VZCZCXRO9249
RR RUEHIK
DE RUEHVB #0034/01 0151130
ZNR UUUUU ZZH
R 151130Z JAN 10
FM AMEMBASSY ZAGREB
TO RUEHC/SECSTATE WASHDC 9814
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
POLX

UNCLAS SECTION 01 OF 15 ZAGREB 000034 
 
SIPDIS 
 
DEPARTMENT PLEASE PASS TO EB/IFD/OIA, EUR/SCE, USTR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV OPIC KTDB USTR HR
SUBJECT: CROATIA 2010 INVESTMENT CLIMATE STATEMENT 
 
REF: 2009 STATE 124006 
 
ZAGREB 00000034  001.2 OF 015 
 
 
¶1.  Summary: For more than a decade after the end of the war in 
1995, Croatia enjoyed steady growth in foreign investment, buoyed by 
a growing economy, low inflation, a stable exchange rate and 
developed infrastructure.  Investment activity slowed substantially 
in 2009, due partly to the global financial crisis, and partly to 
the structural problems that continue plague the economy.  The 
banking system has weathered the financial crisis well and continues 
with business as usual.  But a bloated and complex bureaucracy, 
underperforming state enterprises, an anemic export sector, and 
continued problems with corruption all contributed to a sour 
economic mood at the end of 2009.  Croatia's one notable success in 
2009 -NATO membership - was tempered by several road blocks that 
slowed negotiations for Croatia's EU membership, including a 
bilateral border dispute with Slovenia and EU concerns about 
Croatia's cooperation with the war crimes tribunal in The Hague. 
The New Year starts with some reasons for renewed optimism however. 
The government of Prime Minister Jadranka Kosor (who took office 
after the surprise resignation of her predecessor last June) was 
able to achieve an agreement with Slovenia that ended Slovenia's 
blockade of the EU negotiations.  Perhaps more importantly, she and 
her team have shown a new willingness to give law enforcement and 
judicial officials a free hand to fight corruption.  Several new 
investigations involving high level current and former members of 
government seem to indicate she is serious in this effort.  If she 
and her economic policy makers can find a way to make government 
more transparent, rationalize the state budget, move forward with 
remaining privatizations, and stimulate investment and export 
activity, then Croatia will be able to return to its path of strong 
economic growth very soon.  End Summary. 
 
A.1  Openness to Foreign Investment 
 
¶2.  Croatia is open to foreign investment.  The Croatian government 
continues to have as one of its main goals a further increase in 
foreign investment, hoping to attract greater greenfield 
investments.  NATO membership and the prospect of membership in the 
EU continue to motivate both reform and stabilization of the 
economy, which should in turn improve the investment climate of the 
country.  The government continues to give priority to activities 
related to fighting organized crime and corruption. In July of this 
year, the then Prime Minister stepped down and the new Prime 
Minister has been resolute in statements and actions to fight 
corruption. 
 
¶3.  Croatia's legal framework accords equal treatment to foreign and 
domestic investors for all types of business.  There are no 
reviewing or screening mechanisms to exclude foreign investment, nor 
are there any restrictions to foreign investment. The Internet 
website of the Croatian Chamber of Economy (www.hgk.hr) provides a 
useful English-language guide, "How to Start Up an Enterprise in 
Croatia," as well as sector-specific and general reports.  The 
Zagreb Stock Exchange's website (www.zse.hr) posts English-language 
translations of key laws in force. 
 
¶4.  Despite recent progress, however, problems remain that dampen 
investment in Croatia.  Of these, the greatest is the country's 
legal system.  Amid a backlog of 870,000 pending cases, even the 
simplest cases can take years to resolve.  The result is that, in 
spite of laws that govern the sanctity of contracts, timely 
enforcement is a problem.  The difficulty of obtaining timely 
judicial remedy in a dispute has hindered investment in Croatia. 
Other problem areas include inefficient bureaucracy and the 
country's relatively high labor costs in relation to other locations 
in Central and Eastern Europe. 
 
¶5.  The Agency for Trade and Investment Promotion has a mandate to 
match potential investors with projects in Croatia.  The Agency has 
specialists available in strategic planning, investment support and 
export support (see www.apiu.hr) and is actively seeking projects 
that it can promote to foreign investors and provides the helpful 
"CROINVEST Investment Guide" on its website.  The Agency is also 
active in advising the government on how to make Croatia's 
regulatory environment more transparent and competitive. 
 
¶6.  The Company Act defines the forms of legal organization for 
domestic and foreign investors.  The following are permitted for 
foreigners: general partnerships, limited partnerships, branches, 
limited liability companies, and joint stock companies.  The 
Obligatory Relations Law regulates commercial contracts. 
 
¶7. Croatia is included on the following lists and ranks per each as 
follows: 
 
* Transparency International Corruption Index: ranked 66 with a 4.2 
corruption perception index 
* Heritage Economic Freedom overall score: 55.1 
 
ZAGREB 00000034  002.2 OF 015 
 
 
* World Bank Doing Business "Ease of doing business" ranking: 103 
 
 
 
A.2  Conversion and Transfer Policies 
 
¶8.  The Croatian constitution guarantees the free transfer and 
repatriation of profits and invested capital for foreign 
investments.  Article VI of the U.S. Croatia Bilateral Investment 
Treaty (BIT) establishes protection for American investors from 
government exchange controls that limit current and capital account 
transfers, and limits on inward transfers made by screening 
authorities.  The BIT obliges both countries to permit all transfers 
relating to a covered investment to be made freely and without delay 
into and out of each other's territory.  The Croatian Foreign 
Exchange Law permits foreigners to maintain foreign currency 
accounts and to make external payments. 
 
¶9.  The Foreign Exchange Law also defines foreign direct investment 
(FDI).  For example, use of retained earnings for new 
investments/acquisitions is considered FDI, whereas investments made 
by institutional investors such as insurance, pension and investment 
funds are not considered FDI.  The law also liberalizes foreign 
exchange transactions for Croatian entities and individuals allowing 
them to invest abroad.  Generally, this law liberalized foreign 
exchange transactions, but it also introduced criteria for the 
possible imposition of capital controls. 
 
¶10.  The U.S. Embassy in Zagreb has not received any complaints from 
American companies regarding transfers and remittances. 
 
 
A.3  Expropriation and Compensation 
 
¶11.  There have been no cases of expropriation of foreign 
investments by the government since Croatia became independent in 
¶1991.  Article III of the BIT covers both direct and indirect 
expropriations.  The BIT bars all expropriations or nationalizations 
except those that are for a public purpose, carried out in a 
non-discriminatory manner, are in accordance with due process of 
law, and are subject to prompt, adequate and effective 
compensation. 
 
¶12.  Croatian law gives the government broad authority to 
expropriate property under various economic and security related 
circumstances. The law provides for an appellate mechanism to 
challenge expropriation decisions by means of a complaint to the 
Ministry of Justice within 15 days of the expropriation order.  The 
law, however, does not describe the Ministry's adjudication process 
and the fact that the Ministry of Justice represents the government, 
which initiates expropriations, is an area of potential concern for 
investors. Investors should also be aware of the 2009 Law on Golf, 
which allows the government to expropriate land in order to sell it 
for golf course development. 
 
