Gazette. Citizens maintain the right to initiate a law through their district Member of Parliament.  New legislation and changes to existing legislation which have a significant impact on citizens are made available for public commentary at  https://esavjetovanja.gov.hr/ECon/Dashboard.  The Law on the Review of the Impact of Regulations defines the procedure for impact assessment, planning of legislative activities, and communication with the public, as well as the entities responsible for implementing the impact assessment procedure. The complete text of all legislation is published both online and in the National Gazette, available at: www.nn.hr.

Croatia adheres to international accounting standards and abides by international practices through the Accounting Act, which is applied to all accounting businesses.  Publicly listed companies must adhere to these accounting standards by law.

The Croatian government does not promote or require companies to disclose ESG standards, but the Croatian Financial Services Supervisory Agency (HANFA) oversees implementation of the EU directive on sustainability-related disclosures in the financial sector. HANFA also publishes information regarding sustainable financing, and in March 2021 published guidelines to encourage companies listed on the Zagreb Stock Exchange to start regularly publishing their best practices for sustainability, in order to attract investors interested in sustainable investments.

Croatian courts are responsible for ensuring that laws are enforced correctly.  If an investor believes that the law or an administrative procedure is not implemented correctly, the investor may initiate a case against the government at the appropriate court.  However, judicial remedies are frequently ineffective due to delays or political influence.

The Enforcement Act defines the procedure for enforcing claims and seizures carried out by the Financial Agency (FINA), the state-owned company responsible for offering various financial services to include securing payment to claimants following a court enforced order.  FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. Enforcement proceedings are regulated by the Enforcement Act, last amended in 2017, and by laws regulating its execution, such as the Act on Implementation of the Enforcement over Monetary Assets, amended in 2020.  The legislation incorporates European Parliament and European Commission provisions for easily enforcing cross-border financial claims in both business and private instances.  Enforcement proceedings are conducted on the basis of enforcement title documents which specify the creditor and debtor, the subject, type, scope, and payment deadline. More information can be found at www.fina.hr .

Public finances and debt obligations are transparent and available on the Ministry of Finance website, in Croatian only, at https://mfin.gov.hr/.

### International Regulatory Considerations

Croatia, as an EU member, transposes all EU directives.  Domestic legislation is applied nationally and – while local regulations vary from county to county — there is no locally-based legislation that overrides national legislation.  Local governments determine zoning for construction and therefore have considerable power in commercial or residential building projects.  International accounting, arbitration, financial, and labor norms are incorporated into Croatia’s regulatory system.

Croatia has been a member of the World Trade Organization (WTO) since 2000. Croatia submits all draft technical regulations to the WTO, in coordination with the European Commission.

### Legal System and Judicial Independence

The legal system in Croatia is civil and provides for ownership of property and enforcement of legal contracts.  The Commercial Company Act defines the forms of legal organization for domestic and foreign investors. It covers general commercial partnerships, limited partnerships, joint stock companies, limited liability companies and economic interest groupings.  The Obligatory Relations Act serves to enforce commercial contracts and includes the provision of goods and services in commercial agency contracts.

The Croatian constitution provides for an independent judiciary.  The judicial system consists of courts of general and specialized jurisdictions.  Core structures are the Supreme Court, County Courts, Municipal Courts, and Magistrate/Petty Crimes Courts.  Specialized courts include the Administrative Court and High and Lower Commercial Courts.  The Constitutional Court determines the constitutionality of laws and government actions and protects and enforces constitutional rights. Municipal courts are courts of first instance for civil and juvenile/criminal cases.  The High Commercial Court is located in Zagreb and has appellate review of lower commercial court decisions.  The Administrative Court has jurisdiction over the decisions of administrative bodies of all levels of government. The Supreme Court is the highest court in the country and, as such, enjoys jurisdiction over civil and criminal cases.  It hears appeals from the County Courts, High Commercial Court, and Administrative Court. Regulations and enforcement actions are appealable and adjudicated in the national court system.

On January 1, 2021 the government established a High Criminal Court, headquartered in Zagreb, with responsibility for adjudication of second instance appeals against decisions made by County Courts in cases that involve criminal acts.

The Ministry of Justice and Public Administration continues to pursue a court reorganization plan intended to increase efficiency and reduce the backlog of judicial cases.  The World Bank approved a $110 million loan to Croatia for the Justice for Business Project in March 2020, to support ICT infrastructure upgrades, court process improvements, and other reforms to judicial services to improve the business climate.  This initiative will last until 2024.  The government is undertaking additional reforms, but significant challenges remain in relation to land registration, training court officers, providing adequate resources to meet the court case load, and reducing the length of bankruptcy procedures.  Investors often face problems with unusually protracted court procedures, lack of clarity in legal proceedings, contract enforcement, and judicial efficiency.  Croatian courts have decreased the number of civil, criminal, and commercial cases and decreased the disposition time for resolution of those cases, however there is still a significant case backlog.  The last available European Commission Country Report for Croatia from 2020 assessed that the length of court proceedings continues to be a burden for business.

### Laws and Regulations on Foreign Direct Investment

There are no specific laws aimed at foreign investment; both foreign and domestic market participants in Croatia are protected under the same legislation. The Company Act defines the forms of legal organization for domestic and foreign investors. The following entity types are permitted for foreigners: general partnerships; limited partnerships; branch offices; limited liability companies; and joint stock companies. The Obligatory Relations Act regulates commercial contracts.

The Ministry of Economy and Sustainable Development Internationalization Directorate           (https://investcroatia.gov.hr/en/) facilitates both foreign and domestic investment. The directorate’s website offers relevant information on business and investment legislation and includes an investment guide.

According to Croatian commercial law, significant or “strategic” business decisions must be approved by 75 percent of the company’s shareholders.  Minority investors with at least 25 percent ownership plus one share have what is colloquially called a “golden share,” meaning they can block or veto “strategic” decisions requiring a 75 percent vote. The law calls for minimum 75 percent shareholder approval to remove a supervisory board member, authorize a supervisory board member to make a business decision, revoke preferential shares, change company agreements, authorize mergers or liquidations, and to purchase or invest in something on behalf of the company that is worth more than 20 percent of the company’s initial capita (Note: This list is not exhaustive).

