This Decision is addressed to the Republic of Croatia.

4.The release of instalments in accordance with the Financing Agreement shall be conditional on available funding and a decision by the Commission, taken in accordance with Article 24 of Regulation (EU) 2021/241, that Croatia has satisfactorily fulfilled the relevant milestones and targets identified in relation to the implementation of the recovery and resilience plan. Subject to the entry into force of the legal commitments referred to in paragraph 1, to be eligible for payment, milestones and targets shall be completed no later than 31 August 2026.

3.The pre-financing shall be released subject to the entry into force and in accordance with the Financing Agreement provided for in Article 23(1) of Regulation (EU) 2021/241. Pre-financing shall be cleared by being proportionally deducted against the payment of the instalments.

2.The Union financial contribution shall be made available by the Commission to Croatia in instalments in accordance with the Annex. An amount of EUR 818 406 049 shall be made available as a pre-financing payment, equal to 13 per cent of the financial contribution. The pre-financing and instalments may be disbursed by the Commission in one or several tranches. The size of the tranches shall be subject to the availability of funding.

1.The Union shall make available to Croatia a financial contribution in the form of non-repayable support amounting to EUR 6 295 431 146. An amount of EUR 4 631 762 551 shall be available to be legally committed by 31 December 2022. Subject to the update provided for in Article 11(2) of Regulation (EU) 2021/241 calculating an amount for Croatia equal to or more than this amount, a further amount of EUR 1 663 668 594 shall be available to be legally committed from 1 January 2023 until 31 December 2023.

The assessment of the recovery and resilience plan of Croatia on the basis of the criteria provided for by Article 19(3) of Regulation (EU) 2021/241 is approved. The reforms and investment projects under the recovery and resilience plan, the arrangements and timetable for monitoring and implementation of the recovery and resilience plan, including the relevant milestones and targets, the relevant indicators relating to the fulfilment of the envisaged milestones and targets, and the arrangements for providing full access by the Commission to the underlying relevant data are set out in the Annex to this Decision.

Article 1 Approval of the assessment of the recovery and resilience plan

(59)This Decision should be without prejudice to the outcome of any procedures relating to the award of Union funds under any other Union programme than Regulation (EU) 2021/241 or to procedures relating to distortions of the operation of the internal market that may be undertaken, in particular under Articles 107 and 108 of the Treaty. It does not override the requirement for Member States to notify instances of potential State aid to the Commission under Article 108 of the Treaty,

(58)Croatia has requested pre-financing of 13% of the financial contribution. That amount should be made available to Croatia subject to the entry into force and in accordance with the Financing Agreement provided for in Article 23(1) of Regulation (EU) 2021/241.

(57)The support to be provided is to be financed from the borrowing by the Commission on behalf of the Union on the basis of Article 5 of Council Decision (EU, Euratom) 2020/2053. The support should be paid in instalments once Croatia has satisfactorily fulfilled the relevant milestones and targets identified in relation to the implementation of the recovery and resilience plan.

(56)In accordance with Article 11(2) of Regulation (EU) 2021/241, the calculation of the maximum financial contribution for Croatia is to be updated by 30 June 2022. As such, in accordance with Article 23(1) of that Regulation, an amount for Croatia should be made available now for a legal commitment by 31 December 2022. Where necessary following the updated maximum financial contribution, the Council, on a proposal from the Commission, should amend this Decision to include the updated maximum financial contribution without undue delay.

(55)The estimated total cost of the recovery and resilience plan of Croatia is EUR 6 393 794 220. As the recovery and resilience plan satisfactorily complies with the criteria for assessment set out in Regulation (EU) 2021/241 and, furthermore, as the amount of the estimated total costs of the recovery and resilience plan is higher than the maximum financial contribution available for Croatia, the financial contribution allocated for Croatia’s recovery and resilience plan should be equal to the total amount of the financial contribution available for Croatia.

(54)Following the positive assessment of the Commission concerning the Croatian recovery and resilience plan with the finding that the plan satisfactorily complies with the criteria for assessment set out in Regulation (EU) 2021/241, in accordance with Article 20(2) of that Regulation, this Decision should set out the reforms and investment projects necessary for the implementation of the plan, the relevant milestones, targets and indicators, and the amount made available from the Union for the implementation of the plan in the form of non-repayable financial support.

(53)Croatia’s recovery and resilience plan does not outline the authorities’ plans on how to include the stakeholders in the implementation of the plan. To ensure ownership by the relevant actors, it is crucial to involve all regional and local authorities and other stakeholders concerned, including social partners and civil society in the monitoring of the territorial allocation of resources throughout the implementation of the investments and reforms included in the plan.

(52)Croatia carried out a consultation process before submitting their recovery and resilience plan and carried out a stakeholder public consultation after the submission of the draft plan to the Commission in December 2020. Between January and May 2021, the authorities held more than 15 thematic meetings with different stakeholders where they presented the recovery and resilience plan opportunities for Croatia in specific areas, its structure, criteria, process and complementarities with other Union funds. The summary of the plan was published and presented to the media ahead of the adoption on 1 April 2021. After the adoption by the Government, the summary of the plan was posted on the Government’s website and discussed in the Parliament on 14 April 2021.

(51)The plan includes cross-border and multi-country projects in three areas. First, there are measures related to the interoperability of the information systems under the Digital transition component, which includes the establishment, upgrading, interconnection of the core registers and the establishment of a Central Interoperability System in line with the European Interoperability Framework (EIF). Second, under the Education component, the digital transformation of higher education is expected to stimulate and accelerate the stronger involvement of higher education institutions in cross-border and multinational projects, in particular projects for which digital maturity is a necessary condition for participation. Third, under the Water and waste management component, the Public Water Supply Development Programme and the Programme for the Development of Public Sewerage have a positive impact on the environment by reducing pollution the environment and water resources, contributing to the conservation of water bodies, and in this sense their impact is cross-border and global.

(50)A security self-assessment has been provided, in accordance with Article 18(4), point (g) of Regulation (EU) 2021/241 for investments in digital capacities and connectivity. The recovery and resilience plan describes how the national regulator prepared a draft ordinance on the manner and timing of implementing measures to safeguard the security and integrity of communication networks and services, which incorporates requirements to ensure the security of 5G electronic communications networks and services based on recommendations of the Communication of the Commission of 29 January 2020 “Secure 5G deployment in the EU — Implementation of the EU toolbox”.

(49)The recovery and resilience plan includes measures that could help increase female labour market participation. The labour reform is expected to contribute to that objective, facilitate work-life balance, indirectly reduce the gender pay gap and address the high gender pension gap. The plan should fund ICT projects addressing equality considerations. It includes a reform of the education system which aims to ensure equal opportunities for all children, mainly by increasing participation in early childhood education and care and the number of instruction hours in primary school. Croatia should develop social mentoring services that should support hard-to-reach groups of beneficiaries such as persons with disabilities, victims of violence, homeless people, migrants, Roma and young people leaving the social welfare system to assist them with employment. The plan provides for several investments to address specific needs of persons with disabilities, such as measures to ensure physical accessibility to buildings and housing environment, to provide adequate mobility services, promote hybrid access to a workplace and ensure access to digital public services.

(48)The Croatian recovery and resilience plan is structured around five components and one initiative, which are coherent and support the common objectives to stimulate the recovery of the Croatian economy and mitigate the impact of COVID-19, to contribute to the green and digital transition and inclusive growth, and to increase resilience and competitiveness of the Croatian economy. The plan’s components, especially the “Initiative: Renovation of Buildings”, should also contribute to the reconstruction of the damage caused by two devastating earthquakes, which in 2020 affected central Croatia with consequences in and around Zagreb, and the Banovina region. Each of the five components and the initiative are built around coherent packages of both reforms and investments, with measures that are mutually reinforcing or complementary or both. Synergies also exist across the different components and initiatives, and no measure contradicts or undermines the effectiveness of another.

(47)In accordance with Article 19(3) point (k) and section 2.11 of Annex V to Regulation (EU) 2021/241, the plan includes to a high extent (Rating A) measures for the implementation of reforms and public investment projects that represent coherent actions.

(46)Overall, the arrangements proposed by Croatia in the recovery and resilience plan to prevent, detect and correct corruption, fraud and conflicts of interest when using the funds provided under Regulation (EU) 2021/241, including the arrangements aimed to avoid double funding are assessed as adequate. The milestones pertaining to the establishment of the legal mandate of the bodies involved in the implementation and control, the Coordinating body and the upgrades of the IT system should be fulfilled before the submission of the first payment request. In addition, the actors responsible for controls should have the legal empowerment and administrative capacity to exercise their planned roles and tasks, provided that the milestones pertaining to the workload analysis and the recommendations stemming from it are fulfilled at the latest by the time of the submission of the first payment request.