A.4  Dispute Settlement 
 
¶13.  There have been few instances of investment disputes involving 
U.S. companies in Croatia.  As a result of the very long timeframes 
involved in obtaining judgments in court, companies often try to 
resolve disputes without seeking judicial remedy.  The government is 
currently working to reduce court backlogs and to encourage the use 
of alternative dispute settlement. 
 
¶14.  The Croatian constitution provides for an independent 
judiciary.  The judicial system consists of courts of general and 
specialized jurisdictions, whose core structure is Supreme Court, 
County Courts, Municipal Courts, and the Magistrate/Petty Crimes 
Courts.  Specialized courts include the Administrative Court and 
High Commercial and Lower Commercial Courts.  There is also a 
Constitutional Court that determines the constitutionality of laws 
and government actions and protects and enforces constitutional 
rights.   Municipal courts exercise original jurisdiction over civil 
and juvenile/criminal cases.  The High Commercial Court is located 
in Zagreb and has appellate review of lower commercial court 
decisions.  Modification of lower court decisions by the High 
Commercial Court may be appealed to the Supreme Court. 
 
¶15.  The Administrative Court has jurisdiction over the decisions of 
administrative bodies of all levels of government.  The Supreme 
Court, under certain circumstances, may review decisions.  The 
Supreme Court is the highest court in the country and, as such, 
enjoys jurisdiction over all civil and criminal cases.  It hears 
appeals from County, High Commercial, and Administrative Courts. 
 
¶16.  The government continues efforts to reform the judiciary, 
including reducing the backlog of cases, reforming the land 
registry, training court officers and reducing the backlog and 
 
ZAGREB 00000034  003.2 OF 015 
 
 
length of bankruptcy procedures.  Alternative dispute resolution has 
been implemented at the High Commercial Court, the Zagreb Commercial 
Court and 6 municipal courts throughout the country.  An important 
move to lessen the backlog of cases is the on-going redistribution 
of non-disputed decisions to public notaries.  During the past year, 
the number of pending cases has decreased to fewer than 870,000, 
down from 950,000.  The greatest reduction was in the backlog of 
enforcement cases and the enforcement of judgments, which currently 
make up 12 percent of all pending cases.  According to the 
provisions of the Law on Enforcement, a judgment made by a judge or 
panel of judges to order payment or direct actions to be taken or 
ceased must be executed immediately per such decision.  Current 
practice, however, delays enforcement until all appeals are 
exhausted.  Article 17 of the Law on Enforcement states that foreign 
judgments may be executed only if the "judgment fulfills the 
conditions for recognition and execution as prescribed by an 
international agreement or the law."  The Ministry of Justice's 
reform plan is available on its website at www.pravosudje.hr. 
 
¶17.  The Law on Bankruptcy, internationally harmonized and 
corresponding to the EU regulation on insolvency proceedings and 
United Nations Commission on International Trade Law (UNCITRAL) 
Model Law on Cross-Border Insolvency establishes timeframes for the 
initiation of bankruptcy proceedings.  Bankruptcy and foreclosures 
have traditionally been slow and inefficient in Croatia.  The World 
Bank has estimated that the recovery rate in Croatia is 
approximately 44 percent of the Organization for Economic 
Cooperation and Development (OECD) average, and somewhat better than 
the regional average. 
 
¶18.  The Commercial Court has exclusive jurisdiction over bankruptcy 
matters.  A bankruptcy tribunal decides on initiating formal 
bankruptcy proceedings, appoints the trustee, reviews creditor 
complaints, approves the settlement for creditors, and decides on 
the closing of proceedings.  The bankruptcy judge supervises the 
trustee (who represents the debtor) and the operations of the 
creditors' committee.  A creditors' committee is convened to protect 
the interests of all creditors during the proceedings, to oversee 
the trustee's work and to report back to the creditors.  The law 
establishes the priority of creditor claims, assigning higher 
priority to those related to taxes and revenues of state, local and 
administration budgets.  The law also allows for a debtor or the 
trustee to petition to reorganize the firm, an alternative aimed at 
maximizing asset recovery and providing for fair and equitable 
distribution among all creditors. 
 
¶19.  Arbitration is available, although underutilized.  Within the 
Croatian Chamber of Economy, there is a permanent arbitration court 
that has been in existence since 1965 (see 
www.hgk.hr/wps/portal/!ut/p/.cmd/cl/.l/hr).  Arbitration is 
voluntary and conforms to UNCITRAL model procedures.  The court 
received 102 new cases in 2009 of which a few concern EU countries; 
however there are currently no issues involving the US. 
 
¶20.  The English-language text of the Law on Arbitration can be 
found on the website of the Croatian Chamber of Economy 
(www.hgk.hr).  The law covers domestic arbitration, recognition and 
enforcement of arbitration rulings, jurisdictional matters, and 
procedures.  Once a dispute has been arbitrated the decision is 
executed upon notice from the court to the obligatory party.  If no 
payment is made by the established deadline, then the party 
benefiting from the decision notifies the commercial court and the 
commercial court becomes responsible for enforcing compliance. 
Rulings of the arbitration court have the force of a final judgment, 
but can be appealed within three months. 
 
¶21.  Article X of the BIT sets forth several means for resolution of 
investment disputes, defined as any dispute arising out of or 
relating to an investment authorization, an investment agreement, or 
an alleged breach of rights conferred, created, or recognized by the 
BIT with respect to a covered investment.  For more information on 
the BIT arbitration provisions, consult  http://tcc.export.gov. 
 
¶22.  Croatia is a signatory to the following international 
conventions regulating the mutual acceptance and enforcement of 
foreign arbitration:  the 1923 Geneva Protocol on Arbitration 
Clauses, the 1927 Geneva Convention on the Execution of Foreign 
Arbitration Decisions, the 1958 New York Convention on the 
Acceptance and Execution of Foreign Arbitration Decisions, and the 
1961 European Convention on International Business Arbitration.  In 
1998 Croatia ratified the Washington Convention - the International 
Center for the Settlement of Investment Disputes (ICSID), and it 
became effective on October 22, 1998. 
 
 
A.5  Performance Requirements/Incentives 
 
¶23.  Croatia's WTO Trade Related Investment Measures (TRIMs) 
 
ZAGREB 00000034  004.2 OF 015 
 
 
agreement went into effect in 2000.  Croatia has no trade-related 
investment measures in place at the present time, nor does the 
government intend to introduce any such measures in the future. 
Accordingly, Croatia did not seek to list any measures for 
elimination under the provisions of the WTO Agreement on TRIMs. 
Croatia committed to maintaining measures consistent with the TRIMs 
agreement and has applied the TRIMs agreement from the date of 
accession without recourse to any transition period. 
 
¶24.  Croatian law does not impose performance requirements on 
foreign or domestic investors.  Article VII of the BIT prohibits 
mandating or enforcing specified performance requirements as a 
condition for the establishment, acquisition, expansion, management, 
conduct, or operation of a covered investment.  The list of 
prohibited requirements is exhaustive and covers domestic content 
requirements and domestic purchase preferences, the "balancing" of 
imports or sales in relation to exports or foreign exchange 
earnings, requirements to export products or services, technology 
transfer requirements, and requirements relating to the conduct of 
research and development in the host country.  Article VII makes 
clear, however, that a party may impose conditions for the receipt 
or continued receipt of benefits and incentives. 
 