### Competition and Anti-Trust Laws

The Competition Act defines the rules and methods for promoting and protecting competition.  In theory, competitive equality is the standard applied with respect to market access, credit and other business operations, such as licenses and supplies.  In practice, however, state-owned enterprises (SOEs) and government-designated “strategic” firms may still receive preferential treatment. The Croatian Competition Agency is the country’s competition watchdog, determining whether anti-competitive practices exist and punishing infringements. The Agency adheres to international norms and standards.  It has determined in the past that some subsidies to SOEs constituted unlawful state aid, however state aid issues are now handled by the Ministry of Finance.  Information on authorities of the Agency and past rulings can be found at www.aztn.hr.  The website includes a “call to the public” inviting citizens to provide information on competition-related concerns.

### Expropriation and Compensation

Croatia’s Law on Expropriation and Compensation gives the government broad authority to expropriate real property in economic and security-related circumstances, including eminent domain. The Law on Strategic Investments also provides for expropriation for projects that meet the criteria for “strategic” projects.  However, it includes provisions that guarantee adequate compensation, in either the form of monetary compensation or real estate of equal value to the expropriated property, in the same town or city.  The law includes an appeals mechanism to challenge expropriation decisions by means of a complaint to the Ministry of Justice and Public Administration within 15 days of the expropriation order.  The law does not describe the Ministry’s adjudication process.  Parties not pleased with the outcome of a Ministry decision can pursue administrative action against the decision, but no appeal to the decision is allowed. There is not a history of alleged expropriations since Croatia declared independence in 1991. The government has not taken measures alleged to be indirect expropriation.

Article III of the U.S.-Croatia Bilateral Investment Treaty (BIT) covers both direct and indirect expropriations.  The BIT bars all expropriations or nationalizations except those that are for a public purpose, carried out in a non-discriminatory manner, in accordance with due process of law, and subject to prompt, adequate, and effective compensation.

### Dispute Settlement

ICSID Convention and New York Convention

In 1998 Croatia ratified the Washington Convention that established the International Center for the Settlement of Investment Disputes (ICSID).  Croatia is a signatory to the 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions.

Investor-State Dispute Settlement

The Croatian Law on Arbitration addresses both national and international proceedings in Croatia. Parties to arbitration cases are free to appoint arbitrators of any nationality or professional qualifications and Article 12 of the Law on Arbitration requires impartiality and independence of arbitrators.  Croatia recognizes binding international arbitration, which may be defined in investment agreements as a means of dispute resolution. Croatia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration: the 1923 Geneva Protocol on Arbitration Clauses, the 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions, and the 1961 European Convention on International Business Arbitration.

The Arbitration Act covers domestic arbitration, recognition and enforcement of arbitration rulings, and jurisdictional matters.  Once an arbitration decision has been reached, the judgment is executed by court order.  If no payment is made by the established deadline, the party benefiting from the decision notifies the Commercial Court, which becomes responsible for enforcing compliance. Arbitration rulings have the force of a final judgment, but can be appealed within three months.

In regard to implementation of foreign arbitral awards, Article 19 of the Act on Enforcement states that judgments of foreign courts may be executed only if they “fulfill the conditions for recognition and execution as prescribed by an international agreement or the law.”  More detailed requirements for executing foreign arbitral awards are set out in Article 40 of the Arbitration Act. The two main requirements that must be met are: 1) Croatian law must allow for the subject matter to be resolved by arbitration, and 2) recognizing and enforcing the foreign decision would not be contrary to Croatian public order. Moreover, an arbitral award will be recognized in Croatia only if it was not contested by one of the parties on any of the legally prescribed grounds and subsequently annulled by a court. If the arbitral award has not yet become binding for the parties, or if it has been annulled by a court of the country in which it was rendered or if its legal effects were delayed, then the Croatian courts will not recognise such an arbitral award.

The Act on Enforcement provides for the collection of financial claims and seizures by the Financial Agency (FINA), which is authorised to implement court decisions ordering enforcement.  FINA has the authority to instruct a bank to seize assets or directly settle the claim from the bank account of the debtor. FINA also has the authority to seize assets or directly settle the claim from the bank account of the person or legal entity that owes the claim. More information can be found at www.fina.hr.

Article Ten of the U.S.-Croatia BIT sets forth mechanisms for the resolution of investment disputes, defined as any dispute arising out of or relating to an investment authorization, an investment agreement, or an alleged breach of rights conferred, created, or recognized by the BIT with respect to a covered investment.

Croatia has no history of extrajudicial action against foreign investors. There is currently one known case filed by a U.S. investor in Croatian courts in 2016, following an investment dispute with a municipality that began in the early 2000s. The investor has announced plans to file a claim at international arbitration courts, citing the U.S.-Croatia BIT as the basis for the action, if an agreement with the government cannot be reached. The Croatian government settled a second longstanding investment dispute with a U.S. investor in December 2021.

*International Commercial Arbitration and Foreign Courts*

To reduce the backlog of court cases in the Croatian judiciary, non-disputed cases are passed to public notaries, but before those decisions are final and enforceable, they can be contested, in which case procedures will be continued before the competent court.

Both mediation and arbitration services are available through the Croatian Chamber of Economy. The Chamber’s permanent arbitration court has been in operation since 1965.  Arbitration is voluntary and conforms to UNCITRAL procedures.  The Chamber of Economy’s Mediation Center has been operating since 2002 – see https://www.hok-cba.hr/centar-za-mirenje/.

There are no major investment disputes currently underway involving state-owned enterprises, other than a dispute between the Croatian government and a Hungarian energy company over implementation of a purchase agreement with a Croatian oil and gas company. There is no evidence that domestic courts rule in favor of state-owned enterprises.