(45)The system for the implementation of the recovery and resilience plan in Croatia is described in an appropriate way. It is coherently designed and based on robust processes and structures, in particular roles and responsibilities of the actors for controls and audits are clear, relevant control functions are appropriately segregated and the independence of actors performing audits is ensured. The coordinating body for the implementation of the plan should be the Directorate for Macroeconomic Analysis within the Ministry of Finance. For each component and sub-component, the competent authority at ministry and central government office level has been appointed for the implementation of the reforms and the investments, in accordance with the sectoral competence provided for in the System of State Administration Act. The National Fund department within the Ministry of Finance should be the body responsible for preparing and sending the payment requests to the European Commission, on a semi-annual basis, upon verification of the achievement of the milestones and targets, and accompanied by the management declaration and the summary of the audits carried out. The tasks of the audit authority are assigned to the Agency for the audit of the European Union programme implementation system (‘ARPA’).

(44)In accordance with Article 19(3), point (j) and section 2.10 of Annex V to Regulation (EU) 2021/241, the arrangements proposed in the recovery and resilience plan are adequate (Rating A) to prevent, detect and correct corruption, fraud and conflicts of interests when using the funds provided under that Regulation, and the arrangements are expected to effectively avoid double funding from that Regulation and other Union programmes. This is without prejudice to the application of other instruments and tools to promote and enforce compliance with EU law, including for preventing, detecting and correcting corruption, fraud and conflicts of interests, and for protecting the Union finances in line with Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council.

(43)Croatia generally provided a detailed breakdown of the cost per measure, with references to earlier similar projects or studies carried out to justify cost figures and adequate explanations of the methodology used to establish total costs. For the various measures where costs cannot be determined in detail beforehand, as for instance for projects to be selected through competitive procedures such as calls for proposals, the recovery and resilience plan generally provides justification, using past experience, that the costs are not disproportionate to the aims of the measure. For the significant majority of the measures, the cost estimates are deemed reasonable and plausible. While Croatia has made a substantial effort to provide the necessary information on costing, the methodology and justification of costs do not consistently cover all elements of the measures, with parts of the total cost in some instances lacking explanation. For a limited number of cost estimates, costs exceeded the cost range set by comparable projects to a medium extent. Since, for those cost estimates, the methodology used is not sufficiently well explained and the link between the justification and the cost itself is at times not fully clear, a higher rating of the costing assessment criterion is precluded. Finally, the estimated total cost of the recovery and resilience plan is in line with the principle of cost-efficiency and is commensurate to the expected national economic and social impact.

(42)In accordance with Article 19(3), point (i) and section 2.9 of Annex V to Regulation (EU) 2021/241, the justification provided in the plan on the amount of the estimated total costs of the recovery and resilience plan is to a medium extent (Rating B) reasonable and plausible, in line with the principle of cost efficiency and commensurate to the expected national economic and social impact.

(41)Member States should ensure that financial support under the Facility is communicated and acknowledged in line with Article 34 of Regulation (EU) 2021/241. Technical support is to be requested under the Technical Support Instrument to assist Member States in the implementation of their plan.

(40)Implementation of the measures of the recovery and resilience plan should involve several government institutions. A Central Coordinating Body, to be established under the Ministry of Finance, would constitute the lead national body tasked with the overall coordination and monitoring of the recovery and resilience plan, including active monitoring of the progress of the measures, on the basis of the milestones and targets set for each component. The immediate responsibility for implementing the reform and investment of the recovery and resilience plan will lie with the competent Ministries, while the Implementation Committee at the level of Ministers should ensure consistency in the use of all Union funds. The recovery and resilience plan defines milestones and targets for each investment and reform included in the recovery and resilience plan. The number of milestones and targets is commensurate with the number of measures and the size of the plan relative to the Croatian economy. The proposed qualitative and quantitative indicators used for the milestones and targets are sufficiently clear, realistic and comprehensive to ensure that their completion can be traced and verified. Whereas the recovery and resilience plan presents comprehensive coordination, implementation and monitoring arrangements, its implementation should crucially hinge on the administrative and implementation capacity of the implementing bodies, some of which are yet to be identified or established. Therefore, particular attention is to be paid to setting up the implementation and coordination structure, of which the Central Coordinating Body is envisaged to be set up by the end of 2021 as reflected in the dedicated milestone.

(39)In accordance with Article 19(3) point (h) and section 2.8 of Annex V to Regulation (EU) 2021/241, the arrangements proposed in the recovery and resilience plan are adequate (Rating A) to ensure effective monitoring and implementation of the recovery and resilience plan, including the envisaged timetable, milestones and targets, and the related indicators.

(38)Lasting impact of the plan can also be enhanced through synergies between the plan and other programmes financed by the cohesion policy funds, notably by addressing in a substantive manner the deeply rooted territorial challenges and promoting a balanced development.

(37)Investments in education, healthcare and labour market skills are expected to have long term positive effects on human capital. Investments in research and innovation should benefit the productivity and competitiveness of corporates, while investments in clean energy, sustainable tourism, modernising transport system, digital and green transition should structurally improve the sustainability of the economy and crowd-in additional investments over time. The combination of energy-efficiency and seismic renovation of buildings is also expected to have a lasting impact on both reducing energy consumption and improving safety.

(36)The reforms to reduce the administrative and financial burden on businesses by easing cumbersome regulations and cutting parafiscal charges are expected to benefit value creation in the private sector. Similarly, anti-corruption and anti-money laundering measures, as well as reforms to reduce backlogs and accelerate resolution times in the justice system should strengthen institutions and increase investor confidence, helping Croatia attract investments and know-how. Reforms to liberalise regulated professions should increase competition in the economy to the benefit of consumers and job creation. Reforms that improve the efficiency and effectiveness of the research and innovation framework, including an improved R&D tax incentive scheme and innovation support programmes, are expected to bolster the development of areas of excellence and have a lasting positive impact on productivity and the economy overall. Improvements in the governance of state-owned enterprises and an intensified sale of such enterprises and non-productive assets should have a lasting positive impact on allocative efficiency in the economy. There are also significant initiatives to improve public administration processes, including through their digitalisation, such as for registering a business and paying fees, and support the development of skills of public officials, which should have a lasting positive impact on the quality of service provision to both businesses and households.

(35)In accordance with Article 19(3), point (g) and section 2.7 of Annex V to Regulation (EU) 2021/241, the recovery and resilience plan is expected to have a lasting impact on Croatia to a large extent (Rating A).

(34)The digital-related reforms and investments supported by the recovery and resilience plan are expected to have a lasting impact. For example, the investments supporting the digital transformation of Croatia’s public administration are expected to bring systemic changes towards the development of interoperable systems at national and international level and towards data-driven decision-making in public administration. They are also expected to transform the interaction between Croatia’s public administration and its users. Investments in connectivity are also expected to help reduce the digital divide between urban and rural areas with complementary measures expected from other national or Union funds to ensure the achievement of the Union gigabit objectives.

(33)Beyond that specific component dedicated to the digital transition, most other components also contribute to the digital transformation of Croatia. The plan includes significant measures for the digitalisation of transport, energy, health, justice and education sectors, with specific investment for digital tools for higher education. The development of a comprehensive strategy is planned to steer the digital transformation of Croatia’s society and economy for the next decade, defining strategic objectives for the digital transition of the economy, of the public administration and justice, digital connectivity and the development of digital skills.

(32)Actions to support the digital transition are present throughout Croatia’s recovery and resilience plan, reflecting the broad and cross-cutting nature of the envisaged digitisation efforts. The recovery and resilience plan dedicates one component exclusively to the digital transformation of Croatia’s economy and society, with consistent measures to support the digitalisation of public administration and the provision of digital public services. It also includes investments in digital connectivity, which are set to improve the digital infrastructure for fixed and mobile internet services in remote rural areas that are lagging behind in terms of digital inclusion.

(31)In accordance with Article 19(3), point (f) and section 2.6 of Annex V to Regulation (EU) 2021/241, the recovery and resilience plan contains measures that contribute to a large extent (Rating A) to the digital transition or to addressing the challenges resulting from it. The measures supporting digital objectives account for an amount which represents 20,4% of the plan’s total allocation calculated in accordance with the methodology of Annex VI to Regulation (EU) 2021/241.

(30)Reforms and investments should make a significant contribution to advancing the decarbonisation and climate objectives of Croatia as set out in the Croatian National Energy and Climate Plan for 2030 and long-term strategy for decarbonisation. On the environmental objectives as defined in Regulation (EU) 2020/852, the plan includes noteworthy climate mitigation measures aimed at reducing greenhouse gas emissions, mainly through enhancing energy efficiency of the building stock, investments to promote the uptake of renewables in energy and transport sectors, as well as use of innovative technologies. The plan includes important measures related to climate change adaptation, including supporting the sustainable use of water sources by reducing water losses and energy consumption in the water supply networks. The plan also includes sizeable investments into flood risk prevention which promote nature-based solutions. The Croatian plan is expected to contribute to the Union’s energy and climate targets for 2030 and the objective of the Union’s climate neutrality by 2050.

(29)Overall, reforms and investments contributing to the green transition are aligned with existing national plans. In terms of environmental policies, the recovery and resilience plan should directly contribute to improved management of natural resources. The plan includes infrastructure investments to upgrade water and wastewater systems, and to accelerate the shift to circular economy. Funding is allocated for new infrastructure to reduce the share of waste sent to landfills, including recycling facilities and waste sorting centres. The plan includes investments to promote the circular economy in the agriculture sector to contribute to reducing food waste. It also includes dedicated measures to support biodiversity protection, such as restoration of rivers, floodplains and elimination of invasive species in sensitive area of Neretva delta. These measures should ensure a lasting impact of the Croatian recovery and resilience plan on the green transition, including on biodiversity and environmental protection.