¶25.  In late 2004, the Ministries of Economy and Defense agreed to 
introduce offsets (a requirement for local sourcing of a portion of 
the contract) for defense procurements over 2 million euros, and the 
Ministry of Economy said it was looking at introducing offsets in 
other areas, however no such action has been undertaken. More 
information on application and regulation of the offset program can 
be found at www.hgk.hr. 
 
¶26.  The Investment Promotion Law offers potentially significant 
incentives (the amount of which is dependent upon the percentage of 
unemployment in the respective county) to investors, foreign and 
domestic, such as 1500-3000 EUR incentive per new job position, 
assistance with retraining and tax incentives.  It provides for 
incentives that apply only to investments in production based 
businesses, technological development centers and strategic business 
support activities.  The minimum amount of investment that qualifies 
for incentives is 300,000 EUR.  Tax incentives include substantially 
lower profit tax obligations and customs relief.  The text of the 
law is available on the Croatian National Bank site (www.hnb.hr). 
 
¶27. Incentives include 10 percent corporate tax for ten years for 
companies that invest from 2.2 million to 11 million HRK 
(approximately $440,000 - $2.2 million) and create 10 new jobs; 7 
percent corporate tax for ten years for companies that invest from 
11 million to 30 million HRK (approximately $2.2 million to $6 
million) and create 30 new jobs; 3 percent corporate tax for ten 
years for companies that invest 30 million to 58 million HRK 
(approximately $6  million to $11.6 million) and create 50 new jobs; 
0 percent corporate tax for ten years for companies that invest over 
60 million HRK (approximately $11.6 million) and create at least 75 
new jobs. 
 
¶28.  Incentive measures refer to investment in the following: new 
equipment and modern technology, new production processes and new 
products, greater employment and education of workers, modernization 
and growth of business, development of production with a higher 
level processing, an increase in exports, increasing economic 
activity in regions of Croatia in which economic growth and 
employment levels lag behind national averages (in accordance with 
the map of regional areas of special state concern), development of 
new services, energy conservation, strengthening information 
technology, cooperation with foreign financial institutions, and 
harmonizing the Croatian economy with EU standards. 
 
¶29.  Investors may also be eligible to receive assistance from the 
government to offset costs of employee re-training.  The government 
may offer real estate (or permits or infrastructure) to an 
investment either cost-free or on a preferential basis.  Finally, 
the government will allow the duty-free importation of capital 
equipment for the investment. 
 
¶30.  The Croatian government also offers incentives for business 
activities carried out in the areas of special state concern, 
mountain areas and the city of Vukovar.  The laws governing business 
activities in the areas of special state concern have been 
harmonized with EU regulations on state aid. Various categories of 
tax incentives are offered per area and further information can be 
requested from the Trade and Investment Promotion Agency 
(www.apiu.hr). 
 
¶31.  The Trade and Investment Promotion Agency can be helpful in 
identifying and applying for investment incentives.  Also, the 
(separate) Office of Investment and Export Promotion in the Ministry 
of Economy can be helpful in looking for incentive information. 
Further information can be found on their website at www.mingorp.hr. 
 
ZAGREB 00000034  005.2 OF 015 
 
 
 
 
¶32.  Although procedures for obtaining business visas are generally 
clear, they can be cumbersome and time-consuming.  The requirement 
listed in the 2007 amendments to the Law on Foreigners for two-year 
residency before the holder of a key personnel visa can obtain visas 
for his or her immediate family has been abolished. .  Questions 
relating to visas and work permits should be directed to a Croatian 
embassy or consulate.  The U.S. Embassy in Zagreb also maintains a 
website with information on this subject at www.usembassy.hr. 
 
 
A.6  The Right to Private Ownership and Establishment 
 
¶33.  Both foreign and domestic legal entities have the right to 
establish and own businesses and engage in remunerative activity. 
Foreign investors can acquire ownership and shares of joint stock 
companies.  The lowest amount of initial capital for establishing a 
joint stock company is 200,000 HRK ($40,000) and the nominal value 
per share cannot be less than 10 HRK ($2.00). Minimum initial 
capital for establishment of a limited liabilities company is 20,000 
HRK ($4,000), while individual representation per investor cannot be 
less than 200 HRK ($40.00) 
 
As a rule, the import and export of goods are free. Quotas or 
protective levies may be introduced in accordance with WTO rules 
only as an exception if the balance of payments experiences 
disturbances. If the import of certain goods threatens to damage or 
damages domestic industry, import quotas may be introduced. Export 
quotas may also be set in order to protect national non-renewable 
natural resources, accompanied by restrictive measures that limit 
internal trade in these products. 
 
¶34.  Article 49 of the Constitution provides assurances that all 
entrepreneurs have equal legal status and that monopolies are 
forbidden.  The Competition Act defines the rules and methods for 
promoting and protecting competition.  This law and information 
about the Croatian Competition Agency can be found at www.aztn.hr. 
In theory, competitive equality is the standard applied to private 
enterprises in competition with public enterprises with respect to 
market access, credit and other business operations, such as 
licenses and supplies.  In practice, however, state-owned 
enterprises and "strategic" firms continue to receive preferential 
treatment, including government bailouts and subsidies. 
 
¶35.  The Government's e-government initiative "Hitro" (www.hitro.hr) 
has an on-line business registration component that reduces the time 
it takes to register a company to four days.  Business registration 
is the first step in a plan to make more government services 
available on-line in coming years and includes the full digitization 
of Croatia's land records (see www.pravosudje.hr and www.katastar.hr 
to find digitized land records). 
 
 
A.7  Protection of Property Rights 
 
¶36.  The right to ownership of private property is established in 
the Croatian Constitution and numerous acts and regulations 
safeguard this right.  A foreign physical or legal person 
incorporated under Croatian law is considered to be a Croatian legal 
person.  The Law on Ownership and Property Rights establishes 
procedures for foreigners to acquire property by inheritance as well 
as legal transactions such as purchases, deeds, and trusts.  While 
EU member state citizens are afforded the same rights as Croatian 
citizens in terms of purchasing property, the right of all other 
foreigners to acquire property in Croatia is based on reciprocity. 
Reciprocity exists on a state-by-state basis with the United States. 
 Croatia's Ministry of Foreign Affairs has confirmed the existence 
of reciprocity for real estate purchases for residents of the 
following states: Alabama, Arizona, Alaska, Arkansas, California, 
Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Louisiana, 
Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New 
York, North Carolina, North Dakota, Rhode Island, Tennessee, Texas, 
Virginia, Washington, West Virginia, Iowa and Oklahoma (with a 
condition of permanent residence).  Residents of other states could 
face longer waiting periods while the Ministry confirms that 
Croatian nationals can purchase real estate in those states without 
restrictions.  However, a foreign investor, incorporated as a 
Croatian legal entity, may acquire and own property without ministry 
approval.  Purchasing by any private party of certain types of land 
(principally land directly adjacent to the sea or in certain 
geographically designated areas) can be restricted. Both Croatian 
and foreign citizens may mortgage property and pledge real and 
tangible property. 
 