### Bankruptcy Regulations

Croatia’s Bankruptcy Act corresponds to the EU regulation on insolvency proceedings and United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency.  All stakeholders in the bankruptcy proceeding, foreign and domestic, are treated equally in terms of the Bankruptcy Act.  Bankruptcy is not considered a criminal act.

The Financial Operations and Pre-Bankruptcy Settlement Act helps expedite proceedings and establish timeframes for the initiation of bankruptcy proceedings.  One of the most important provisions of pre-bankruptcy is that it allows a firm that has been unable to pay all its bills to remain open during the proceedings, thereby allowing it to continue operations and generate cash under financial supervision in hopes that it can recover financial health and avoid closure.

The Commercial Court of the county in which a bankrupt company is headquartered has exclusive jurisdiction over bankruptcy matters. A bankruptcy tribunal decides on initiating formal bankruptcy proceedings, appoints a trustee, reviews creditor complaints, approves the settlement for creditors, and decides on the closing of proceedings.  A bankruptcy judge supervises the trustee (who represents the debtor) and the operations of the creditors’ committee, which is convened to protect the interests of all creditors, oversee the trustee’s work and report back to creditors.  The Act establishes the priority of creditor claims, assigning higher priority to those related to taxes and revenues of state, local and administration budgets.  It also allows for a debtor or the trustee to petition to reorganize the firm, an alternative aimed at maximizing asset recovery and providing fair and equitable distribution among all creditors.

							4. Industrial Policies					

### Investment Incentives

The Investment Promotion Act (IPA), amended in 2021, offers incentives to investment projects in manufacturing and processing activities, development and innovation activities, business support activities and high added value services.  The incentives are either tax refunds or cash grants.  After they are approved for implementation, they are not distributed immediately.  Those who receive cash grants are required to provide documentation proving they have fulfilled the criteria under which the request was granted for every year they have received approval for the incentive.  Tax refunds are provided to companies on an annual basis, based on information provided in tax returns.  Incentive measures can be combined or used individually up to the allowed maximum rate for the investment project. Also as of 2022, applicants for EU funds can apply for a maximum of 70 percent of investment costs for projects in the Pannonian and North Croatia region, 60 percent for areas along the Adriatic coast, and 55 percent for micro and small enterprises in the capital city Zagreb.

The IPA provides the following incentive measures: tax refunds for microenterprises; tax advantages for small, medium and large enterprises; cash grants for eligible costs of new jobs linked to the investment project; cash grants for eligible training costs linked to the investment project; additional aid for development and innovation activities, business support and high value-added services; cash grants for capital costs of investment projects; cash grants for labor intensive investment projects; incentives for investments which utilize inactive government-owned property; and incentives to modernize business processes through automation and digitalization of production and manufacturing processes. Historically, the government has given incentives or grants to underrepresented investors such as women and minorities, however there were no such incentives provided in 2021. Under Croatia’s National Recovery and Resilience Plan, the Ministry of Economy and Sustainable Development plans on creating new incentive programs targeted to minority and women investors.

Substantial tax cuts on profits are available depending on the size of the investment and the number of new jobs created.  A 50 percent tax reduction applies for up to 10 years for companies that invest up to $1.1 million and create at least five new jobs (three jobs for microenterprises or 10 jobs for companies investing in ICT system and software development centers).  This reduction increases to 75 percent for companies investing $1.1-3.26 million and creating at least 10 new jobs, and up to 100 percent for companies that invest over $3.26 million and create at least 15 new jobs.

Tax cuts on profits are also available at the same rates as above for investments to modernize the manufacturing industry.  These projects must include a minimum fixed asset investment of $545,000, all employees must be retained for the project duration, and the per-employee productivity after three years must increase at least 10 percent compared to the one-year period prior to the project’s start.

Cash grants for the creation of new jobs can be from 10 to 30 percent of costs per new position, depending on the unemployment rate in the county where the investment is located and the category of the person employed. Additional incentives are offered for labor-intensive investment projects within the first three years of the project start date, depending on the number of jobs created, and for development and innovation activities in the manufacturing, industrial engineering, ICT, logistics, tourism, and creative industries sectors.

There are also programs to reimburse costs for employee education and training connected to an investment project which can cover up to 50 percent of the education and training costs for large companies, up to 60 percent for medium sized companies or if training is given to workers with disabilities, or up to 70 percent for small businesses and microenterprises.

Cash grants for the capital costs of investment projects are approved for investments over $5.5 million which generate 50 new positions within 3 years of the start of the investment. The grants cover 10 percent of the cost of new factory construction, production facility construction, or the purchase of new equipment (up to $550,000) in counties where the unemployment rate is from 10-20 percent.  This incentive increases to 20 percent of the investment cost (up to $1.1 million) in counties where the unemployment rate is above 20 percent, with the condition that at least 40 percent of the investment is in machines or equipment and at least 50 percent of those machines or equipment are of high-value technology.  There are also grants for buying equipment or machinery for research and development activities up to 20 percent of the cost of the equipment, or up to $550,000.

There are incentives for investment projects which revitalize inactive state-owned property and provide free land leases for investors investing $3.26 million and creating at least 15 new jobs. Additional information regarding the types of incentives offered by the Ministry of Economy and Sustainable Development, as well as an investment incentives calculator, can be found at https://investcroatia.gov.hr/en/.

The Act on Strategic Investment Projects, amended in 2018, accelerates administrative procedures for projects deemed to be of strategic interest for Croatia.  The minimum amount for an investment to be considered strategic is approximately $11 million. Investments may also be treated as strategic if they are valued at $1.4 million or more and are implemented in underserved areas or on the islands, or are in the agriculture, fisheries, and forestry sector.  A guide and application materials for private investors interested in applying for status under the Act on Strategic Investment Projects is located at https://investcroatia.gov.hr/en/.

The Construction Act allows investors to secure permits through an e-licensing system. The investor may obtain a license valid for three years, which allows for a three percent change in the dimensions of the project from start to finish. The e-licensing system can be accessed at https://dozvola.mgipu.hr/.