(28)The recovery and resilience plan includes long-lasting reforms and investments contributing to the green transition. That includes investment in energy efficiency through renovation of the public and private buildings stock, reforms to facilitate the deployment of renewable energy sources, investments in geothermal energy, and in the electricity and distribution grid to facilitate the integration of renewable energy sources. Investments into carbon capture and geological storage should provide demonstration of innovative technologies, with climate mitigation potential. In addition, the recovery and resilience plan supports deployment of advanced biofuels, production of renewable hydrogen and roll-out of refuelling infrastructure which will all foster a shift to sustainable mobility in the next decade. It promotes the modal shift from road to rail, while investing into zero-emission vehicles and vessels and in supporting the related infrastructure. Finally, investments in developing green skills, and supporting SMEs and large enterprises to invest in environmentally-friendly production processes and in making tourism more sustainable should also contribute to achieving the green objectives.

(27)In accordance with Article 19(3), point (e) and section 2.5 of Annex V to Regulation (EU) 2021/241, the recovery and resilience plan contains measures that contribute to a large extent (Rating A) to the green transition, including biodiversity, or to addressing the challenges resulting therefrom. The measures supporting climate objectives account for an amount which represents 40,3% of the plan’s total allocation calculated in accordance with the methodology of Annex VI to Regulation (EU) 2021/241. In accordance with Article 17 of Regulation (EU) 2021/241, the recovery and resilience plan is consistent with the information included in the National Energy and Climate Plan 2021-2030.

(26)By selecting measures that either contribute substantially to environmental objectives, or have no or an insignificant foreseeable impact on environmental objectives, it is expected that many measures in the plan do no significant harm from the outset, such as in education and training, labour market, public administration. Where needed, specific milestones and targets should ensure that significant harm is avoided. In particular, the investment in carbon capture and storage should not involve the purchase or use of equipment for enhanced oil recovery application nor increased oil production. Similarly, for the geothermal investments, a milestone and target should ensure that the projects would not include any exploration or extraction of either oil or gas, that no equipment would be purchased for such purposes, that no methane would be released and that geothermal drilling would have no harmful impact on water scarcity and water quality. The Zadar airport investment project has a specific focus on the electrification of the airport and installation of the photovoltaics, ensuring that no support under Regulation (EU) 2021/241 will be used for the physical extension of the airport. A milestone for the investment in the medical incinerators in the city centre of Zagreb should ensure that incinerators would include lines for energy recovery of non-recyclable hazardous medical waste with flue-gas cleaning system and continuous emissions monitoring system. Particular attention has also been paid to horizontal schemes, where milestones should ensure that the requirements for complying with the principle of ‘do no significant harm’ are enshrined in the design of the schemes.

(25)In line with Regulation (EU) 2021/241 and the ‘do no significant harm’ Technical Guidance adopted by the Commission (2021/C 58/01), Croatia has provided evidence and assurances substantiating that the measures for the implementation of reforms and investment projects included in the recovery and resilience plan should not lead to significant harm to any of the six environmental objectives, namely climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.

(24)In accordance with Article 19(3), point (d) and section 2.4 of Annex V to Regulation (EU) 2021/241, the recovery and resilience plan is expected to ensure that no measure for the implementation of reforms and investment projects included in the recovery and resilience plan does significant harm to environmental objectives (Rating A) within the meaning of Article 17 of Regulation (EU) 2020/852 of the European Parliament and of the Council (the principle of ‘do no significant harm’).

(23)The plan includes various interventions to contribute to the implementation of the European Pillar of Social Rights, aimed, among others, at expanding access to early childhood education and care, developing digital solutions to exchange data on social benefits, introducing social mentoring services to promote employment and social inclusion especially to youth.

(22)The recovery and resilience plan features measures aimed at improving the employability of the most vulnerable persons, thus reducing social exclusion and poverty. The risk of poverty and social exclusion in Croatia is closely linked to unemployment and inactivity. Older people, persons with disabilities and those living in jobless households are relatively more exposed to poverty risks, while both the coverage and adequacy of the unemployment benefit scheme remain low. The recovery and resilience plan commits to increasing the adequacy and broadening the coverage of the ‘Guaranteed Minimum Benefit’, the key benefit designed to reduce poverty. Similarly, the amount of the unemployment benefit should be increased and its duration prolonged and minimum pensions should be raised. Moreover, measures related to training and skills development in the tourism sector and in green and digital areas have a special focus on the most vulnerable groups.

(21)Continued liberalisation of the services market, including of several professional services, should benefit consumers, increase competition and create more jobs. Reducing administrative burden and parafiscal charges as well as administrative measures related to improving the governance of state-owned enterprises and public procurement, fighting corruption and strengthening anti money-laundering capacities should contribute to fulfilling Croatia’s commitments after joining the European Exchange Rate Mechanism (‘ERM II’). These steps will positively affect investor confidence, making Croatia more attractive to inbound investments and know-how transfer. Those reforms, and investments in a more efficient transport system, further decarbonising industries, increasing energy efficiency of buildings, and promoting the green and digital transition should boost competitiveness and make the economy overall more sustainable.

(20)Simulations by the Commission show that the recovery and resilience plan has the potential to increase the GDP of Croatia by 2,9% by 2026. The implementation of investments and reforms of the plan should help address Croatia’s key economic weaknesses such as its comparatively low employment and growth potential. Research and innovation investments are set to benefit Croatia’s competitiveness and productivity, while upskilling could improve the competitiveness of the workforce and reduce skills gaps and mismatches on the labour market. Substantial investments in education should help improve learning outcomes. All those measures should raise human capital, labour productivity and hence increase the labour contribution to potential growth.

(19)In accordance with Article 19(3), point (c) and section 2.3 of Annex V to Regulation (EU) 2021/241, the recovery and resilience plan is expected to have a high impact (Rating A) on strengthening the growth potential, job creation, and economic, social and institutional resilience of the Member State, contributing to the implementation of the European Pillar of Social Rights, including through the promotion of policies for children and youth, and on mitigating the economic and social impact of the COVID-19 crisis, thereby enhancing the economic, social and territorial cohesion and convergence within the Union.

(18)By addressing the aforementioned challenges, the recovery and resilience plan is expected to also contribute to correcting the imbalances that Croatia is experiencing, notably with respect to high levels of public, private and external debt, in a context of low potential growth.

(17)The Croatian recovery and resilience plan should improve the business environment in Croatia and address barriers to growth and investment, as identified in successive Council recommendations. The package of measures addressing the business environment aims at reducing the administrative burden and parafiscal charges, lowering regulatory requirements for professional services, and increasing access to finance. Measures included in the recovery and resilience plan also aim at improving corporate governance of State-owned enterprises and intensifying the sale of such enterprises and of non-productive assets. A significant part of the investments should be oriented to the green and digital transitions. Important investments planned in the recovery and resilience plan are aimed at addressing the Council recommendations on energy efficiency and environmental infrastructure and a more efficient transport system. The Croatian recovery and resilience plan envisages further measures to address also the other Council recommendations to Croatia, including those in the areas of research and innovation, and healthcare.

(16)The plan addresses the Council recommendation to reform education through measures that increase participation in early childhood education and care (ECEC), increase the number of mandatory instruction hours in primary schools, update school curricula, promote digital skills and modernise higher education. Targeted reforms and investments should improve processes at the Public Employment Service and help increase participation in the labour market by adopting active labour market policies, establishing vouchers for training and upskilling programmes, and amending the labour law. Challenges concerning the Croatian social welfare system are tackled through measures that would improve the coverage, adequacy and targeting of social benefits and enable the development of new social services.

(15)The recovery and resilience plan contains measures to reinforce the budgetary framework, and it contributes to addressing the challenges of the Croatian public administration, including the wage-setting framework and the fragmentation at the local government level. Specific measures are aimed at reinforcing the capacity and efficiency of the public administration to design and implement public projects and policies. The Croatian plan envisages measures to improve the effectiveness of the justice system and puts forward concrete commitments to shorten the length of court proceedings, reduce the backlog of cases and improve the digitalisation of justice. The plan also envisages to strengthen the prevention and sanctioning of corruption.

(14)The plan includes an extensive set of mutually reinforcing reforms and investments that contribute to effectively addressing all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Croatia by the Council in the European Semester in 2019 and in 2020, notably in the areas of public administration, resilience of the health system, employment, education and skills especially for vulnerable groups, climate and digital transition and in the area of the business environment and judicial system.

(13)The recommendations related to the immediate fiscal policy response to the pandemic can be considered as falling outside the scope of Croatia’s recovery and resilience plan, notwithstanding the fact that Croatia has generally responded adequately and sufficiently to the immediate need to support the economy through fiscal means in 2020 and 2021, in line with the provisions of the General Escape Clause.

(12)In accordance with Article 19(3), point (b) and section 2.2 of Annex V to Regulation (EU) 2021/241, the recovery and resilience plan is expected to contribute to effectively addressing all or a significant subset of challenges (Rating A) identified in the relevant country-specific recommendations, including fiscal aspects thereof and recommendations made pursuant to Article 6 of Regulation (EU) No 1176/2011, addressed to Croatia or challenges identified in other relevant documents officially adopted by the Commission in the context of the European Semester.