¶37.  In order to acquire property by means other than inheritance or 
as an incorporated Croatian legal entity, foreign investors require 
the approval of the Ministry of Justice.  Approval often takes 
 
ZAGREB 00000034  006.2 OF 015 
 
 
several months or longer owing to a lengthy interagency clearance 
process.  When purchasing land for construction purposes, potential 
buyers should determine whether the property is classified as 
agricultural land or construction land.  Several controversial laws 
passed in December of 2008 should be considered when purchasing 
land.  The Arable Land Law allows for additional fees of 25 percent 
or more to be added to the initial cost of land that is to be 
converted from agricultural into construction land. The Law on Golf 
Terrains allows investors to expropriate land from private owners 
and local governments in order to build golf courses.  Finally, a 
new Agricultural Land Agency came into existence on January 1, 2010. 
 The role of this agency will be to work with local governments to 
review potential agricultural land purchases.  In theory, this 
mechanism could be used to exclude foreign investors, although it is 
too early to assess this Agency's practices. 
 
¶38.  Clarifying Croatia's land registry system is an on-going 
process.  Although Croatia has made progress resolving a backlog of 
cases, potential investors should seek a full explanation of land 
ownership rights before purchasing property.  It is highly advisable 
to seek competent, independent legal advice in this area (see 
www.usembassy.hr, Consular section for a list of English-speaking 
attorneys), as there are sometimes ambiguous and conflicting claims 
to property, making it necessary to verify that the seller possesses 
clear title to both land and buildings, which can be titled and 
owned separately.  Inheritance laws have led to a situation in which 
some properties can have dozens of legal owners, some of whom are 
long since deceased and others of whom emigrated and cannot be 
found.  It is also important to verify the existence of necessary 
building permits, as some newer structures in coastal areas have 
been subject to destruction at owner's expense and without 
compensation for not conforming with local zoning regulations. 
Investors should be particularly wary of promises that structures 
built without permits will be regularized retroactively. 
 
¶39.  Some aspects of land ownership, as distinct from ownership of 
objects, are not clear.  Investors interested in acquiring companies 
from the Croatian Privatization Fund should seek expert legal advice 
to determine whether any deal also includes the right to ownership 
of the land on which an object is located, or merely the right to 
lease the land through a concession.  The various Croatian laws on 
privatization are not clear on this point. 
 
¶40.  Inconsistent regulations and restrictions on coastal property 
ownership and construction have in the past provided challenges for 
foreign investors.  Legislation restricts coastal construction and 
commercial use within 70 meters of the coastline. 
 
¶41.  Croatia has intellectual property rights legislation, including 
the Patent Law, Trademark Law, Industrial Design Law, Law on the 
Geographical Indications of Products and Services, Law on the 
Protection of Layout Design of Integrated Circuits, and Law on 
Copyrights and Related Rights.  Although some areas of IPR 
protection remain problematic, Croatia is currently not on the U.S. 
Special 301 Watch List.  Problem areas continue to be concentrated 
in piracy of digital media and counterfeiting. 
 
Due to its geographical position, Croatia is also one of the transit 
routes for various contraband products bound for other countries in 
the region. 
 
¶42.  As a full WTO member, Croatia is a party to the Uruguay Round 
Agreement on Trade-Related Intellectual Property Rights (TRIPS).  A 
WTO/TRIPS Working Group in June 2001 accepted Croatia's IPR 
legislation.  Texts of these laws are available on the website of 
the State Intellectual Property Office: www.dziv.hr.  Croatia is 
also a member of the World Intellectual Property Organization 
(WIPO).  For a list of international conventions to which Croatia is 
a signatory, consult the State Intellectual Property Office's 
website. 
 
 
A.8  Transparency of the Regulatory System 
 
¶43.  Croatia is under pressure to increase transparency and its 
commitments to adopt EU laws, norms, and practices provide steady 
pressure for reform.  Nevertheless, bureaucracy and regulation 
continue to be overly complex and time consuming. 
 
¶44.  In 2006, the Croatian government, with the assistance of USAID, 
began the Hitrorez project, which aimed to remove needlessly complex 
bureaucracy as an obstacle to investment, targeting the 1451 laws 
and regulations that affect business in Croatia.  The project made 
progress and by the end of its first phase in mid-2007, Hitrorez had 
identified 799 regulations for simplification or elimination. 
Recommendations for 500 of the regulations were accepted, and 359 
implemented as of January 2009, but the office was then shut down, 
due to excessive media criticism of the program, reporting that 
 
ZAGREB 00000034  007.2 OF 015 
 
 
Hitrorez was too expensive and not effective. Although Hitrorez has 
been closed, the program continues through the government's 
Legislation Office, which is currently preparing to fully implement 
the work of the original project. At the time of writing this 
report, the office did not have current data. 
 
¶45.  Legislation on public procurement, accounting and financial 
security was passed in 2007 with the intent to increase 
transparency. An amended Company Law was passed in December 2008. 
The procurement law provides for greater transparency with the 
introduction of electronic auctions, definitions of special 
procurement procedures and framework agreements, as well as 
publication of all procurement procedures over 70,000 HRK ($14,000). 
The Accounting Law includes reporting provisions according to which 
large companies will apply International Financial Reporting 
Standards, while small and medium businesses will apply Croatian 
Financial Reporting Standards. Progress, however, is still necessary 
in this area. 
 
¶46.  Bureaucracy is still a major challenge for foreign investors, 
although the government has made progress in this area, particularly 
through the development of its e-government initiatives (see 
paragraph 34).  Property registration, for example, has 
traditionally been notoriously inefficient, sometimes taking up to 
several years.  However, recent reforms and the digitization of the 
land registers are hopeful signs that this problem will be mitigated 
in the near future (see paragraph 34).  A valuable source of 
analysis is located on the website of the Croatian office of the 
World Bank, at www.worldbank.hr.  Click on the link for the "Doing 
Business in Croatia Forum." 
 
¶47. The regulatory system does not specifically discriminate against 
foreign investors.  However, transparency in developing legislation 
and regulation is often hampered by an inefficient public 
administration, a lack of intra-governmental coordination, and 
reliance on expert advice from national champions, sometimes giving 
the latter a privileged position in influencing new regulations. 
 
¶48.  Tax on corporate income is a flat 20 percent.  There is a 15 
percent tax on interest revenue and royalties.   In 2005, tax on 
dividends was eliminated as a spur to investment.  For a detailed 
description of extant tax legislation, please consult the Tax 
Administration's website at www.porezna-uprava.hr/en/index.asp. 
Detailed information about customs can be found at www.carina.hr. 
 
¶49.  The Institute of Public Finance maintains a useful table of 
Croatian taxes at www.ijf.hr/eng/taxguide/08_05/taxtable.pdf. 
Croatia also maintains a 23 percent value-added tax (VAT).  Some 
companies have had difficulty with the tax authorities due to 
differing understandings of how certain goods and services are 
affected by the VAT. 
 
 
A.9  Efficient Capital Markets and Portfolio Investments 
 
¶50.  Croatia's securities markets are open to both domestic and 
foreign investment equally.  There are no restrictions that would 
disrupt foreign investment in the securities market and other 
markets in Croatia.  Foreign residents may open non-resident 
accounts and may do business both domestically and abroad.  Article 
24 of the Foreign Currency act states that non-residents may 
subscribe, pay in, purchase or sell securities in the Republic of 
Croatia in accordance with regulations governing securities 
transactions.  Non-residents and residents are afforded the same 
treatment in spending and borrowing.  These and other non-resident 
financial activities regarding securities are covered by Articles 
24, 25 and 27 of the Foreign Currency Act, which can be viewed on 
the Central Bank website (www.hnb.hr). 
 