In 2021, the government implemented a new aid scheme in the form of a premium power tariff to support electricity production from renewable sources. The Croatian Energy Market Operator (HROTE) publishes tenders for market premiums and tenders for guaranteed purchase prices of electricity from renewable sources. The amounts for premiums cannot be higher than the difference between the average production cost and the market price. To date, the incentives have proven successful, with the renewable sector growing rapidly and more than 11,000 MW of projects in the pipeline.

### Foreign Trade Zones/Free Ports/Trade Facilitation

There are 11 operational duty-free zones in Croatia, of which seven are land-based and four are at seaports.  Contact information for each of the zones can be found at https://www.croatianfreezones.org/primjer-stranice . Both domestic and foreign investors are afforded equal treatment in the zones.  Since Croatia’s entrance to the European Union, many of these zones have transitioned to industrial/business zones, which also offer investment incentives.  For more information regarding business zones go to https://investcroatia.gov.hr/zone/

### Performance and Data Localization Requirements

Croatian law does not impose performance requirements on or mandate employment requirements for foreign or domestic investors, nor are senior management or board of directors’ positions mandated in private companies.  Regarding U.S. investors, Article VII of the U.S.-Croatia BIT prohibits mandating or enforcing specified performance requirements as a condition for a covered investment.

Although procedures for obtaining business visas are generally clear, they can be cumbersome and time-consuming.  Foreign investors should familiarize themselves with the provisions of the Act on Foreigners.  Questions relating to visas and work permits should be directed to the Croatian Embassy or a Croatian Consulate in the United States.  The U.S. Embassy in Zagreb maintains a website with information on this subject at https://hr.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/entry-residence-requirements/.

The amended Law on Foreigners also allows for digital nomads, defined as “a third country national who is employed or performs work through communication technology for a company or their own company that is not registered in the Republic of Croatia and does not work or provide services to employers in the Republic of Croatia.” Temporary stay for this purpose is granted for up to one year and cannot be extended.

There are no government-imposed conditions for investment, nor are there “forced localization” policies for investors in terms of goods and technology. Foreign IT providers are not required to turn over source code or give access to surveillance.  There are no measures that prevent companies from freely transmitting customer or other business-related data outside the country’s territory.  There are no requirements for investors to maintain or store data within the territory of Croatia.

							5. Protection of Property Rights					

### Real Property

The right to ownership of private property is enshrined in Croatia’s Constitution and in numerous acts and regulations.  The Ownership and Property Rights Act establishes procedures for foreigners to acquire property by inheritance as well as through legal transactions such as purchases, deeds, and trusts.  Croatia has a well-functioning banking system, which provides mortgages, while courts and cadaster offices handle property records.

Real property ownership can be particularly challenging in Croatia owing to unique titling issues, separate ownership of buildings and the land on which they sit, reciprocity laws, special treatment of agricultural land and coastal regions, and zoning disputes.  Inheritance laws have led to situations in which some properties have claims by dozens of legal owners, some of whom are deceased and others who have emigrated and cannot be found. For all these reasons, investors should seek competent, independent legal advice in this area. The U.S. Embassy maintains a list of English-speaking attorneys (https://hr.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/). The Ministry of Economy and Sustainable Development Directorate for Internationalization helps those seeking information about property status in Croatia. For more information, see: http://investcroatia.gov.hr/.

While the cadaster offices reliably maintain records, there is a portion of property in Croatia which has changed hands without appropriate documentation for various reasons, including avoidance of paying the title transfer fees or hiding wealth.  Historically, individuals and companies spent years in court attempting to resolve improper real estate documentation.  For this reason, potential buyers should seek to verify that the seller possesses clear title to both the land and buildings (which can be titled and owned separately).

A foreign investor, incorporated as a Croatian legal entity, may acquire and own property without ministry approval, with the caveat that the purchase by any private party of certain types of land (principally land directly adjacent to the sea or in certain geographically designated areas) can be restricted to foreign investors for purposes of national security. In order to acquire property by means other than inheritance or as an incorporated Croatian legal entity, foreign citizens must receive approval from the Ministry of Justice and Public Administration, a process which can be lengthy due to the need for interagency clearance.  While EU citizens are afforded the same rights as Croatian citizens in terms of purchasing property, the right of all other foreigners to acquire property in Croatia is based on reciprocity.

In the case of the United States, reciprocity exists on a state-by-state basis.  Croatia’s Ministry of Foreign and European Affairs has confirmed the existence of positive reciprocity for real estate purchases for residents of states listed in the table in the “S.A.D” line at https://mpu.gov.hr/informacije-o-uzajamnosti-u-stjecanju-prava-vlasnistva-nekretnina-izmedju-republike-hrvatske-i-drzava-izvan-europske-unije-republike-island-knezevine-lihtenstajn-kraljevine-norveske-te-svicarske-konfederacije/6186.  Alternatively, for U.S. citizens from Arkansas, Hawaii, Kentucky, Minnesota, Mississippi, New Hampshire, Oklahoma and Vermont, property acquisition is only allowed with the condition of Croatian permanent residence.  Residents of other states could face longer waiting periods.

Land ownership is distinct from ownership of buildings or facilities on the land.  Investors interested in acquiring state-owned companies from the Ministry of Physical Planning, Construction, and State Assets should seek legal advice to determine whether any deal also includes the right to ownership of the land on which a business is located, or merely the right to lease the land through a concession.

Inconsistent regulations and restrictions on coastal property ownership and construction have also provided challenges for foreign investors in the past.  Croatian law restricts construction and commercial use within 70 meters of the coastline. It is important to verify zoning regulations and the existence of necessary building permits, as some newer structures in coastal areas have been subject to destruction at the owner’s expense and without compensation for not conforming to local zoning regulations.  Investors should be particularly wary of promises that structures built without permits will be regularized retroactively.  The Act on Legalization of Buildings and Illegal Construction is intended to resolve ambiguities regarding ownership of real estate.