(11)The pillar on health, and economic, social and institutional resilience benefits from improvements in the healthcare system in terms of necessary structural reforms as well as infrastructure and medical equipment requirements, thereby also enhancing the economic, social and territorial cohesion and convergence within Croatia and the Union. Furthermore, measures are envisaged to achieve full territorial coverage of primary healthcare and medicine availability, thus improving the resilience and preparedness of the health system while at the same time increasing the quality of life in rural, remote and islands areas. Long-term care is supported by the plan with investments to increase the availability, accessibility and quality of home and community-based services, as well as of institutional care exclusively for people who functionally entirely depend on it, while several components are dedicated to strengthening the public administration and institutional resilience. The plan includes important measures in education, most notably increasing participation in early childhood education and care through investment in infrastructure, enabling one-shift schooling and increasing the mandatory teaching hours in primary schools, reviewing the curricula and modernising higher education, which are expected to visibly improve education outcomes. Reforms are expected to reduce the fragmentation of public research institutions, moving to a result-oriented research and innovation funding, and improve research career progression with specific focus on science, technology, engineering, and mathematics and information and communications technology areas.

(10)The plan’s contribution to the smart, sustainable and inclusive growth pillar is strongly focused on improving the business environment, supporting SMEs and large enterprises, along with incentivising innovation and R&D. The measures entail further reducing the administrative and parafiscal burden of businesses, liberalising several regulated professions, enabling businesses’ access to capital to achieve higher rates of competitiveness and increasing productivity, while at the same time adapting their business processes to the green and digital transition, including by increasing their investments in green technology. Moreover, the plan focuses on increasing the sustainability and uptake of digital technologies of the tourism sector, notably by upgrading infrastructure to increase its energy efficiency and the use of renewable energy sources, while promoting the adoption of new business plans in line with the principles of the circular economy. Social cohesion should be enhanced mainly through active labour market policies that also target vulnerable groups, measures in education and through social policies aimed at reducing poverty. In addition, territorial cohesion, in particular the accessibility and connectedness of less densely populated areas and islands, should be enhanced through expanding, upgrading and improving the management of road, railway and maritime infrastructures, by ensuring a better connection of the south-north electricity grid, and by upgrading the public sewerage and water supply networks.

(9)The green dimension of the plan includes relevant measures are expected to contribute to the climate target and to preserving the environment and biodiversity. The main components focusing on the green transition consist of investments in building renovation, renewable energy and energy efficiency, waste and water management and sustainable and innovative mobility. Furthermore, the plan includes investment efforts in R&D and innovation, preserving biodiversity and ecosystems and transitioning to green jobs and the circular economy. There is an explicit focus on the digital transformation of Croatia’s economy and society, with various measures to support the digitalisation of public administration and the provision of online public services. Investments in fixed and wireless digital connectivity and complementary reforms in line with the Union flagship on Digital Connectivity and the common Union toolbox for Connectivity are also included to facilitate investment in digital infrastructures in remote rural areas that are lagging behind in terms of gigabit connectivity services.

(8)The plan includes measures that contribute to all of the six pillars, with a significant number of components of the plan addressing multiple pillars. Such an approach contributes to ensuring that each pillar is comprehensively addressed in a coherent manner. Furthermore, given the specific challenges of Croatia, the particular focus on smart, sustainable and inclusive growth and on economic and institutional resilience, along with the overall weighting across pillars, is considered adequately balanced.

(7)In accordance with Article 19(3), point (a) and section 2.1 of Annex V to Regulation (EU) 2021/241, the recovery and resilience plan represents to a large extent (Rating A) a comprehensive and adequately balanced response to the economic and social situation, thereby contributing appropriately to all six pillars referred to in Article 3 of Regulation (EU) 2021/241, taking the specific challenges and the financial allocation of the Member State concerned into account.

(6)The implementation of the Member States’ recovery and resilience plans will constitute a coordinated effort of investment and reforms across the Union. Through the coordinated and simultaneous implementation of these reforms and investments and the implementation of cross-border projects, these reforms and investments will mutually reinforce each other and generate positive spillovers across the whole Union. Therefore, about one third of the impact of the Facility on Member States’ growth and job creation will come from spillovers from other Member States.

(5)The recovery and resilience plans should pursue the general objectives of the Recovery and Resilience Facility established by Regulation (EU) 2021/241 and of the EU Recovery Instrument set up by Council Regulation (EU) 2020/2094 in order to support the recovery in the aftermath of the COVID-19 crisis. They should promote the Union´s economic, social and territorial cohesion by contributing to the six pillars referred to in Article 3 of Regulation (EU) 2021/241.

(4)On 14 May 2021, Croatia submitted its national recovery and resilience plan to the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. That submission followed a consultation process, conducted in accordance with the national legal framework, of local and regional authorities, social partners, civil society organisations and other relevant stakeholders. The national ownership of the recovery and resilience plans is underpinning their successful implementation and lasting impact at national level and credibility at Union level. Pursuant to Article 19 of Regulation (EU) 2021/241, the Commission has assessed the relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, in accordance with the assessment guidelines of Annex V to that Regulation.

(3)On 2 June 2021, the Commission published an in-depth review under Article 5 of Regulation (EU) No 1176/2011 of the European Parliament and of the Council for Croatia. The Commission’s analysis led it to conclude that Croatia is experiencing macroeconomic imbalances, in particular due to public, private and external debt, in a context of low potential growth.

(2)On 9 July 2019 and on 20 July 2020, the Council addressed recommendations to Croatia in the context of the European Semester. In particular, the Council recommended to take all necessary measures, in line with the General Escape Clause of the Stability and Growth Pact, to effectively address the pandemic, sustain the economy and support the ensuing recovery; pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment; reinforce the budgetary framework and monitoring of contingent liabilities at central and local level; enhance the resilience of the health system; and promote balanced geographical distribution of health workers and facilities, closer cooperation between all levels of administration and investment in e-health. The Council further recommended to strengthen labour market measures and institutions and their coordination with social services, while also consolidating social benefits and improve their capacity to reduce poverty. It recommended to deliver on the education reform and improve both access to education and training at all levels and their quality and labour market relevance while also promoting the acquisition of skills. The Council recommended Croatia to maintain measures to provide liquidity to small and medium-sized enterprises and the self-employed; further reduce parafiscal charges and restrictions in goods and services market regulation; improve corporate governance in state-owned enterprises and intensify the sale of such enterprises and non-productive assets. The Council recommended Croatia to reinforce the capacity and efficiency of the public administration to design and implement public projects and policies at central and local levels; reduce the territorial fragmentation of the public administration and streamline the functional distribution of competencies; and introduce, in consultation with the social partners, harmonized wage-setting frameworks across the public administration and public services. It was further recommended to Croatia to front-load mature public investment projects and focus investment-related economic policy on research and innovation, sustainable urban and railway transport, clean energy, renewables and environmental infrastructure, green and digital transition, while taking into account regional disparities. Finally, the Council recommended enhancing the prevention and sanctioning of corruption, in particular at the local level and improve the efficiency of the judicial system. Having assessed progress in the implementation of those country-specific recommendations at the time of submission of the recovery and resilience plan, the Commission finds that the recommendation on immediate fiscal policy response to effectively address the pandemic, sustain the economy and support the ensuing recovery and the recommendation to maintaining adequate liquidity for SMEs and self-employed have been fully implemented.

(1)The COVID-19 outbreak has had a disruptive impact on the economy of Croatia. In 2019, the gross domestic product per capita (GDP per capita) of Croatia was 42,7% of the Union average. According to the Commission’s Spring 2021 forecast, the real GDP of Croatia declined by 8,0% in 2020 and is expected to decline by 3,4% cumulatively in 2020 and 2021. Longer-standing aspects with an impact on medium-term economic performance include a cumbersome business environment, skills mismatches and labour shortages and low investment in R&D and digital infrastructures, all of which contribute to low potential growth. Moreover, Croatia needs to improve the efficiency of its public administration to better design, coordinate, implement and evaluate public policies and ensure the capacity to absorb Union funds, in view of the potential inflow of Union financing amounting to around 40% of GDP in the period until the end of 2027.