¶51. The current Capital Market Act that entered into force on 
January 1, 2009. The Act focuses on (1) the regulation of 
establishment of activities, supervision and cessation of investment 
companies, market operators and operators of payment and settlement 
systems; (2) the offering of investment services and the performance 
of investment activities; (3) the rules of trading on the organized 
market; (4) the offering and quotation of securities on the 
organized market; (5) the reporting requirements on connection with 
securities quoted on the organized market; (6) market abuse; (7) the 
deposit of financial instruments and the settlement and payment of 
transactions with financial instruments; and (8) the authority and 
activities of the Croatian Financial Services Supervisory Agency 
(HANFA) in connection with implementation (see paragraph 53).    The 
new Act has also made clearer the details of required disclosures 
and the consequences of a failure to disclose. It specifies in much 
greater detail who is responsible for information listed in a 
prospectus, and obligates the issuer to publish periodic financial 
reports as well as information about changes in corporate structure 
and voting rights. The new Act will improve securities regulation 
 
ZAGREB 00000034  008.2 OF 015 
 
 
and will increase  transparency. Experts have said that it will 
cause some investment companies to disappear while making others 
stronger. 
 
¶52.  Croatia's capital markets did not do well in 2009. Transactions 
on the Zagreb Stock Exchange in 2008 were 31.06 billion HRK 
(approximately $6.03 billion), of which 11.69 billion HRK 
(approximately $2.27 billion) was in institutional turnover. In 
2009, transactions were substantially lower, totaling 10.91 billion 
HRK (approximately $ 2.14 billion) of which 2.98 billion HRK 
(approximately $ 0.59 billion)was institutional turnover.  According 
to the Central Depository Agency records, approximately 856,000 
Croatian citizens now own stocks. 
 
¶53.  The Investment Fund Law provides for the establishment of 
derivative funds, index funds and other funds in accordance with EU 
legislation. 
 
¶54.  The Agency for Supervision of Financial Services (HANFA), 
headed by the Directorate for Supervision of Agencies oversees the 
capital market in Croatia. See www.hanfa.hr for all legislation and 
information relative to capital markets. Only an authorized company 
(brokerage houses and banks) 
may deal in securities in Croatia.  Such activity must be licensed 
by the Croatian Financial Services Supervisory Agency and entered in 
a court register. 
A brokerage company may only be a private or public 
limited company based in the Republic of Croatia.  Its only 
permitted activity is transactions in securities. The type of 
permitted activity depends on the amount of share capital.  In 
accordance with national law, a brokerage company may establish a 
branch abroad in order to deal in securities in the respective 
country.  Foreign brokerage companies authorized for transactions in 
securities may establish a branch in the Republic of Croatia, 
provided they obtain a license from HANFA. 
 
¶55.  The privatized and consolidated banking sector is advanced and 
is becoming more competitive.  More than 90 percent of the total 
assets of the banking sector are foreign owned.  As of November of 
2009, there were 32 commercial banks and two savings banks, whose 
assets totaled 373.9billion HRK ($75 billion).  The three largest 
banks, all foreign owned are: Zagrebacka Bank, total of 92.2 billion 
HRK in assets and holds24.2 percent of total bank assets in Croatia; 
Privredna Bank, with 62.5 billion HRK or  16.4 percent; and Erste 
Steirmarkische Bank, with 47.9 billion HRK or 12.57 percent of total 
bank assets in Croatia. 
 
¶56.  The government uses the market to finance government 
expenditure.  Government debt instruments must be bought through an 
intermediary such as a commercial bank, and are tradable on 
exchanges. All Croatian workers under age 40 are required to pay 
five percent of their gross salary into a pension fund of their 
choice.  EU Pillar III (additional voluntary savings with government 
matching of 25 percent) has also been introduced. 
¶57.  Currently, securities are traded on the Zagreb Stock Exchange 
(ZSE), established in 1991. The Varazdin Stock Exchange (VSE), which 
was established in 1993 as an over-the-counter (OTC) merged into the 
ZSE in 2007. The OMX X-Stream trading system is now used on the ZSE. 
There are three tiers of securities traded on the ZSE. Companies 
must meet high disclosure and operating requirements to be fully 
listed (quotation I).  A detailed explanation of all requirements is 
provided at www.zse.hr in English.  The ZSE's new Rules, which 
entered into force on 20 July 2009, can be found at www.zse.hr. 
 
¶58.  The Securities Law requires that all companies with more than 
100 shareholders and with share capital of at least HRK 30 million 
(approximately $5.4 million) be listed on the newly established 
quotation for public stock companies (JDDs).  The intention was to 
increase transparency and encourage companies to obtain low cost 
equity financing, which would result in increased turnover and trade 
volumes. 
 
¶59. Measures that govern takeovers are prescribed by the Law on 
Takeovers of Joint Stock Companies, which was passed in 2007 and 
replaced all earlier laws regulating takeovers. The Law on Takeovers 
has been harmonized with laws applicable to EU member states, in 
anticipation of Croatia's accession to the EU. The Law on Takeovers 
regulates takeovers in a way that is similar to that of many EU 
member states. 
The Law was amended in order to improve shareholders' protection in 
the takeover process and to provide unambiguous rights and 
obligations of the acquirers. To date, there has only been one 
attempted hostile takeover, which failed. 
 
¶60.  The Croatian Chamber of Economy provides a useful summary of 
the capital markets in Croatia at www.hgk.hr. 
 
A.10 Competition from State Owned Enterprises (SOE's) 
 
ZAGREB 00000034  009.2 OF 015 
 
 
 
¶61. Legislation provides that private enterprises are allowed to 
compete with public enterprises under the same conditions with 
respect to access to markets, credit and other business operations. 
In practice, however, while there is not concrete evidence, there 
are often accusations that political influence in the SOE's 
influences competition and tenders. 
 
¶62. SOE's are active in railways, electricity, shipbuilding and 
various tourism related companies. A list of SOE's is available at 
www.hfp.hr. 
 
¶63. The supervisory boards of SOEs are currently structured to 
include government figures, often ministers. Due to recent 
allegations of corruption in various SOE's, the government has 
proposed to change the procedure of appointing political persons to 
the boards of SOE's.  Instead, the government is suggesting that 
apolitical, professional persons should be appointed.  Under current 
procedure, the SOE boards of management report directly to the 
government. 
 
¶64. SOEs are required to submit annual reports and are also required 
to undergo independent audits. 
 
A.11  Corporate Social Responsibility 
 
¶65. The Croatian Business Council for Sustainable Development 
(www.hrpsor.hr) implements corporate social responsibility and is a 
member of CSR Europe's Network of National Partner Organizations, 
Global Compact and the Global Reporting Initiative.  The Croatian 
Chamber of Economy adopted a Code of Business Ethics in 2005 and 
founded the Community for Corporate Social Responsibility. 
 
¶66. The Croatian Business Council for Sustainable Development and 
the Croatian Chamber of Economy has created a Socially Responsible 
Practices Index. The two organizations ask, annually, 1500 small and 
medium enterprises to answer a questionnaire and then rate the 
companies' socially responsible practices. The Index results for 
2008 are public and are published at www.hrpsor.hr/dop.html#28. 
 
