Background information

Incentive measures for investment projects in the Republic of Croatia are regulated by the new Investment Promotion Act (OG 63/22) and relate to investment projects among other in development and innovation activities and activities of high value-added services.

Particular attention has been directed towards development and innovation activities which affect the development of new and significant improvement of existing products, production series and processes and production technologies. High value-added service activities are defined as:

• Creative services activities: activities in the field of architecture, design, media communication, promotion and other activities in the field of creative industry
• Activities of sustainable high value – added tourism services that provide the beneficiary after the expiration of the three – year period of implementation of the investment project with the operational tourism business for a minimum of six months during the calendar year
• Cn of production and manufacturing business processes.

Content of measure

Their investment must be higher than €50,000 for micro enterprises and higher than €150,000 for other companies and provided that a certain number of job positions (a minimum of three in a micro enterprise, and five for the other enterprises) are opened within three years from launching the investment. Furthermore, incentive measures can be used by enterprises registered in the Republic of Croatia investing in fixed assets the minimum amount of €50,000 together with creating at least 10 new jobs for ICT system and software development centers and €500,000 for investment projects in modernizing and increasing business process productivity.

For micro enterprises, the income tax rate is reduced to 50% of the statutory income tax rate for five years from the initial investment, provided that a minimum of three new jobs have been created. For larger investments of up to €1 million, the income tax rate is reduced to 50% of the statutory income tax rate for 10 years from the start of the investment, provided that the enterprise within one year from the beginning of the investment creates a minimum of five new jobs due to the investment project. The number of newly employed is 10 for ICT system and software development centers. For investments of between €1 and €3 million, the income tax rate is reduced to 75% of the statutory income tax rate for 10 years from the start of the investment, provided that enterprise creates a minimum of 10 new jobs due to the investment project, within one year from the beginning of the investment. For investments above €3 million, the income tax rate is reduced to 100% of the statutory income tax rate for 10 years from the start of the investment, provided that enterprise creates a minimum of 15 new jobs due to the investment project, within one year from the beginning of the investment.

Incentive measures may be used by entrepreneurs registered in Croatia who invest the following minimum amounts in fixed assets:

• €50,000 in addition to creating a minimum of 3 new jobs for micro entrepreneurs
• €150,000 in addition to creating a minimum of 5 new jobs for small, medium-sized and large entrepreneurs
• €50,000 in addition to creating a minimum of 10 new jobs for developing information and communication systems and software
• €3,000,000 in addition to creating a minimum of 15 new jobs for investment projects based on economic activation of inactive assets owned by the Republic of Croatia
• €500,000 for projects to invest in modernisation and increasing productivity of business processes.

Initial investment aid is calculated as a percentage of the investment value and based on eligible costs of the investment. Investments in technological development and innovation activities are eligible for grants for the purchase of equipment/machinery for up to 20% of actual eligible costs of purchasing equipment and/or machinery, where the maximum amount is equivalent to €500,000, provided that the purchased equipment/machinery is classified as high-tech.

Use of measure

According to the previous Investment Promotion Act, effective from October 2015 until the end of November 2017, there has been a total of 658 applications for the use of grants for investment projects by small, medium and large enterprises. Of these, 123 applications relating to large enterprises, and 535 applications to small and medium-sized enterprises. According to the data by the Central Finance and Contracting Agency, currently there are 1141 contracted projects of which 609 are under implementation. Total projects value is more than HRK 46 billion (€6.1 billion), of which more than HRK 37 billion (€4.9 billion) are from non-refundable funds.

Target groups

Workers	Businesses	Citizens
Employees in standard employment	Applies to all businesses	Does not apply to citizens

Actors and funding

Actors	Funding
National government Local / regional government	Local funds National funds

Social partners

Social partners' role in designing the measure and form of involvement:

	Trade unions	Employers' organisations
Role	No involvement as case not in social partner domain	No involvement as case not in social partner domain
Form	Not applicable	Not applicable

Social partners' role in the implementation, monitoring and assessment phase:

• Unknown
• Main level of involvement: Unknown

Involvement

As the case is not under social partners domain, they were not directly included, but such topic is analysed at national Social Economic Council which includes the representatives of employers and employees.

Views and reactions

The Croatian Employers' Association (CEA) deems that there are also relatively complicated employment incentives that depend on the county unemployment rate, where higher unemployment rate enables higher incentive rate to eligible costs of jobs creation. The specified amount of the grant refers to the unemployed, who are registered as unemployed with Croatian Employment Service (CES) for at least 6 months, regardless of the length of the work experience and level of education, people older than 50 years registered as unemployed with CES and persons without work experience registered as unemployed with CES. Furthermore, the CEA underlines that legal provisions can help attract investors only to a certain point. Croatia has lengthy court proceedings and holds these court proceedings when it is necessary to protect the investments of investors due to legal insecurity. Moreover, regulations in Croatia often change. Until these issues are properly addressed, Croatia is likely to continue to encounter difficulty in attracting and sustaining investments. A favourable economic climate must be built on all levels, that is the government, the state, counties, cities and municipalities.

Sources

• 25 September 2015: Zakon o poticanju ulaganja (The Act on Investment Promotion), OG 102/15 (narodne-novine.nn.hr)
• 30 March 2016: Uredba o poticanju ulaganja (The Decree on Tax Incentives) OG 31/2016 (narodne-novine.nn.hr)
• 08 March 2018: Izmjene i dopune Zakona o poticanju ulaganja (Amendments to the Act on Investment Promotion OG 25/18) (narodne-novine.nn.hr)
• 01 January 2019: Croatian Official Gazette 114/18, Amendments to the Act on Investment Promotion (narodne-novine.nn.hr)
• 02 December 2019: Croatian National Bank. Macroeconomic Developments and Outlook, Year IV, · Number 7, · December 2019 (www.hnb.hr)
• 19 March 2020: Zakon o dopunama i izmjenama Zakona o poticanju ulaganja (Amendments to the Act on Investment Promotion - OG 32/20) (narodne-novine.nn.hr)
• 01 January 2021: Amendments to income tax (Official Gazette, 137/15, 1/17, 2/18, 1/19, 1/20, consolidated text)) (www.porezna-uprava.hr)
• 01 January 2022: Incentive Measures for Investment 2022 (investcroatia.gov.hr)
• 28 January 2022: Incentive measures for investment (investcroatia.gov.hr)
• 27 May 2022: Zakon o poticanju ulaganja (The Act on Investment Incentives) (narodne-novine.nn.hr)
• 01 June 2022: Incentive measures for investment projects (investcroatia.gov.hr)