Having regard to the proposal from the European Commission,

Having regard to Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility and in particular Article 20 thereof,

Having regard to the Treaty on the Functioning of the European Union,

on the approval of the assessment of the recovery and resilience plan for Croatia

on the approval of the assessment of the recovery and resilience plan for Croatia

EUROPEAN COMMISSION Brussels, 8.7.2021 COM(2021) 401 final ANNEX

to the Proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Croatia {SWD(2021) 197 final}



ANNEX SECTION 1: REFORMS AND INVESTMENTS UNDER THE RECOVERY AND RESILIENCE PLAN 1.Description of Reforms and Investments A. COMPONENT 1.1: RESILIENT, GREEN AND DIGITAL ECONOMY This component of the Croatian recovery and resilience plan takes a broad, horizontal approach in addressing some of the structural weaknesses of the Croatian economy. Croatia’s economic growth and convergence with the rest of the Union are hampered by low productivity, relatively low investments by the private sector, limited access to financing by the most innovative companies and, in general, a business environment that is characterized by a relatively high administrative and parafiscal burden and excessive regulation of professions. In addition, the share of industrial production is the lowest among Central and Eastern Member States and Croatia also lags behind peer countries in the level of investments going into innovation, higher technological level products and the green and digital transitions. The objectives of the component are threefold: -Improving the business environment by continuing the reforms to reduce the administrative and parafiscal burdens and to further liberalise regulated professions. -Achieving a better allocation of capital resources within the economy by devising changes to the regulatory framework to incentivize private sector investment; supporting through grants and concessional financial instruments productive investments by businesses, particularly for adopting green technologies; and improving access to alternative or innovative ways of financing. -Supporting businesses in adapting their operations to the new digital environment with a special focus on the cultural and creative sectors which were hit particularly hard by the lockdown measures that restricted in-person services. The component addresses the country-specific recommendation by providing liquidity to small- and medium-size companies, reducing parafiscal charges and restrictions in the goods and services market regulation, promoting private investments and focusing investments on the green and digital transitions (country-specific recommendation 3, 2020). It also contributes to address the recommendation to reduce the most burdensome parafiscal charges and excessive product and services market regulation (country-specific recommendation 4, 2019). The component is divided into two sub-components, C1.1.1 (Strengthening competitiveness and green transition of the economy) and C.1.1.2 (Boosting innovation and digitising the economy.)



A.1. Description of the reforms and investments for non-repayable financial support Subcomponent C1.1.1 Strengthening competitiveness and green transition of the economy The objective of this subcomponent is to promote economic activity, competitiveness and investment through further reducing administrative and parafiscal burden on businesses, further liberalising regulated professions, increasing access to credit with the help of grants, concessional loans and equity instruments, attracting foreign direct investments and supporting the cultural and creative sectors in their digital transition. Reform C1.1.1 R1 Continuing the reform of the business and regulatory environment. The objective of this reform is to further improve Croatia’s business environment through:

-digitising the services provided by state and public administrations to businesses and -improving regulatory conditions for businesses and continuing administrative and fiscal burden relief. -adoption of a Strategy and Action Plan to improve economic impact assessment The reform shall include the adoption the 5th Action Plan for reducing the administrative burden and parafiscal and non-tax charges, the setting up an IT system to monitor the implementation of the measures and to update and digitalise the Register of Non-Tax Charges. The adoption of a strategy and action plan to improve economic impact assessment procedures used in the public administration to better support innovation and the adoption of new business models. In this context, the SME Impact Assessment Test shall be transferred to a digital platform to facilitate the collaboration of the public administrators and to support online training and communication. The continuous training of civil servants in specific areas shall be part of the investment. Measures under the investment shall include the implementation of a Regulatory Sandbox, allowing for controlled testing of new business models. This reform shall completed by 31 December 2024. Reform C1.1.1 R2 Continuing the reform of regulated professions The objective of the reform is to boost productivity in the Croatian economy through the continuation of the liberalisation of services markets. The reform shall include the simplification or total removal of at least 50 regulatory requirements for professional services, based on the implementation of the second and third Action Plans on liberalisation of services markets, including the professions of lawyers, notaries, tax advisors, auditors, pharmacists and pharmacies, physiotherapists, architects, engineers and tourist guides, and taking into account the recommendations of the World Bank concerning the registration and membership costs of professional chambers, the fragmented exclusive rights in individual professions (such as for architects and engineers), the provision of the post-graduate professional exam (such as for architects and engineers) and ownership and management restrictions on tax advisors. The reform shall be completed by 31 December 2024. Reform C1.1.1 R3 Advancing the strategic framework for the promotion of private investment The objective of the reform is to make Croatia an attractive destination for investment through the development and adoption of a Strategic Framework to Promote and Facilitate Foreign Direct Investment. The reform shall include three analytical studies: providing i) a review of the institutional landscape, ii) an assessment of the impact of foreign direct investments and iii) recommendations for regulatory, institutional changes and designing of tax incentives; the adoption of the strategic framework including an action plan and the establishment of a digital platform to facilitate implementation. The strategic framework is expected to ensure policy coherence and coordination across different ministries and institutions dealing with the promotion and facilitation of investment, maximise the impact of investment on productivity, job creation and regional development and support Croatia’s digital and climate transition. The reform shall be completed by 31 December 2024. Reform C1.1.1 R6 Developing resilient cultural and creative sectors The reform shall include the entry into force of amendments to the Electronic Media and Copyright and Related Rights Law establishing the effective legal protection of authors of creative, cultural and media content on the Internet, taking into account the need to remove obstacles to the successful commercialisation of protected content on the Internet. The new legal framework is expected to incentivise entrepreneurs to adapt their business processes to the industry standards in the Digital Single Market, by developing new and innovative online business models, and new and innovative products and services. The reformed copyright framework is expected to foster the cultural and creative industries by providing a stable legal framework for the creation of online platforms and applications, facilitating the online licensing of creative, cultural and media content, thereby promoting cultural, linguistic and media diversity. Changes to the media and copyright legal framework are expected to facilitate the cross-border distribution of television and radio programmes, by providing clear rules on so-called direct signal circulation, and to facilitate the re-use of public content for creation of new innovative products and services on the Digital Single Market. Moreover, the legislative reform shall ensure transparency in the publication of ownership structures linked to the Register of Beneficial Owners and the publication of this information on the provider’s website, and more transparency shall also be introduced with regard to information on amounts and sources of funding. The reform shall be completed by 30 June 2022. Investment C1.1.1 R1-I1 Digitalisation of government and public administration services provided to the business sector (G2B) The objective of the investment is to improve the accessibility, transparency and efficiency of public services provided to businesses through their digitalisation in selected priority areas such as business registration and licensing. This is expected to allow further integrating information about market entry and investment in Croatia, thereby improving data accuracy and accessibility and, consequently, policy design and implementation by the various levels of government administration. Finally, the aim is to improve the exchange of information and the consolidation of data in government administrations, with a view to implement the ‘once-only’ principle. The investment shall include the following actions: -The first action includes investments that shall build on the existing digital platform called START for the setting up of limited liability corporations and allowing users to register new corporations online. This action shall expand the functionalities of the START platform with a view to increasing the volume of services, improve access and availability of the system and ensure that all new business data are integrated into one database. Three investment projects shall be carried out within this action. First, to increase the use of START platform and better integrate the processes that were initiated through the digital and physical platforms, 20 new physical access points to the START platform shall be established, equipped and made operational in different branches of the Financial Agency. Second, new functionalities shall be introduced into the START platform through its upgrading and linking with the various databases of the business registry to allow access to administrative procedure through digital authentication. Third, a digital licensing platform (START Plus) shall be established to increase the transparency of market entry conditions as well as the transparency of business regulations.

-The second action includes a consolidation of the payments of mandatory charges of businesses and is one of the preconditions for Croatia’s accession to the European Exchange Rate Mechanism II (ERM II) and the Banking Union. The action shall establish a single digital fee platform that shall allow the online payment of the seven most frequent and cost-intensive mandatory charges for companies and shall contribute to optimising the existing administrative process by offering the following functionalities: i) listing the fees to be paid by the business operator, ii) maintaining a payment calendar with deadlines for settlement, iii) providing the possibility to complete and submit to the competent institutions the required forms in electronic format, iv) providing the possibility of direct online payment of fees and v) providing an overview of fees paid. -The third action shall simplify and digitise the procedures related to the Law on Strategic Investment Projects, the Law on Investment Promotion and the Law on State aid for Research and Development Projects; and further develop and upgrade the electronic database on enterprises, established under the Enterprise Infrastructure Improvement Act. The digitisation of the above procedures shall entail implementing a digital platform for submitting and accessing applications. The first and third actions shall be completed by 31 December 2024 and the second action shall be completed by 30 June 2022. Investment C1.1.1 R1-I2 Continuing administrative and fiscal burden relief This investment forms an integral part of the ongoing reform of the business environment aimed at further reducing the administrative and fiscal burden on businesses and shall include measures to implement four Action Plans that are expected to substantially improve the business environment in Croatia. This investment is divided into two subsets of actions that shall include: -The implementation of the 2017, 2018, 2019 and 2020 Action Plans for the reduction of administrative burden in the areas of fisheries, phytosanitary and veterinary control, tourism and hospitality industry, waste management, social welfare, scientific activities and judicial proceedings through the optimisation and digitisation of the most burdensome administrative processes. This sub-investment shall also underpin the full implementation of the Action Plan to reduce parafiscal charges in the areas of energy activities, agriculture and the land cadastre. -The implementation of the 5th Action Plan for administrative burden reduction by an additional EUR 265 445 617 (HRK 2 000 000 000), reducing parafiscal and non-tax charges by EUR 132 722 808 (HRK 1 000 000 000), and setting up an IT system to monitor the implementation of the measures and to update and digitalise the Register of Non-Tax Charges. The first subset of actions shall be completed by 31 December 2022. The second subset of actions shall be completed by 31 December 2025. Investment C1.1.1 R4-I1 Support to enterprises for the transition to an energy- and resource efficient economy The investment shall finance, through grants, productive investments by small, medium-sized and mid-cap companies in green technologies that contribute to an energy- and resource-efficient economy in energy-intensive industries, including metalworking, textile, food, chemical, construction and woodworking industries. These energy-intensive industries employ a large number of people and the decarbonisation process requires considerable investments. Grants shall only be awarded to financially viable companies from the above eligible sectors only if they demonstrate that the planned investments contribute to one or more of the following objectives: -promote a circular economy by introducing resource efficiency in the production cycle and life cycle of products, including the sustainable supply of primary and secondary raw materials; -decarbonisation and emission reduction of energy-intensive industries, including demonstration and deployment of innovative low-emission technologies. The contribution to the above objectives shall be demonstrated with reference to the intervention fields of Annex VI and Annex VII of Regulation (EU) 2021/241. The expected impact of the investments financed through this measure is a reduction of harmful emissions of at least 20% compared with investments not aimed at energy efficiency and the use of renewable energy sources, the use of recyclates and recyclable materials in the total material volume in production shall be at least 20%. In order to ensure that the measure complies with the ‘Do no significant harm’ Technical Guidance (2021/C58/01), the eligibility criteria contained in terms of reference for upcoming calls for projects shall I.require the application of the Commission’s Technical Guidance on sustainability proofing for the InvestEU Fund; and II.exclude the following list of activities and assets from eligibility: (i) activities and assets related to fossil fuels, including downstream use ; (ii) activities and assets under the EU Emission Trading System (ETS) achieving projected greenhouse gas emissions that are not lower than the relevant benchmarks ; (iii) activities and assets related to waste landfills, incinerators and mechanical biological treatment plants ; and (iv) activities and assets where the long-term disposal of waste may cause harm to the environment; and III.require the verification of legal compliance with the relevant EU and national environmental legislation of the projects for all transactions, including those exempted from sustainability proofing. The investment shall be completed by 31 December 2024. Investment C1.1.1 R4-I2 Financial instrument for micro, small and medium-sized enterprises