A.12  Political Violence 
 
¶67.  The risk of political violence in Croatia is low.  Following 
the breakup of Yugoslavia and the subsequent wars in the region, 
Croatia has emerged as a stable, democratic country and the newest 
member of NATO.  Membership in the European Union is also likely in 
the coming years.  Relations with neighboring countries are 
generally good and improving, although some disagreements regarding 
border demarcation remain. 
 
¶68.  There is little domestic anti-American sentiment.  There have 
been no incidents involving politically motivated damage to American 
projects or installations in Croatia. 
 
 
A.13  Corruption 
 
¶69. Corruption remains a serious problem in Croatia but the number 
of high profile corruption prosecutions is increasing.  The EU 
highlighted corruption as one of the challenges remaining in 
Croatia's EU accession process.  The Government of Croatia (GOC) 
recognizes corruption as a problem and, at the highest political 
levels, has shown a willingness to combat corruption.  In 2009, the 
GOC gave special attention to the legal and institutional framework 
used to combat corruption  by reforming investigations, 
prosecutions, and interagency and international cooperation. 
 
¶70. The prosecutor and police Offices for Suppression of Corruption 
and Organized Crime (USKOK and PN-USKOK, respectively) are the main 
law enforcement bodies responsible for fighting corruption. 
PN-USKOK was established in April 2009, but was not a fully 
functional unit until September 2009.  The GOC also created special 
anticorruption and organized crime departments at the four largest 
courts in Croatia where judges are screened and receive additional 
training and higher pay for working on USKOK cases.  The Ministry of 
Justice's Anticorruption Office monitors the implementation of 
anticorruption measures throughout the government and oversaw a 
large anticorruption public relations campaign in the spring and 
summer of 2009.  In 2009, the number of cases prosecuted by USKOK 
increased substantially in comparison with previous years, 
particularly high-profile cases involving indictments against former 
ministers and parliamentarians, professors, judges, and high-ranking 
civil servants. 
 
¶71. The Croatian Criminal Code and the Criminal Procedure Act 
provide for the prosecution of different forms of corruption and 
similar criminal acts.  In December of 2008, Croatian Parliament 
adopted the new Criminal Procedure Act and the Amendments to the 
 
ZAGREB 00000034  010.2 OF 015 
 
 
Penal Code. One of the most important changes in the amended Penal 
Code is Article (82) titled "Confiscation of Pecuniary Gain Acquired 
by a Criminal Offense."  Although the provision 82 existed in the 
old Penal Code, the new amendments to this provision broadened the 
possibility for asset seizure and forfeiture, especially for USKOK 
cases.  According to the amendments, if a case falls under the 
authority of the specialized prosecutors who work in the Office for 
Suppression of Organized Crime and Corruption or USKOK, it shall be 
assumed that all of defendant's property was acquired by criminal 
offences, unless defendants could prove legal origin of the assets. 
The pecuniary gain in such cases shall also be confiscated if it is 
in possession of a third party (e.g. spouse, relatives, and family 
members) on any legal ground and it has not been acquired in good 
faith. The burden of proof would be on defendants to prove legal 
origin of assets, not on the prosecutors. 
 
¶72. Additional laws that deal with suppression of corruption include 
the Act on the Office for the Prevention of Corruption and Organized 
Crime (Law on USKOK), the State's Attorney Office Act, the Public 
Procurement Act, the Budget Act, the Courts Act, the Conflict of 
Interest Prevention Act, the Corporate Criminal Liability Act, the 
Money Laundering Prevention Act, the Witness Protection act, the 
Personal Data Protection Act, the Right to Access to Information 
Act, the Act on Public Services, the Code of Conduct for Public 
Officials, and the Code of Conduct for Judges.  The Croatian 
Criminal Code covers such acts as trading in influence, abuse of 
functions, bribery in the private sector, and embezzlement of 
property in the private sector, and concealment and obstruction of 
justice. 
 
¶73. Croatian laws and provisions regarding corruption apply equally 
for both domestic and foreign investors.  According to the head of 
the state prosecutor's office for the suppression of corruption and 
organized crime (USKOK), the most recent prosecutions for corruption 
involve mostly Croatian citizens. 
 
¶74. Croatia has ratified the United Nations Convention Against 
Transnational Organized Crime and the United Nations Convention 
Against Corruption.  It has also ratified both the Council of 
Europe's Criminal and Civil Law Conventions on Corruption.  Croatia 
has not ratified the OECD Convention on Bribery. 
 
¶75. Croatia is a member of the Group of States Against Corruption 
(GRECO), a peer monitoring organization that allows members to 
assess anticorruption efforts on a continuing basis.  An evaluation 
of Croatia, including suggestions and opinions on Croatia's progress 
in its fight against corruption, can be found on GRECO's website. 
Croatia has been a member of Interpol since 1992.  Croatia also 
cooperates regionally through the Southeast European Co-operative 
Initiative (SECI), the Southeast Europe Police Chiefs Association 
(SEPCA), and the Central European Initiative (CEI). 
 
¶76. According to public opinion polls, corruption is perceived to be 
pervasive in major public companies, the health sector, 
universities, public procurement systems, the construction sector, 
land registry offices, and the privatization fund.  Foreign 
investors, including US companies, have expressed general complaints 
that the level of corruption is a barrier to investment. 
 
¶77. Giving or accepting a bribe is a criminal act. The minimum 
prison sentence for an act of bribery (Articles 348(1) and 294b (1), 
Criminal Code) is six months and the maximum sentence is three 
years.  In two forms of passive bribery (Articles 347 and 294 (A), 
Criminal Code), sentences range from one to eight years 
imprisonment, depending on the crime.  Bribes by a local company to 
a foreign official are punishable under Croatian law.  If it is 
established that a local company is the legal entity committing 
crimes, that company might receive a ban for conducting operations, 
depending on the gravity of the crime. 
 
¶78. The Office for the Suppression of Corruption and Organized Crime 
(USKOK) is tasked with directing police investigations and 
prosecuting corruption and organized crimes cases.  USKOK is 
headquartered in Zagreb with branch offices in Split, Rijeka and 
Osijek.  In addition, the newly established National Police Office 
for the Suppression of Organized Crime and Corruption (PN-USKOK) 
conduct USKOK-related investigations and are based in the same 
cities as the corruption prosecutors.  Specialized criminal judges 
are situated at the four largest County Courts in Croatia, again in 
Zagreb, Rijeka, Split, and Osijek, and are responsible for 
adjudicating corruption and organized crimes cases, which are given 
high priority in the justice system.  The Ministry of Interior, the 
Office for Suppression of Money Laundering, the Tax Administration, 
the Anti-Corruption Unit of the Ministry Of Justice and the National 
Council for Monitoring the Implementation of the National Program 
for Suppression of Corruption all have a proactive role in combating 
and preventing corruption. 
 
 
ZAGREB 00000034  011.2 OF 015 
 
 
¶79. Transparency International Croatia is the main non-governmental 
watchdog organization in Croatia.  In addition, GONG, a non-partisan 
citizens' organization founded in 1997, monitors election processes, 
educates citizens about their rights and duties, encourages mutual 
communication between citizens and their elected representatives, 
promotes transparency of work within public services, and manages 
public advocacy campaigns and encourages and helps citizens in 
self-organizing initiatives.  The Partnership for Social Development 
is another NGO that deals with the suppression of corruption. 
 