When purchasing land for construction purposes, potential buyers should determine whether the property is classified as agricultural or construction land.  The Agricultural Land Act provides for additional fees for re-zoning of up to 50 percent of the value of the land that is diverted from agriculture to construction purposes.  The Agricultural Land Agency works with local governments to review potential agricultural land purchases.  The sale of privately owned farmland is treated solely as the subject of a sales agreement between the parties.  Buyers of this type of land should still proceed with caution and be aware of potentially unresolved legacy issues with land ownership.  Land in Croatia is either publicly or privately owned and cannot be transferred to squatters solely based on physical presence.

The Ministry of Justice and Public Administration and the State Geodetic Office co-manage the National Program for Resolving Land Registration and Cadaster Issues.  This program includes a One Stop Shop system, which is a single point for accessing land registry and cadaster data.  For more information see http://www.uredjenazemlja.hr/default.aspx?id=17  where information is available in English.

Croatia is also working with the World Bank on implementation of the Integrated Land Administration System project (ILAS) to modernize the land administration and management system.  Croatia continues to process a backlog of cases and potential investors should seek a full explanation of land ownership rights before purchasing property. There is no property tax in Croatia.

Note that Croatia’s land records are available online at https://www.katastar.hr/en/#/. Katastar.hr includes information on over 14 million pieces of land throughout the country and provides information in English.

### Intellectual Property Rights

Croatian intellectual property rights (IPR) legislation includes the Patent Act amended in January 2020, the Trademark Act, the Industrial Design Act, the Act on the Geographical Indications of Products and Services, the Act on the Protection of Layout Design of Integrated Circuits, and the Act on Copyrights and Related Rights, which was entirely rewritten and adopted in 2021.  The Law on Protecting Unpublished Information with Market Value went into force in 2018.  These acts define the process for protecting and enforcing IPR in Croatia.  Texts of these laws are available on the website of the State Intellectual Property Office at https://www.dziv.hr/en/ip-legislation/national-legislation/.  The Law on Fees for the Intellectual Property Sector was adopted in 2021 in addition to the Regulation on Fees in the Intellectual Property Sector and Expert Services of the State Intellectual Property Office. All laws are harmonized with EU legislation.

The legal structure is strong, enforcement is good, and infringement of rights and theft of intellectual property are not common, although there are isolated incidents.

Croatian law enforcement officials keep public records of seized counterfeit goods.  According to a 2021 report from the Croatian Customs Office, officials stopped 472 international imports on the grounds of intellectual property rights violations, resulting in 657 procedures for temporary detainment of goods for a total of 209,972 items.  Customs also issued 94 domestic violations, seized 22,957 counterfeit goods, and initiated 26 criminal proceedings against individuals involved in violation of trademarks.  Croatian customs officials and the Ministry of Interior work together to locate and seize infringing goods.

Although some areas of IPR protection and enforcement remain problematic, Croatia is currently not included in the U.S. Trade Representative’s Special 301 Report or the Notorious Markets List.  Problem areas are piracy of digital media and counterfeiting.  Due to its geographic location, Croatia is also a transit route for various illegal products bound for other countries in the region.  There have been no problems reported with regard to registration of IPR in Croatia by American companies.  The American Chamber of Commerce maintains dialogue with the Croatian government on IPR issues.

As a WTO member, Croatia is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  Croatia is also a member of the World Intellectual Property Organization (WIPO) and party to the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.  For a list of international conventions to which Croatia is a signatory, consult the State Intellectual Property Office’s website at http://www.dziv.hr/hr/zakonodavstvo/medjunarodni-ugovori/.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

							6. Financial Sector					

### Capital Markets and Portfolio Investment

Croatia’s securities and financial markets are open equally to domestic and foreign investment. Foreign residents may open non-resident accounts and may do business both domestically and abroad.  Specifically, Article 24 of the Foreign Currency Act states that non-residents may subscribe, pay in, purchase, or sell securities in Croatia in accordance with regulations governing securities transactions.  Non-residents and residents are afforded the same treatment in spending and borrowing.  These and other non-resident financial activities regarding securities are covered by the Foreign Currency Act, available on the central bank website (www.hnb.hr).

Securities are traded on the Zagreb Stock Exchange (ZSE).  Regulations that govern activity and participation in the ZSE can be found (in English) at: https://zse.hr/en/legal-regulations/234.  There are three tiers of securities traded on the ZSE.  The Capital Markets Act regulates all aspects of securities and investment services and defines the responsibilities of the Croatian Financial Services Supervisory Agency (HANFA). More information can be found (in English) at: http://www.hanfa.hr/regulations/capital-market/.

There is sufficient liquidity in the markets to enter and exit sizeable positions.  There are no policies that hinder the free flow of financial resources.  There are no restrictions on international payments or transfers, in accordance with IMF Article VIII.  The private sector, both domestic and foreign-owned, enjoys open access to credit and a variety of credit instruments on the local market, available on market terms.

### Money and Banking System

The banking sector is mostly privatized and is highly developed, competitive, resilient, and increasingly offering a diversity of products to businesses (foreign and domestic) and consumers.  According to conclusions from an IMF Virtual Visit with Croatia in November 2020, the banking sector is one of the strongest sectors of the Croatian economy.  French, German, Italian, and Austrian companies own over 90 percent of Croatia’s banks. As of December 31, 2021, there were 20 commercial banks and three savings banks, with assets totaling $78.75 billion.  The largest bank in Croatia is Italian-owned Zagrebacka Banka, with assets of $20.82 billion and a market share of 26.5 percent. The second largest bank is Italian-owned Privredna Banka Zagreb, with assets totaling $16.46 billion and 20.9 percent market share.  The third largest is Austrian Erste Bank, with assets totaling $13.01 billion and a 16.52 percent market share.  According to Croatian National Bank statistics, the non-performing loans (NPL) rate for Croatia was 4.3 in 2021, down from 5.4 percent in 2020. The country has a central bank system and all information regarding the Croatian National Bank can be found at https://www.hnb.hr/en/.