The objective of the investment is to further encourage investment activity on the Croatian market by providing more favourable financing conditions for SMEs in the growth and development phase (entities with access to finance) and supporting access to finance of specific target groups that usually do not have such access (such as micro entrepreneurs, start-ups, young entrepreneurs, investments in RDI, economic operators investing in less developed areas). The financial instruments expected to be used under this investment are i) direct loans from Croatian Agency for SMEs, Innovation and Investments (HAMAG BICRO) and Croatian Bank for Reconstruction and Development (HBOR) to micro, small and medium-sized enterprises which, due to their size, lack of business history and generally higher financing risks usually have difficult access or no access to bank credit; and ii) interest subsidies to micro, small and medium-sized enterprises, in the growth and development phase, granted by HAMAG BICRO and HBOR through their regular guarantee and loan programmes and implemented in cooperation with financial intermediaries or through direct lending from HBOR. The investment shall include the following financial instruments: -HAMAG BICRO shall directly provide micro-credits up to EUR 100 000 to micro, small and medium-sized enterprises, which, due to their size and the size of the credit, usually have more difficult access to funding, for a period of up to ten years, with concessional interest rates and lower loan collateral requirements. This financial instrument is expected to provide EUR 39 816 843 (HRK 300 000 000) of funding. A minimum of EUR 7 608 756 (HRK 57 328 173) shall be dedicated to supporting environmentally friendly production processes and improving resource efficiency in SMEs, EUR 6 327 139 (HRK 47 671 827) shall be used to help SMEs to digitalise their operations, and the remaining EUR 25 880 948 (HRK 195 000 000) shall be dedicated to investments aimed at strengthening competitiveness and resilience. This financial instrument shall be managed separately from other instruments of HAMAG BICRO to ensure that any unused funds or reflow from this instrument, through the reimbursement of the capital, shall be used for similar purposes and with the same eligibility conditions with regards to environmental impact. -HBOR shall directly provide loans of more than EUR 100 000 to micro, small and medium-sized enterprises, which, owing to a higher level of risk, tend to have more difficult access to funding, with concessional interest rates and lower loan collateral requirements. The measure is expected to primarily target the financing of projects by start-ups, young entrepreneurs, female entrepreneurs, investments in RDI, investments in economically less developed areas. This financial instrument is expected to provide EUR 66 361 404 (HRK 500 000 000) of funding. A minimum of EUR 12 681 260 (HRK 95 546 955) shall be dedicated to supporting environmentally friendly production processes and improving resource efficiency in SMEs, EUR 10 545 231 (HRK 79 453 045) shall be used to help SMEs to digitalise their operations, and the remaining EUR 43 134 913 (HRK 325 000 000) shall be dedicated to investments aimed at strengthening competitiveness and resilience. This financial instrument shall be managed separately from other instruments of HBOR to ensure that any unused funds or reflow from this instrument, through the reimbursement of the capital, shall be used for similar purposes and with the same eligibility conditions with regards to and environmental impact. -Setting up an interest subsidy fund for easing lending conditions of bank loans granted under the existing HAMAG BICRO guarantee schemes to micro, small and medium-sized enterprises. This financial instrument is expected to provide EUR 13 272 281 (HRK 100 000 000) of funding. A minimum of EUR 2 536 252 (HRK 19 109 391) shall be dedicated to supporting environmentally friendly production processes and improving resource efficiency in SMEs, EUR 2 109 046 (HRK 15 890 609) shall be used to help SMEs to digitalise their operations, and the remaining EUR 8 626 983 (HRK 65 000 000) shall be dedicated to investments aimed at strengthening competitiveness and resilience. -Setting up an interest subsidy fund for easing lending conditions of bank loans granted under the existing credit instruments of HBOR provided to micro, small and medium-sized enterprises. This financial instrument is expected to provide EUR 26 544 562 million (HRK 200 000 000) of funding. A minimum of EUR 5 072 504 (HRK 38 218 782) shall be dedicated to supporting environmentally friendly production processes and improving resource efficiency in SMEs, EUR 4 218 093 million (HRK 31 781 218) shall be used to help SMEs to digitalise their operations, and the remaining EUR 17 253 965 million (HRK 130 000 000) shall be dedicated to investments aimed at strengthening competitiveness and resilience. In order to ensure that the measure complies with the ‘Do no significant harm’ Technical Guidance (2021/C58/01), the legal agreement between the Ministry of Economy and Sustainable Development and the Croatian Agency for SMEs, Innovation and Investments (HAMAG BICRO) or the Croatian Bank for Reconstruction and Development (HBOR) and the subsequent investment policy of the financial instrument shall I.require the application of the Commission’s Technical Guidance on sustainability proofing for the InvestEU Fund; and II.exclude the following list of activities and assets from eligibility: (i) activities and assets related to fossil fuels, including downstream use ; (ii) activities and assets under the EU Emission Trading System (ETS) achieving projected greenhouse gas emissions that are not lower than the relevant benchmarks ; (iii) activities and assets related to waste landfills, incinerators and mechanical biological treatment plants ; and (iv) activities and assets where the long-term disposal of waste may cause harm to the environment; and III.require the verification of legal compliance with the relevant EU and national environmental legislation of the projects by HAMAG BICRO, HBOR or the financial intermediaries for all transactions, including those exempted from sustainability proofing. The investment shall be completed by 30 June 2026. Investment C1.1.1 R4-I3 Financial instrument for mid-cap and large enterprises The objective of the investment is to promote the competitiveness and green and digital transition of mid-caps and large companies by providing more favourable sources of financing as a key condition for investment growth in the short and medium term. The financial instruments expected to be used under this investment are: -A new ‘umbrella’ guarantee fund aimed at issuing individual or portfolio guarantees for investment loans and working capital loans to mid-cap and large enterprises with a planned allocation of EUR 79 633 685 (HRK 600 000 000). Any unused funds or reflow from this instrument, through the reimbursement of the capital, shall be used for similar purposes and with the same eligibility conditions with regards to environmental impact; -And interest subsidy fund to reduce financing costs (such as interest payments, fees and premiums) of loans to mid-caps and large entities with a planned allocation of EUR 26 544 562 (HRK 200 000 000). The financial instruments shall be used for investments in new, up-to-date and advanced technologies (machinery and equipment), in the expansion and strengthening of business capacity (expansion of manufacturing and service facilities and capacities), with a preference for projects in renewable energy, energy efficiency, circular economy, environmental protection, digitalisation of production, procurement and sales processes. In order to ensure that the measure complies with the ‘Do no significant harm’ Technical Guidance (2021/C58/01), the legal agreement between the Ministry of Economy and Sustainable Development and the Croatian Bank for Reconstruction and Development (HBOR) and the subsequent investment policy of the financial instrument shall: I.require the application of the Commission’s Technical Guidance on sustainability proofing for the InvestEU Fund; and II.exclude the following list of activities and assets from eligibility: (i) activities and assets related to fossil fuels, including downstream use; (ii) activities and assets under the EU Emission Trading System (ETS) achieving projected greenhouse gas emissions that are not lower than the relevant benchmarks; (iii) activities and assets related to waste landfills, incinerators and mechanical biological treatment plants; and (iv) activities and assets where the long-term disposal of waste may cause harm to the environment; and III.require the verification of legal compliance with the relevant EU and national environmental legislation of the projects by HBOR or the financial intermediaries for all transactions, including those exempted from sustainability proofing.