 
 
A.14.  Bilateral Investment Agreements 
 
¶80.  Croatia does not have a foreign investment law; foreigners 
receive national treatment under existing legislation.  In addition, 
investments by American citizens are covered by the U.S. Croatian 
Bilateral Investment Treaty (BIT), which entered into force in June 
¶2001.  The treaty fulfills the principal U.S. objectives for 
agreements of this type: 
 
--  All forms of U.S. investment in the territory of Croatia are 
covered; 
 
--  Covered investments receive the better of national treatment or 
most-favored-nation (MFN) treatment, both while they are being 
established and thereafter, subject to certain specified 
exceptions; 
 
--  Specified performance requirements may not be imposed upon or 
enforced against covered investments; 
 
--  Expropriation is permitted only in accordance with customary 
international law standards; 
 
--  Parties are obligated to permit the transfer, in a freely usable 
currency, of all funds related to a covered investment, subject to 
exceptions for specified purposes; 
 
--  Investment disputes with the host government may be brought by 
investors, or by their covered investments, to binding international 
arbitration as an alternative to domestic courts. 
 
¶81.  For further information about BITs and for the text of the 
U.S.-Croatian BIT please see www.mac.doc.gov/Tcc/e-guides/eg_bits 
(under "Croatia"). 
 
¶82.  Croatia has signed investment protection treaties/agreements 
with the following countries, however, not all have entered into 
force: 
 
Albania, Argentina, Austria, Belgium, Belarus**, Bulgaria, Bosnia 
and Herzegovina, Czech Republic, Chile, Denmark, Egypt, Finland, 
France, Great Britain, Greece, Germany, India, Indonesia**, Iran, 
Italy, Israel, Jordan, Kuwait, Cambodia, Canada, Qatar*, China*, 
Cuba**, Latvia, Libya, Lithuania,  Hungary, Macedonia, Malaysia*, 
Malta, Republic of Moldova**, Netherlands, Northern Ireland, Oman**, 
Poland, Portugal, Romania, Russia*, United States, Serbia 
Montenegro, Slovakia, Slovenia**, Spain, Sweden, Switzerland*, 
Thailand*, Turkey, , Ukraine, Zimbabwe*. 
(* = ratified, but not in force)   (** = not ratified or in force) 
 
 
A.15  OPIC and Other Investment Insurance Programs 
 
¶83.  Croatia is eligible for financing and political risk insurance 
coverage from the U.S. Overseas Private Investment Corporation 
(OPIC).  In 2004, OPIC provided $250 million in political risk 
insurance to support financing for the construction of a motorway in 
Croatia that will do much to improve the country's infrastructure, 
reduce transportation costs, and develop the tourism potential of 
the Dalmatian coast. OPIC provided the insurance to Private Export 
Funding Corporation (PEFCO) to support PEFCO's financing to Croatian 
Motorways, ltd. for construction of a portion of the Zagreb-Split 
motorway, consisting of a tolled four-lane highway connecting 
Bregana and Zagreb, and Bosiljevo with Sveti Rok.  For more 
information about OPIC, see www.opic.gov. 
 
Croatia is a member country of the Multilateral Investment Guarantee 
Agency (MIGA), for more information see www.miga.org. 
 
¶84.  In the event that OPIC should pay an inconvertibility claim 
under its political risk coverage, the local currency accepted by 
OPIC in any subsequent recovery would be made available to the 
Embassy on a priority basis for U.S. Government expenses.  The 
estimated annual U.S. dollar value of local currency used by the 
Embassy was approximately $13 million for 2009.  The Embassy 
currently purchases local currency from a local commercial bank at 
 
ZAGREB 00000034  012.2 OF 015 
 
 
the market rate.  A major devaluation is considered unlikely. 
 
 
A.16  Labor 
 
¶85.  Croatia has an educated, highly-skilled, and relatively high 
cost labor force compared with the region.  In general, employer's 
wage costs are approximately 110 percent of an employee's net wage. 
The estimated average cost to employers in Croatia was 7,569 HRK 
(approximately $1544.69) per month as of November 2009 and the 
average net wage was 5,236 HRK ($1068.57). The manner of calculating 
minimum wage was amended in 2008 per the Minimum Wage Act. The Act 
introduced a substantial one-time wage increase and the adjustment 
formula stipulated by the Act ensures a continuous minimum wage 
increase over a longer period of time. Minimum wage raises will be 
calculated from the minimum-to-average-wage ratio from the previous 
year, increased by the percent equal to real GDP growth in the 
previous year. Certain suggested alternative calculations for 
various sectors are under review by the constitutional court. 
 
¶86.  Croatia's labor laws are aimed at increasing labor market 
flexibility by shortening the mandatory notification period before 
dismissal and reducing generous severance package requirements. 
However, Croatia still fares badly in terms of time and expense in 
hiring and firing employees.  Labor has generally been supportive of 
government efforts to boost competitiveness and welcomes foreign 
investment, but remains concerned about any possible cuts in social 
spending. 
 
¶87.  The Law on Labor regulates employee and employer relations 
through "employment contracts."  Fulltime employment must not amount 
to more than 40 hours per week and employees are entitled to at 
least four weeks of paid annual leave and seven days of personal 
leave. The Law on Labor also provides special protections for 
workers in dangerous occupations, work at night, and work by minors 
between the ages of 15 and 18.  The Law on Labor was amended in 
November 2009 to further enforce the rights of workers. The 
amendments prescribe that the amount of overtime hours per week 
cannot exceed eight, as opposed to the previous ten, and the minimum 
amount of annual leave is set at four weeks and cannot include 
holidays or days off. The amendments also address improved 
organization of shift work, on-call work and night hours, as well as 
protection of under-age employees and the general safety and health 
protection of all employees. 
 
¶88.  Chapter 7 of the Law on Foreigners covers the issuance of work 
permits.  While there are quotas (determined annually) for work 
permits, there are no quotas for foreigners who execute key 
positions in companies or representative offices. Likewise, there 
are no quotas for business visas. 
 
¶89.  Workers are entitled by law to form or join unions of their own 
choosing, and workers exercised this right in practice.  In general, 
unions were independent of the government and political parties. 
The Labor Code prohibits anti-union discrimination and expressly 
allows unions to challenge firings in court; however, in general, 
attempts to seek redress through the legal system were seriously 
hampered by the inefficiency of the court system. 
 
 
A.17 Foreign Trade Zones/Free Ports 
 
¶90.  Croatia has several Free Trade Zones (FTZs), some in 
war-affected areas.  Special incentives are offered to users of 
FTZs. 
 
¶91.  The Law on Free Trade Zones allows a foreign-owned or domestic 
company in FTZs to engage in manufacturing, wholesale but not retail 
trade, foreign trade, banking and other financial activities. 
Articles 37a and 37b of the Law on Free Trade Zones define the 
payment structure for profit taxes up through 2017. The Law on 
Profit Tax also covers business in FTZs.  FTZ users are eligible for 
tariff waivers on imported products. . 
 
¶92.  FTZs are exempted from any Croatian emergency measures or other 
restrictions pertaining to foreign trade or hard currency 
transactions.  Users of the zones may freely store their goods and 
production equipment in the zones.  Goods that are not intended for 
trade on the Croatian market or for domestic consumption are fully 
exempt from custom duties or taxes.  Imported goods will be taxed 
and assessed duties per the value of the production materials 
imported for the product and not per the value of the finished 
product. 
 