In an extraordinary move facilitated by the Croatian National Bank, state-owned Croatian Postal Bank (HPB) bought Sberbank Croatia, a subsidiary of Sberbank Europe, on March 1, reportedly paying $11 million for Sberbank’s assets. The sale saved Sberbank Croatia from bankruptcy following the collapse of Sberbank Europe after Russia’s invasion of Ukraine. Prior to the sale, Sberbank Croatia had roughly 60,000 clients and represented 2.21 percent of total bank assets in Croatia.

Non-residents are able to open bank accounts without restrictions or delays.  The Croatian government has not introduced or announced any intention to introduce block chain technologies in banking transactions.

### Foreign Exchange and Remittances

The Croatian Constitution guarantees the free transfer, conversion, and repatriation of profits and invested capital for foreign investments. Article VI of the U.S.-Croatia Bilateral Investment Treaty (BIT) establishes protection for American investors from government exchange controls. The BIT obliges both countries to permit all transfers relating to a covered investment to be made freely and without delay into and out of each other’s territory.  Transfers of currency are additionally protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7).

The Croatian Foreign Exchange Act permits foreigners to maintain foreign currency accounts and to make external payments.  The Foreign Exchange Act also defines foreign direct investment (FDI) in a manner that includes use of retained earnings for new investments/acquisitions, but excludes financial investments made by institutional investors such as insurance, pension, and investment funds.  The law also allows Croatian entities and individuals to invest abroad.  Funds associated with any form of investment can be freely converted into any world currency.

On July 10, 2020 the European Central Bank and European Commission announced that Croatia had fulfilled its commitments and the Croatian kuna (HRK) was admitted into the Banking Union and European Exchange Rate Mechanism (ERM II), with the exchange rate between the kuna and the euro (EUR) pegged at EUR 1 to 7.5345 HRK. Any risk of currency devaluation or significant depreciation is generally low. The Croatian government intends to adopt the euro on January 1, 2023.

Remittance Policies

No limitations exist, either temporal or by volume, on remittances.  The U.S. Embassy in Zagreb has not received any complaints from American companies regarding transfers and remittances.

### Sovereign Wealth Funds

Croatia does not own any sovereign wealth funds.

							7. State-Owned Enterprises (SOEs)					

There are currently a total of 58 state-owned enterprises (SOEs) that are either wholly state-owned or in which the state has a majority stake.  The SOEs are managed through the Ministry of Physical Planning, Construction, and State Assets or the Center for Restructuring and Sale (CERP).  The Ministry of Physical Planning, Construction, and State Assets oversees 39 “special state interest” SOEs, including 19 wholly state-owned, 13 majority state-owned companies, six listed as “legal entities of special interest,” and one with less than 50 percent state ownership.  CERP oversees the other 19 SOEs, of which 11 are wholly state-owned and eight are majority state-owned.

These SOEs cover a range of sectors including infrastructure, energy, real estate, finance, transportation, and utilities.  The latest figures available, from 2021, show that SOEs employ a total of 72,756 people and have net revenues totaling $10.39 billion and assets of $48.5 billion.  The government appoints the members of SOE management and supervisory boards, making the companies very susceptible to political influence.

CERP also oversees 306 companies; of these, the state owns up to 10 percent of 220 companies, from 10 to 49 percent of 67 companies, 50-99 percent of 8 companies, and 100 percent of 11 companies.  By statute, CERP must divest the state from these companies.  Lists of SOEs are published on the websites of the Ministry of Physical Planning, Construction, and State Assets at https://imovina.gov.hr/ and on CERP’s website at http://www.cerp.hr/.

County and city level governments have majority ownership in approximately 500 companies, mostly utilities; however, exact data is not available.  The last available European Commission 2020 Country Report for Croatia assessed that Croatia made slow progress in selling off holdings in non-strategic companies, and its targets are not ambitious.  The European Commission and the European Bank for Reconstruction and Development (EBRD) implemented the Structural Reform Support Program for strengthening the functioning of state-owned enterprises and improvement of corporate governance (https://ec.europa.eu/info/news/commission-supports-croatias-reform-make-state-owned-enterprises-more-resilient-2020-feb-05_en), and the relevant government offices are currently reviewing the recommendations and outcomes from the Program. Croatia’s National Recovery and Resilience Plan includes SOE reform targets such as reducing the number of strategic companies to 36, creating a new legal framework for SOEs which incorporates OECD recommendations and directs the sale of 90 SOEs from the CERP list by the second half of 2026.

The Corporate Governance Code is available at https://zse.hr/en/corporate-governance-code/1780.  The government is working to align national legislation with OECD Guidelines on Corporate Governance of SOEs. The OECD launched a corporate governance review in June 2021 identified 11 recommendations for reform that should contribute to improved SOE corporate governance.

### Privatization Program

Croatia continues to slowly pursue privatization of SOEs through the Ministry of Physical Planning, Construction, and State Assets and the CERP.  There are no restrictions against foreigners participating in privatization tenders.  When Croatia initiated its privatization process in the late 1990s foreign investors purchased assets in the banking and telecommunications sectors, as well as Croatia’s largest pharmaceutical company. The bidding process is public, tenders are published online, and terms are clearly defined in tender documentation, however, problems with bureaucracy and timely judicial remedies can significantly slow progress on projects.  There is no privatization timeline; however, the government views privatization as a means to reduce the budget deficit and increase output.  The Ministry of Physical Planning, Construction, and State Assets drafted the 2021 plan for Management of State Owned Property, as part of the National Strategy for Management of State Owned Property 2019-2025 (only in Croatian: https://narodne-novine.nn.hr/clanci/sluzbeni/2019_10_96_1863.html). Tenders are in Croatian and can be found at https://mpgi.gov.hr/natjecaji/13135.

							8. Responsible Business Conduct					

There is a general awareness of societal expectations regarding responsible business conduct which is regulated by law.  The Croatian Financial Services Supervisory Agency has established a Corporate Governance Code of Ethics for all Zagreb Stock Exchange (ZSE) participants, and the Company Act, Audit Law, Accounting Law and Credit Institutions Law are the sources for corporate governance provisions.  Publicly listed companies are required to upload their annual corporate governance reports on the ZSE website.  The Governance Code lays out guidelines for ensuring transparency of business operations, avoidance of conflicts of interest, efficient internal control, and effective division of responsibilities.