The investment shall be completed by 30 June 2026. Investment C1.1.1 R4-I4 Financial instrument for public sector entities The objective of the investment is to provide concessional financing to public entities for projects in economic, municipal, transport and social infrastructure, as well as projects in technology contributing to the green and digital transition of the public sector with a planned allocation of EUR 26 544 562 (HRK 200 000 000). A minimum of 30% of the budget or EUR 7 963 368 (HRK 60 000 000) under this investment is expected to support environmentally friendly production processes and resource efficiency in the public sector. In order to ensure that the measure complies with the ‘Do no significant harm’ Technical Guidance (2021/C58/01), the legal agreement between the Ministry of Economy and Sustainable Development and the Croatian Bank for Reconstruction and Development (HBOR) and the subsequent investment policy of the financial instrument shall I.require the application of the Commission’s Technical Guidance on sustainability proofing for the InvestEU Fund; and II.exclude the following list of activities and assets from eligibility: (i) activities and assets related to fossil fuels, including downstream use; (ii) activities and assets under the EU Emission Trading System (ETS) achieving projected greenhouse gas emissions that are not lower than the relevant benchmarks; (iii) activities and assets related to waste landfills, incinerators and mechanical biological treatment plants; and (iv) activities and assets where the long-term disposal of waste may cause harm to the environment; and III.require the verification of legal compliance with the relevant EU and national environmental legislation of the projects by HBOR or the financial intermediaries for all transactions, including those exempted from sustainability proofing. The investment shall be completed by 30 June 2026. Investment C1.1.1 R5-I1 Investment in equity and quasi-equity financial instruments The objective of the investment is to ensure a faster development of private companies that are unable to obtain financing from traditional financial institutions with a planned allocation of EUR 29 862 632 (HRK 225 000 000). The investment shall include investing or co-investing in i) active or forthcoming venture capital funds and in ii) private equity funds with particular focus on financing the start-up and growth stages of innovative and scale-up SMEs. The funds under this investment shall include participation by professional private investors of at least 30% of the expected size of each fund and are expected to be developed in cooperation with the European Investment Fund. The funds shall apply an Environmental and Social Management System to ensure their use only for projects complying with the Do No Significant Harm principle. Any unused funds or reflow from this instrument, through the reimbursement of the capital, shall be used for similar purpose and with the same eligibility conditions with regards to environmental impact. The investment shall be completed by 30 June 2026. Investment C1.1.1 R6-I1 Transforming and strengthening the competitiveness of cultural and creative industries The investment shall provide funding, through grants, for building the capacity of micro, small, medium-sized enterprises and other legal and natural persons active in the field of cultural and creative sectors (such as architecture, audio-visual activities, media, heritage, design, performing arts, books and publishing, applied and visual arts) to adapt to the new regulatory and legislative framework of the Digital Single Market. The investment shall be completed by 30 June 2026. Investment C1.1.1 R6-I2 Establishment of media fact-checking and public disclosure system The investment shall support establishing a system of media fact-checking by the Electronic Media Agency, including the development of procedures and rules, the creation of the Register of Beneficial Owners and the strengthening of the digital competence capacities of fact-checkers, as well as the development of technological programmes, platforms and media communication systems, and the creation of a database. The investment shall include: -Grant to the Electronic Media Agency for the establishment of a system for building fact-checking capacity, including developing procedures and rules, registers and databases for fact-checking purposes and developing technological programmes and platforms and media communication systems, strengthening the digital competence capacity of fact-checkers. -Grant for creating a database and setting up a system for publishing proprietary data and funding sources. The investment shall be completed by 30 June 2026. Subcomponent C.1.1.2 Boosting innovation and digitising the economy

The objective of this subcomponent is to improve the position of the Croatian economy on the value chain by boosting innovation and digitisation in the private sector. The measures of this subcomponent shall include adopting a more investment-friendly legislative framework, providing young and innovative businesses with administrative and financial support to promote the development and commercialisation of innovative products, and providing support to businesses for their digital transition. Reform C1.1.2 R1 Reform of the R&D incentive system The objective of the reform is to increase the number of enterprises investing and the size of investments in R&D. The reform shall consist of an analysis of the existing R&D tax incentive scheme and amending and complementing the legal framework for R&D tax incentives to encourage the private sector to increase the intensity of its R&D investment, increase the number of beneficiaries of R&D tax incentives, simplify the procedures and reduce the administrative burdens, while improving transparency and accessibility. Amendments to the State Aid Act on Research and Development Projects shall be based on an analysis of appropriateness and effectiveness of the current tax relief system. The reform shall be completed by 31 December 2024. Investment C1.1.2 R2-I2 Investing in the management capacity of small and medium-sized enterprises The objective of the investment is to help businesses expand their activities, increase their productivity and create jobs through providing business consultancy support to SMEs to increase their management capacity. The support is expected to include i) the evaluation of the business model and creation of an action plan, ii) group training for employees and managers, iii) special advisory support and iv) results-oriented coaching and mentoring. The investment shall be completed by 31 December 2025. Investment C1.1.2 R2-I3 Start-up grant funding The objective of this investment is to stimulate the growth of start-ups in the high-tech and knowledge-based sectors in the pre-commercial phase through support for product development, increased production capacity and investment readiness. The investment shall provide grants for investment readiness for start-ups for projects that are mature outside the proof-of-concept phase but which are not yet market ready. This includes upgrading, design, performance validation, market validation, testing, development of pilot lines, intellectual property protection and external services aimed at developing an innovative idea, as well as training on mitigation and risk assessment of funding needs. Funded activities may also include part of the costs of access to global business networks or clusters, the adoption of new marketing tools and access to new markets. Eligible beneficiaries shall include innovative SMEs, up to five years from registration, which are not generated by a merger and fall under the definition of an innovative SME according to the General Block Exemption Regulation (GBER). The investment shall be completed by 30 June 2025. Investment C1.1.2 R2-I4 Strengthening Enhancing Accelerating Activities The investment shall provide financial support for a period of four years for establishing an acceleration programme in Croatia. The acceleration programme shall provide mentoring, support for investment readiness and access to investor networks for groups of up to 120 start-ups over a period of at least three months. Investment readiness support is expected to include access to mentoring and advice for business managers and entrepreneurs, advice on business and product development strategies, access to technology professionals, intellectual rights professionals, technology suppliers, access to potential clients, guidance on initial investment activities. Beneficiaries of the investment are expected to include i) early-stage start-ups needing support in product development and ii) more mature start-ups that are better prepared for investment. Beneficiaries in the first group shall receive basic training on investment readiness, focusing on first presentation, understanding customers’ needs; while beneficiaries in the second group shall receive more advanced training focused, such as on negotiation, customer search. The investment shall be completed by 30 June 2026. Investment C1.1.2 R2-I5 Commercialisation of innovation projects The objective of the investment is to encourage the commercialisation of innovation projects for mature projects close to market entry, and increase exports of innovative products, services or technologies by SMEs by supporting the creation of sales and distribution channels on foreign markets and through strengthening the links between scientific institutions and industry, as well as between small and medium-sized enterprises and larger companies. The investment is expected to provide opportunities for SMEs to enter the value chain at a larger scale. The investment shall support the adaptation of a developed product or service and the preparation for their launch on the market. Eligible activities for the adaptation of a developed product include additional testing and integration of test results into the final product, advisory services, capacity building, feasibility studies audits, product design, and intellectual property rights protection. Eligible activities for the preparation of product launches include preparation or revision of a business plan or marketing plan, market research and testing, product testing with potential customers, production preparation and investment in zero series product, and operational marketing activities. The investment shall support SMEs with mature innovation projects that are close to market launch and is expected to prioritise proposals that contribute to the green transition.