¶93.  The following fifteen counties currently have FTZS: Buje, 
Krapina-Zagorje, Osijek, Rijeka, Slavonski Brod, Split, 
Splitsko-Dalmatinska County, Obrovac, Ploce, Pula, Kukuljanovo, 
Varazdin, Zagreb, Vukovar, and Ribnik counties.  As mentioned 
 
ZAGREB 00000034  013.2 OF 015 
 
 
previously, EU accession will force the Government to make changes 
in the free trade zone system and the incentives system associated 
with them. 
 
 
A.18  Foreign Direct Investment Statistics 
 
¶94.  Compared to other advanced transitional economies in the 
region, Croatia is in the middle group in terms of foreign direct 
investment (FDI).  New or green-field investments have seen 
particularly slow growth. According to the Trade and Investment 
Promotion Agency, there was one large-scale foreign investment 
project initiated this year (see list below paragraph 85). 
Privatization of strategic government-owned assets has been the main 
source of FDI since Croatian independence.  Large state assets such 
as utilities, the state insurance company and banks, are being sold 
by the government, usually through international tenders, and in 
some cases, through initial public offerings (IPOs), as was the case 
with the state oil company, INA, and the national telecom, HT.  The 
Croatian Privatization Fund, the agency responsible for the sale of 
other assets, has shares and stock in 1112 (mostly non-performing) 
companies.  The state's share of the equity base value of these 
companies is about 21.8 billion HRK ($4.36 billion).  Information 
regarding the Croatian Privatization Fund, including information on 
companies currently for sale, can be found on its website, 
www.hfp.hr. 
 
¶95. There were no significant sales made by the government in terms 
of privatization efforts in 2009. There was an attempt at the long 
awaited privatization of the shipbuilding industry; however, no 
bidders satisfied tender conditions and a second round of tenders is 
set for an undetermined date at the start of February 2010. 
 
¶96.  Foreign Direct Investment between 1993 and the second quarter 
of 2009 totaled $32.9 billion, with investments in the financial, 
chemical and telecommunications sector accounting for 57 percent of 
total investment. Croatian firms invested $3.6 billion abroad 
between 1993 and the second quarter of 2009. It is estimated that 
inflow FDI for the first two quarters of 2009 amounted to 2 percent 
of GDP and that outflow FDI for the first two quarters of 2009 is 
estimated at under one percent. 
 
¶97.  According to official statistics from the Croatian National 
Bank, Austria is the largest source of foreign investment in 
Croatia, accounting for 29.1 percent of total FDI since 1993.  The 
Netherlands is second with 15.4 percent of total FDI, followed by 
Germany with 12percent and Hungary with 9 percent. Because 
transactions are often executed through third countries and the 
Croatian National Bank records country of origin of the final 
transaction leading to the investment, in many cases, this results 
misleading statistics. The U.S. Embassy Zagreb estimates that the 
actual amount of U.S. investment in Croatia was approximately $ 2.5 
billion. However, the US investment referenced to in recent years 
was the purchase of Pharmaceutical company Pliva by US company Barr 
Pharmaceuticals, which was bought out at the global level by Israeli 
Teva in December 2008 (see list in paragraph 98).  The leading 
destinations for total Croatian investment, from 1993 to the second 
quarter 2009, were the Netherlands with 21, Serbia with 20 percent 
and Bosnia-Herzegovina with 19 percent.  In the first two quarters 
of 2009, Croatians invested approximately $93 million abroad.  For 
just 2009, The Netherlands was the lead investment destination, 
followed by Switzerland and Serbia. 
 
¶98.  The Croatian National Bank provides information about foreign 
investments in aggregate form which can be found on their website at 
www.hnb.hr.  The following includes some major ($20 million and 
above) foreign investments in Croatia to date listed at investment 
value at the time of the transaction (current values are not 
available): 
 
Foreign investor: GP&Partners (Dutch) 
Corn starch factory 
Value: $103 million 
 
Foreign investor: Barr Pharmaceuticals (U.S) 
Pharmaceuticals (which was bought out by Israeli Teva in December 
2008) 
Croatian company: Pliva 
Value: $2.3 billion 
 
Foreign investor:  Deutsche Telekom (Germany) 
Telecommunications 
Croatian Company:  Croatian Telecom (51 percent of shares) 
Value:  $1.272 billion 
 
Foreign investor: MOL (Hungary) 
Oil Industry 
Croatian Company: INA d.d. (26 percent of shares in 2003 plus 21.15 
 
ZAGREB 00000034  014.2 OF 015 
 
 
percent in 2008) 
Value: $505 million + $1.3 billion 
 
Foreign investor: Lactalis (France) 
Dairy 
Croatian company: Dukat 
Value: $400 million 
 
Foreign investor: Banca Commerciale Italiana (Italy) 
Banking/financial services 
Privredna Banka (66.66 percent of shares in 1999 plus 10 percent in 
2002) 
Value:  $300 million + approximately $50 million, according to media 
reports 
 
Foreign investor: Unicredito Italiano (Italy) 
TAKEN OVER BY BANK AUSTRIA IN 2007 
Banking/financial services 
Zagrebacka Banka (96 percent ownership) 
Value:  $230 million (estimate) 
 
Foreign investor: Erste und Steiermarkische Bank (Austria) 
Banking/financial services 
Rijecka Banka (85 percent share) 
Value:  $155 million 
 
Foreign investor: Austria Creditanstalt Group (HVB Group) (Austria) 
TAKEN OVER BY SOCIETE GENERAL IN 2006 
Banking/financial services 
Splitska Banka (88 percent ownership) 
Value:  $132 million 
 
Foreign investor: Heineken N.V. (Netherlands) 
Brewery 
Karlovacka Pivovara company (94.42 percent) 
Value:  $125 million 
 
Foreign investor: Rockwool Group (Denmark) 
Stone wool producers 
Value: $110 million 
 
Foreign investor: Sutivan Investment and Excelsa Anstalt 
(Lichtenstein) 
Hotels and tourism 
Plava Laguna (81.5 percent) 
Value: $70 million 
 
Foreign investor: CMC (U.S / Switzerland) 
Steel 
Croatian company: Sisak Steel Company 
Value: $52 million 
 
Foreign investor: Ericsson (Sweden) 
Telecommunications 
Tesla Company 
Value: $48 million 
 
Foreign investor: Hofmann and Pankl Betelligungasse (Austria) 
Minerals processing 
Straza Company 
Value: $39 million 
 
Foreign investor: Societe Suisse de Cemment Portland (Switzerland) 
Cement 
Tvornica Cementa Koromacno company 
Value: $38 million 
 
Foreign investor: Applied Ceramics (U.S) 
Semi-conductor components 
Value: $30 million 
 
Foreign investor: Interbrew (Belgium) 
Brewery 
Zagrebacka Pivovara company 
Value: $27 million 
 
Foreign investor: Coca Cola Amatil (Australia) 
Non-alcoholic beverages 
Croatian company:  n/a 
Value: $20 million 
 
Foreign investor: Hospira (U.S) 
Specialty pharmaceutical company 
Croatian company:  n/a 
Value: unknown 
 
Foreign investor: L&P Technology 
Mattress components 
 
ZAGREB 00000034  015.2 OF 015 
 
 
Croatian company:  n/a 
Value: Between $15-20 million 
 
FOLEY