No high profile or controversial instances of private sector labor rights violations have occurred in Croatia.  There were no claims during the last five years by indigenous or other communities that a government entity improperly allocated land or natural resources. Forced labor, forced evictions of indigenous peoples, or arrests of and violence against environmental defenders are not permitted by law. The government effectively implements and enforces domestic laws to maintain consumer and environmental protection and avoid infringement of human and labor rights. Sometimes these regulations exceed EU standards.  Croatia implements all EU legislation which requires a due diligence approach to responsible business conduct.  Labor unions are considered watchdogs for responsible business conduct and draw attention to issues they find to be impeding on labor, environmental, or consumer rights in the business sector. In terms of security, the government employs private security companies for security of buildings. Security for defense purposes is handled by Croatian state authorities, such as the army or police forces. Croatia became a signatory of the Montreaux Document on Private Military and Security Companies in May 2013. Croatia is not currently a supporter of the International Code of Conduct for Private Security Service Providers, nor a member of the International Code of Conduct for Private Security Service Providers Association.

Although Croatia is not a member, Croatia supports the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas and considers minerals from conflict affected areas to be illegal.  Croatia does not participate in the Extractive Industry Transparency Initiative.  Various laws related to forest and water management, concessions, and environmental protection are implemented in extractive and mining businesses to maintain high environmental and human rights standards.  All procedures for mining or extraction tenders are publicly available and transparent.

Additional Resources

Department of State

- Country Reports on Human Rights Practices ;
- Trafficking in Persons Report ;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities ;
- U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises ; and;
- Xinjiang Supply Chain Business Advisory 

Department of the Treasury

- OFAC Recent Actions

Department of Labor

- Findings on the Worst Forms of Child Labor Report ;
- List of Goods Produced by Child Labor or Forced Labor ;
- Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World  and;
- Comply Chain

### Climate Issues

Croatia has a number of climate-related strategies including a “Low Carbon Development Strategy 2030-2050,” “Energy Development Strategy 2030-2050,” an “Integrated National Energy and Climate Plan,” and a “Climate Change Adaptation Strategy.” The Climate Change Adaptation Strategy focuses on the vulnerability of eight key sectors – water resources, agriculture, forestry, fisheries, biodiversity, energy, tourism and health – and two cross-cutting thematic areas – spatial planning and risk management. A total of 83 climate change adaptation measures are defined for all the sectors. Croatia has committed to reach net-zero carbon emissions by 2050 and joined the Global Methane Pledge. In addition, Croatia’s National Recovery and Resilience Plan, under which the country will have access to more than $7 billion in EU funds, has a strong focus on climate-related reforms and projects. Some of the proposed projects are electricity grid modernization to facilitate increased renewable energy source connections, greater co-financing opportunities for alternative fuel vehicles and investments in hydrogen-powered heavy vehicles, and renovation and reconstruction of buildings and homes to improve energy efficiency.

							9. Corruption					

Croatia has a suitable legal framework, including laws and penalties, to combat corruption.  The Criminal Code and the Criminal Procedure Act define the tools and sanctions available to the investigative authorities to fight corruption and both acts provide for asset seizure and forfeiture.  In terms of a corruption case, where the defendant has assets that are determined to be disproportionate to his/her lawful income, it is presumed by law that the defendant’s property was acquired through criminal means. In such cases, the onus is on the defendant to prove the legal origin of the assets in question.  Financial gain, if it is in possession of a third party in such cases can also be confiscated if it is determined the gain was not acquired in good faith. However, the good faith principle does not apply to a spouse, relatives, or family members.  Croatian laws and provisions regarding corruption apply equally to domestic and foreign investors, to public officials, their family members and political parties.  The Croatian Criminal Code covers such acts as trading in influence, abuse of official functions, bribery in the private sector, embezzlement of private property, money laundering, concealment and obstruction of justice.  The Act on the Office for the Suppression of Corruption and Organized Crime provides broad authority to prosecute tax fraud linked to organized crime and corruption cases.

The Croatian Parliament adopted a new Anti-Corruption Strategy for 2021-2030 to strengthen existing anti-corruption administrative and legal mechanisms. It also aims to identify new, systemic solutions to raise awareness of the harmful effects of corruption, increase citizen involvement, and utilize civil society and the media as indispensable institutional partners to prevent and fight corruption. Croatian prosecutors have secured corruption convictions and launched investigations against a number of high-level former government officials, former ministers, other high-ranking officials, and senior managers from state-owned enterprises, although many such convictions have later been overturned.

The Law on Public Procurement is harmonized with EU legislation and prescribes transparency and fairness for all public procurement activities.  Government officials use public speeches to encourage ethical business.  The Croatian Chamber of Economy created a Code of Business Ethics which it encourages all companies in Croatia to abide by, but it is not mandatory. The Code can be found in Croatian at:  https://www.hgk.hr/documents/kodeksposlovneetikehrweb581354cae65c8.pdf.

Additional laws for the suppression of corruption include: the State Attorney’s Office Act; the Public Procurement Act; the Act on Procedure for Forfeiture of Assets Attained Through Criminal Acts and Misdemeanors; the Budget Act; the Conflict of Interest Prevention Act; the Corporate Criminal Liability Act; the Money Laundering Prevention Act; the Witness Protection Act; the Personal Data Protection Act; the Right to Access Information Act; and the Act on Civil Services. Other regulations include the Code of Ethics for Civil Servants and the Code of Judicial Ethics. Whistleblowers are protected by the Law on the Protection of Irregularities, as well as by provisions in the Labor Law and the Civil Servants Act.