The investment shall be completed by 31 December 2024. Investment C1.1.2 R3-I1 Preparation of strategic documents for the digital transformation of the economy and artificial intelligence The objective of the investment is to support Croatian companies introduce digital tools in their operations, develop digital business models and acquire digital skills. The investment shall provide financial support for procuring technical assistance for the drafting of the National Plan for the Digital Transformation of the Croatian Economy and the National Plan for the Development of Artificial Intelligence of the Republic of Croatia. The investment shall be completed by 31 March 2022. Investment C1.1.2 R3-I2 Digitalization vouchers The objective of the investment is to support SMEs to develop a digital business model, strengthen their capacity to digitalise, or improve their cybersecurity through the introduction of a voucher system. The voucher system is expected to cover training and services for improving digital skills, including skills related to cloud technologies, adapting business models to the digital transformation, digital marketing, cyber resilience and the deployment of complex digital products and services. The investment shall be completed by 30 June 2026. Investment C1.1.2 R3-I3 Grants for digitalisations The objective of the investment is to support the digital transformation of Croatian companies by providing financial support for the deployment of digital solutions in their business operations. This investment shall provide grants for the purchase of digital tools and equipment and for strengthening digital skills, including skills related to cloud technologies, to develop and deploy new products, services and processes. Eligible activities under the investment shall include introducing a new business model or a visible improvement in terms of new production capacities or delivery options or business practices. Grants shall only be awarded to financially viable companies that demonstrate that the planned investments comply with the Do No Significant Harm principle. The investment shall be completed by 30 June 2026. Investment C1.1.2 R4-I1 Support for Digital Innovation Hubs The investment shall provide financial support for the establishment and operation of European Digital Innovation Hubs. The investment shall include: -The financing of technical assistance for the development of the National Framework for the Establishment and Monitoring of Systems for Digital Innovation Hubs in Croatia; -The national co-financing for the establishment and operation for three years of at least three national European Digital Innovation Hubs and; -The establishment of a National Contact Point, within the European Centre for Innovation, Advanced Technologies and Skills Development and establishing a mechanism for the development and monitoring of the national Digital Innovation Hub ecosystem. The activities of European Digital Innovation Hubs are expected to include pre-investment testing, skills development and training, access to finance and development of an innovation network. The investment shall be completed by 31 December 2025. A.2. Milestones, targets, indicators, and timetable for monitoring and implementation for non-repayable financial support Number Measure Milestone / Target Name Qualitative indicators

(for milestones) Quantitative indicators

(for targets) Time Description of each milestone and target Unit Baseline Goal Q Year 1 C1.1.1. R1 M Adoption of the Strategy for the Evaluation of the Economic Effects of Regulation on the SME sector by the Croatian Government and the accompanying Action Plan Adoption of the Strategy and Action Plan Q4 2022 Focusing primarily on the economic impact of regulation on the SME sector, MINGOR shall adopt a binding Regulatory Policy Strategy for Ministries, which clearly assigns management and operational responsibilities during the stages of conducting obligatory SME test during the regulatory process. Based on the Regulatory Policy Strategy, an Action Plan shall be adopted to organise, plan, coordinate and monitor the implementation by line Ministries of relevant tools and methodologies (primarily, for SME test and other economic analyses of regulation, if there is a significant economic impact detected). 2 C1.1.1. R1-I1 M Operational digital platform to pay fees Digital platform to pay fees in operation Q2 2022 A single payment platform for mandatory fees as a new digital public service shall be established to optimise the existing administrative process and offer the following functionalities:

(1) List of fees to be paid by the business operator

(2) Payment calendar with deadlines for their settlement

(3) Possibility of direct online payment of fees

(4) Overview of commitments paid. 3 C1.1.1. R1-I1 M Upgrading START systems START platform with additional services upgraded Q4 2024 The digital platform for setting up limited liability corporations, called START platform, shall be upgraded by digitising additional services for the purposes of registration and reporting and the integration of existing start-up systems; 4 C1.1.1. R1-I1 T Setting up physical access points to the START platform Number 0 20 Q4 2024 Physical access points to the START platform shall be set up. 5 C1.1.1. R1-I1 M Digitalisation of MINGOR targeted processes under the Law on Strategic Investment Projects of the Republic of Croatia, the Law on Investment Promotion and the Law on State Aid for Research and Development Projects and the further digitalisation and networking of the JRPI system Digitalisation of MINGOR targeted processes Q4 2024 Digitalisation of the processes implementing the Croatian Law on Strategic Investment Projects, the Law on Investment Promotion and the Law on State Aid for Research and Development Projects and the further digitalisation and networking of the Single Register of Enterprise Infrastructure (JRPI) 6 C1.1.1. R1-I2 T Implementation of the Action Plan to reduce non-tax and parafiscal charges 2020 % (Percentage) 0 100 Q1 2022 The implementation of the Action Plan to reduce non-tax and parafiscal charges 2020, adopted by the Croatian Government in May 2020 and containing 33 measures to reduce non-tax and parafiscal charges and 17 measures to reduce fees for professional examinations, shall bring direct cost relief to the private sector. 7 C1.1.1. R1-I2 T Implementation of measures in the Action Plans to alleviate the administrative burden on the economy 2018, 2019, 2020 % (Percentage) 61,02 95 Q4 2022 Implementation of administrative burden reduction measures identified in the 2018, 2019 and 2020 Action Plans, amounting to at least 95% of the envisaged cost reduction. The Action Plans for administrative burden relief shall optimise and digitalise the administrative processes identified as the most burdensome for the private sector. All burden relief measures shall be established in cooperation with representatives of the business community, chambers and professional associations. 8 C1.1.1. R1-I2 M Digitalisation of the SME Impact Assessment Test through the development of a digital platform for coordinators’ collaboration, online training and mutual communication Digital Platform in operation Q4 2023 The use of IT consultancy services shall develop and set up a digital platform for the implementation of the SME test. The platform shall consist of an IT database of SME tests, a database of standardised values used to calculate the impact assessment, and shall allow for systematic monitoring and monitoring of calculated impacts, analytical reports and impact simulations. An integral part of the platform, in addition to the database, shall form a portal dedicated to mutual communication and exchange of experience between national experts who form the Better Regulation network.

All activities shall be implemented through technical assistance projects (TSI). 9 C1.1.1. R1-I2 T Implementation of the actions of the new Action Plan to reduce non-tax and parafiscal charges Number (EUR) 0 132 722 808 Q4 2023 An important element in assessing the business environment is the different charges in the form of parafiscal levies and administrative charges. All fees resulting from public regulation provisions paid by undertakings to central government bodies, local and regional authorities or other bodies with public powers shall be analysed and considered.

The implementation of measures to reduce the burden on businesses from parafiscal and non-tax charges in the new/second Action Plan to reduce parafiscal and parafiscal charges shall result in a direct cost relief of no less than EUR 132 722 808. 10 C1.1.1. R1-I2 T Implementation of the first set of measures set out in the new/fifth Action Plan for administrative burden relief for entrepreneurs Number (EUR) 0 132 722 808 Q4 2024 The development of a new/fifth Action Plan on administrative burden relief shall continue the optimisation and digitalisation of the administrative processes identified as the most burdensome for the private sector. It shall provide a more favourable legal and administrative environment for business by continuing to implement measures to reduce burdens, simplify and make business cheaper.



The implementation of the measures set out in the new/fifth Action Plan on administrative burden reduction of the economy shall reduce the burden on entrepreneurs by at least EUR 132 722 808. The implementation of the measures shall be ensured through cooperation between the Ministry of Economy and Sustainable Development and the Central State Office for the Development of the Digital Society. 11 C1.1.1. R1-I2 T Implementation of the second set of measures set out in the new/fifth Action Plan to further reduce the administrative burden on entrepreneurs Number (EUR) 132 722 808 265 445 617 Q4 2025 The implementation of the measures set out in the new/fifth Action Plan on administrative burden reduction of the economy shall reduce the burden on entrepreneurs of at least EUR 132 722 808 compared to the target set up to 4Q/2024.

This burden reduction shall be achieved through optimisation and digitalisation of administrative processes identified as the most burdensome for the private sector through the measurement and analysis process. The implementation of the measures shall be ensured through cooperation between the Ministry of Economy and Sustainable Development and the Central State Office for the Development of the Digital Society. 12 C1.1.1. R2 T Simplification or removal of at least 50 regulatory requirements for professional services Number 250 300 Q4 2024 Implementation of the 2019 and 2020 action plans for the liberalisation of services markets, taking into account the recommendations of the technical assistance project in cooperation with the World Bank, and also recommendations concerning:

- Registration and membership costs of professional chambers;

- Fragmented exclusive rights in individual professions (e.g. architects and engineers);

- Provision of the post-graduate professional exam (e.g. architects and engineers);

- Restrictions on tax advisors on ownership and management interests or voting rights. 13 C1.1.1. R3 M

Establishing a strategic framework for the promotion of private investment Adoption of an Action Plan to boost investment and entry into service of a digital platform to coordinate and ensure effective international, national and regional investment promotion and support. Q4 2024 A strategic framework for the promotion of private investment shall be established, based on analysis and recommendations, consisting of the adoption and publication of the National Plan for the Promotion of Investment 2023-2030, the Action Plan to boost investment 2023-2028, and the entry into force of a new Law on Investment Promotion, and the entry into service of an operational digital platform for coordination and effective international, national and regional investment promotion and support.





14 C1.1.1. R4-I1 M Publication of calls for funding for investments targeting environmentally friendly activities with established eligibility criteria for applicants and projects (including DNSH compliance criteria) Publication of notice of call for proposal for grants Q2 2022 Launch of calls for proposals for grants to support the green transition of SMEs and mid-caps towards an energy efficient economy. The grants shall support the development and application of green technologies in companies’ business processes to reduce negative climate and environmental impacts, foster sustainable production, increase employment in more sustainable jobs and strengthen local and regional competitiveness (in line with the EU taxonomy).

The selection/eligibility criteria shall reflect the requirements of the applicable intervention fields in Annexes VI and VII to the RRF Regulation and ensure that the supported projects comply with the DNSH Technical Guidance (2021/C58/01), through use of an exclusion list and the requirement of compliance with the relevant EU and national environmental legislation.

This measure shall not support investments in installations falling within the scope of the EU Emission Trading System (ETS).

The grants shall support investments by private sector companies aimed at:

- Projects focused on the circular economy by integrating resource efficiency aspects into the production and life cycle of products, including the sustainable supply of primary and secondar