Croatia has requested to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Croatia is a member and currently chairs the Group of States Against Corruption (GRECO), a peer monitoring organization that allows members to assess anticorruption efforts on a continuing basis.  Croatia has been a member of INTERPOL since 1992.  Croatia cooperates regionally through the Southeast European Co-operative Initiative (SECI), the Southeast Europe Police Chiefs Association (SEPCA), and the Regional Anti-Corruption Initiative (RAI).  Croatia is a member of Eurojust, the EU’s Judicial Cooperation Unit, and is a signatory to the UN Convention Against Corruption.

Croatian legislation provides protection for NGOs involved in investigating or drawing attention to corruption.  GONG, a non-partisan citizens’ organization founded in 1997, which also acts as a government watchdog, monitors election processes, educates citizens about their rights and duties, encourages communication between citizens and their elected representatives, promotes transparency within public services, manages public advocacy campaigns, and assists citizens in self-organizing initiatives.  A new anti-corruption association, Udruga Pomak, was formed by a group of prominent whistleblowers to advocate for greater whistleblower protections.  Even though the law provides for the protection of whistleblowers, in practice there are still issues.

The business community has identified corruption in the healthcare and construction sectors, as well as lack of transparency in the public procurement process as obstacles to foreign investment.

### Resources to Report Corruption

The State Prosecutor’s Office for the Suppression of Corruption and Organized Crime (USKOK) is tasked with directing police investigations and prosecuting cases.  USKOK is headquartered in Zagreb, with offices in Split, Rijeka, and Osijek.  In addition, the National Police Office for the Suppression of Corruption and Organized Crime (PN-USKOK) conducts corruption-related investigations and is based in the same cities.  Specialized criminal judges in the four largest county courts in Zagreb, Rijeka, Split, and Osijek are responsible for adjudicating corruption and organized crime cases.  The cases receive high priority in the justice system, but still encounter excessive delays and lengthy proceedings.  The Ministry of Interior, the Office for Suppression of Money Laundering, the Tax Administration, and the Anti-Corruption Sector of the Ministry of Justice and Public Administration all have a proactive role in combating and preventing corruption.

Contact information below:

Office of the State Attorney of the Republic of CroatiaGajeva 30, 10000 Zagreb, Republic of Croatia+385 1 4591 855tajnistvo.dorh@dorh.hr

Office for the Suppression of Corruption and Organized CrimeVlaska 116, 10000 Zagreb,Republic of Croatia+385 1 2375 654tajnistvo@uskok.dorh.hr

GONGVodnikova cesta 4. Zagreb 10 000.,10000 Zagreb, Republic of Croatia+385 1 4825 444gong@gong.hr

							10. Political and Security Environment					

The risk of political violence in Croatia is low.  Following the breakup of Yugoslavia and the subsequent wars in the region, Croatia has emerged as a stable, democratic country and is a member of NATO and the EU.  Relations with neighboring countries are generally fair and improving, although some disagreements regarding border demarcation and residual war-related issues persist.

							11. Labor Policies and Practices					

Croatia has an educated, highly skilled, and relatively high-value labor force compared to regional averages, but labor remains relatively low cost compared to the entire EU.  Employment is regulated by the constitution, international conventions, treaties, labor law, collective agreements, and employment agreements. A list of International Labor Organization conventions implemented into labor legislation can be found at https://www.ilo.org/dyn/normlex/en/fp=NORMLEXPUB:11200:0::NO::P11200_COUNTRY_ID:102700. There are no recent reliable reports on the size of the grey economy, but estimates range from 10 percent to 35 percent of GDP.  According to the latest report available from the Croatian Employment Agency, unemployment in the third quarter of 2021 decreased to 6.3 percent from 7.5 for the same period in 2020 due to the government’s financial support packages for job retention throughout the COVID-19 pandemic. According to the latest available statistics from the Croatian Bureau of Statistics, of the total number of employed persons in December 2021, 47.8 percent were women and 52.2 percent were men.

The Labor Law governs employment and prescribes general labor regulations.  Among other items, the Labor Law prohibits discrimination, defines various types of leave including maternity, and provides terms for striking, salaries, and other labor related issues.  The government is committed to increasing jobs, especially for youth, through various programs funded by the EU.  Companies report that Croatia’s labor law makes it relatively expensive to hire and dismiss employees in comparison to the United States and other countries in Europe at the same level of development.

There are currently labor shortages reported in the construction, food production, and tourism sectors.  The Law on Foreigners was amended in November 2020 to abolish employment quotas for foreign workers. Foreign or migrant workers do not play a significant role in any sector yet, but there are growing numbers of foreign workers in the construction sector.  Croatia continues to experience a brain drain, with an estimated 60,000 Croatians (mostly young and educated) leaving the country annually.  The government has indicated, however, that a significant number of Croatians returned to Croatia during the COVID-19 pandemic as jobs became scarce in other EU countries. The Government maintains the www.mjere.hr website with information regarding measures to keep workers in Croatia.  These measures are divided into nine categories and include financial support for employers and the self-employed, as well as for training and seasonal work programs.  A large portion of the funding is intended to support active employment, while a portion will fund specialized programs for groups that have a hard time entering the labor market.

Croatian law does not require the hiring of Croatian nationals.  Employers are bound by law to offer severance pay to individuals laid off due to restructuring or down-sizing.  The labor law defines the conditions and amounts of severance pay.  To be eligible for severance: 1) the employer must terminate the employee, 2) the termination must not be the result of behavioral issues, and 3) the employee must have been employed for two consecutive years.  The Croatian Employment Agency provides unemployment payments for those laid off due to economic reasons.

Labor laws are strictly implemented and not waived to retain or attract investment.  Collective bargaining is a common tool, mostly implemented by unions, which overwhelmingly represent workers associated with government spending and state-owned enterprises.  The http://baza.kolektivni-ugovori.info/ website provides an updated database of collective agreements signed in 1995 to date. The Labor Law provides a mechanism for resolving collective and individual labor disputes by arbitration. No appeal is permitted against an arbitration award.

							12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs					

Development projects in Croatia may be eligible for International Development Finance Corporation (DFC) political risk insurance.  Additionally, Croatia is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). For more information see www.miga.org.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics