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Croatia - The Yachtsman’s Haven Croatia is a relatively small country, but it has a spectacular 6,000 km coastline on the Adriatic Sea with more than 1,100 islands, of which only 66 are inhabited. This coast is considered to be the most beautiful in Europe with innumerable bays, inlets, coves and beaches. There are also many historic places such as Pula, Split, Korcula, Hvar, Trogir, Dubrovnik. On the Adriatic coast alone there are four historic places which are listed as World Heritage sites by UNESCO. Most islands receive more than 2,600 hours of sun a year. Croatia is divided between the Latin-influenced coast and an interior which is more Central European. The official language is Croatian, although English is spoken widely, particularly in larger cities. The capital is Zagreb with about 800,000 inhabitants.  Croatia is generally a high-tax country. In 1997, the World Bank ranked it third in the world in its overall tax burden. However, Croatian tax laws offer unique advantages for persons who receive certain foreign income or a foreign pension. Croatia also offers important tax advantages to yacht owners. As these advantages are not well known, Croatia offers the interesting possibility of establishing tax-free residence in a high-tax country.

Croatia's Dalmatian Coast Contact Henley & Partners – For assistance in gaining residency to Croatia, real estate in Croatia and corporate structuring beneficial to living in Croatia.

In addition to this, thanks to the fact that Croatia is not a member of the European Union (EU), foreign yachtsmen can avoid Value Added Tax (VAT) on the purchase price of their yachts if they are residents in Croatia, while staying at the most beautiful and cleanest coastline in Europe.

The Constitution of the Republic of Croatia, which came into effect in 1991, establishes Croatia as a parliamentary democracy and guarantees the right and inviolability of private property. Also, rights acquired through c apital investment are constitutionally guaranteed. Free transfer and repatriation of profits and capital are guaranteed to foreign investors. Asset forfeiture is possible only following a final court decision.

Before separation from Yugoslavia, Croatia had a well-developed tourist industry attracting about 10 million visitors annually. While the industry is now recovering, 

Croatia offers excellent opportunities before the crowds return.
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Dubrovnik - The Pearl of the Adriatic

Some of the many advantages of Croatia include:   Most beautiful coastline in Europe with unspoilt nature and rich culture Residence permit easily available, also for yachtsmen Certain income may be received 100% tax-free Use of offshore structures is possible for tax planning and privacy Croatian residence permit has no minimum stay requirement Possible fiscal incentives for substantial investments Residence and Personal Taxation

You are tax resident in Croatia based on physical presence if you stay for at least 183 days under circumstances that indicate your visit is not temporary. The 183-day visit may overlap calendar years.

You are tax resident based on maintaining a home in Croatia if you have accommodation there at your exclusive and continuous disposal for at least 183 days under circumstances that indicate you intend to keep and use that accommodation. Again, this period may overlap calendar years. Your length of stay is not important, nor does it matter if the accommodation is owned or rented. Tax-residents are generally taxed on their worldwide income, but there are important exemptions that make Croatia very attractive for personal residence from a tax point of view.

Residence Permits

Foreign nationals who wish to stay longer than three months in Croatia must obtain a residence permit. To get one, it is sufficient to have a yacht moored in a Croatian marina or to rent or own an apartment. An application for residence in Croatia involves submitting various government forms and identification documents, including proof of sufficient funds, and requires a visit to Croatia followed by six to eight weeks processing time. The residence permit is valid for a maximum of one year and can be easily renewed.
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Personal Taxation Croatian residents normally pay personal income tax of 15% for monthly salaries up to 2,500 kunas (approximately US$ 300); 25% for monthly salaries between 2,500 and 6,250 kunas; and 35% for monthly salaries of more than 6,250 kunas (approximately US$ 750). With surtaxes and social security deductions, the total tax burden on salaries can easily exceed 50%. But if you do not receive a salary, consultancy fees or similar income in Croatia, the tax situation is much more favourable.  Dividends, royalties and interest payments from non-financial institutions received by individuals are taxed at only 15% but can be lowered to 5% (for dividends) or to 0% (royalties and interest payments) if a double-taxation agreement applies. Croatia has 30 double-taxation agreements. Interest payments on loans, investments, deposits with financial institutions, public loans and securities and similar income are exempt from taxation, as are pensions received from abroad and capital gains from trading any financial assets. Inheritance and gifts are exempted from taxation in the first line of succession, and in other cases, there is a single rate of only 5%.

Exclusive Places - Available in Croatia

Interest payments - on loans, investments, deposits with financial institutions, public loans and securities and similar income.

Pensions received from abroad.

Capital gains - from trading securities and other financial assets, and capital gains from real estate if you occupied the real estate, held the property more than three years or sold it to your spouse or members of your immediate family.

Inheritance and gifts - are exempted from taxation in the first line of succession, and in other cases there is a single rate of only 5%.

Corporate Taxation and Treaty-Protected Holding Companies 

Corporate income tax is paid at a single rate of 20%. This tax is reduced to 10% for companies operating in Croatian tax-free zones, or even to 0% provided the investment is in tax-free zone infrastructure. Additional tax incentives apply to companies that invest at least 10 million kunas (US$1.2 million) and employ at least 30 Croatian workers. Also, accelerated depreciation can significantly lower a tax base.

Capital gain is taxed at rate of 20%. A Croatian holding company is exempt from paying income tax on dividends.There is withholding tax on dividends, royalties and interests, but they can be avoided or lowered to 5% (for dividends) using companies incorporated in countries with which exist favourable double-taxation treaties. With its unique tax advantages and extensive tax treaty network, Croatia offers interesting possibilities for international tax planning.

Can Croatia anticipate attacks by the Organization for Economic Cooperation and Development for engaging in so-called harmful tax practices as a result of the country’s favorable tax regime? This is very unlikely. Croatia is not a target and is unlikely to appear on any list, since it cannot be considered a “tax haven” in the conventional sense.

Tax Free Yachting In Croatia

Tax-free yachting

Croatia is also a very attractive place for yacht owners who wish to keep their yachts in Europe, but not within the European Union to save the value-added tax on the purchase price.
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If you wish to use a private yacht in EU waters, you must be aware of the various VAT implications. In principle, all yachts owned or used by EU residents must have their VAT paid before they may enter EU waters. An exemption is possible only for yachts owned by non-EU residents and used temporarily in EU waters by a non-EU resident - for example, a company incorporated outside the EU or an individual who normally lives outside the EU. Important points to be considered for determining whether or not VAT is payable are the place of purchase of the yacht, where it will be used, who is its beneficial owner, whether it will be chartered out to third parties and whether it will be used by EU residents.

Since Croatia is not a EU member, you do not have to pay VAT on a yacht purchased within the EU if the yacht is registered and exported out of EU territory. Yacht owners with Croatian residence permits can sail into EU waters for up to 18 months in any 24 months period without paying VAT on the yacht. Every yacht must be registered in an internationally recognized jurisdiction to provide proof of nationality and ownership. A yacht assumes the nationality of the jurisdiction where it is registered and is therefore subject to the regulations laid down by the governing register.

Very often, companies and private individuals enjoy major advantages and legal tax savings by registering their yachts in an appropriate jurisdiction, providing confidentiality and the protection and privileges offered by such registration. With registration of the yacht in an appropriate jurisdiction and mooring of the yacht outside the EU in Croatia, one can enjoy one of the most beautiful coasts in Europe, have easy access to the EU if desired and operate the yacht in a most tax-efficient environment.

For further information about yacht registration and marine services in general, please contact Henley & Parterners -

With respect to the spectacular nature, rich culture and history, favorable tax situation and non-membership in the EU, Croatia is therefore a real paradise for yacht owners who wish to keep their yachts in Europe and at the same time legally avoid taxes and restrictions of the ever-growing EU regulations. In summary, yacht owners, even if EU citizens, can benefit in many ways:

VAT-free Purchase of Yacht - Since Croatia is not a member of the EU, the VAT on their purchased yacht can legally be avoided if the yacht is registered and exported out of EU territory, for example registered in Guernsey, Gibraltar or St. Vincent and brought to Croatia, even if the yachtsmen have Croatian residence permits.

Residence in Croatia - Yachtsmen with Croatian residence permits who stay in Croatia continuously no longer than one year for the purpose of tourism, health or similar personal needs can sail with their foreign registered yacht in Croatian waters without paying import duties and VAT, and also in EU waters for up to 18 months in any 24 months period. (It must be noted that some EU members apply this rule differently). Such yachtsmen can keep their yacht in Croatia without paying import duties and VAT without a time limit.

VAT-free Spare Parts and Equipment - Spare parts and additional yacht equipment remain duty-free and VAT-free if the yacht is under a foreign flag and is moored in Croatia.

Residence Permits for Yacht Owners

Foreign nationals who wish to stay longer than three months in Croatia must obtain a residence permit. To get a residence permit, it is sufficient to have a yacht moored in a Croatian marina or to rent or own an apartment. An application for residence in Croatia involves submitting various government forms and identification documents, including proof of sufficient funds, and requires a visit to Croatia followed by six to eight weeks processing time. The residence permit is valid for a maximum of one year and can be easily renewed.
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Personal Taxation Croatian residents normally pay personal income tax of 15% for monthly salaries up to 2,500 kunas (approximately US$ 300); 25% for monthly salaries between 2,500 and 6,250 kunas; and 35% for monthly salaries of more than 6,250 kunas (approximately US$ 750). With surtaxes and social security deductions, the total tax burden on salaries can easily exceed 50%. But if you do not receive a salary, consultancy fees or similar income in Croatia, the tax situation is much more favourable. Dividends, royalties and interest payments from non-financial institutions received by individuals are taxed at only 15% but can be lowered to 5% (for dividends) or to 0% (royalties and interest payments) if a double-taxation agreement applies. Croatia has 30 double-taxation agreements.

Real Estate in Croatia

The Croatian real estate market is fairly well developed. Land and house prices are still very favourable, particularly on the islands where there are beautiful stone houses built in the traditional style. Also in the beautiful historic towns such as Dubrovnik, Hvar, Zadar or Korcula there are excellent opportunities to acquire prime location real estate at reasonable prices.

Although the purchase of real estate is straightforward, it is nevertheless advisable to make use of professional assistance. After the estate agent or attorney prepares the contract, the parties sign the contract and notary certifies the signatures. The notary’s fees are very low since the notary only certifies the signatures. Following that, the estate agent or attorney requests for the registration of the property on behalf of the buyer. Foreign persons can purchase real estate in Croatia providing that they get an approval by the Ministry of Foreign Affairs. The approval is issued if there is reciprocity, i.e. if Croatian persons can purchase real estate in the country of the purchaser. While such an approval can take up to 12 months, it can easily be avoided if the property is bought by a domestic company, which can be entirely owned and controlled by a foreign person. In that way, the transfer tax on real estate of 5% can also be avoided during each subsequent sale of the property. 

To establish yourself or your business in Croatia will require securing relationships with key partners such as government officials, bankers and corporate professionals. You need experienced consultants to build a network of contacts and help you to become established in your new environment.

The specialized services of Henley & Partners are a resource and complement to major law and consulting firms. We can help other firms and their clients with the unique and specific details required by the immigration and business relocation process and related tax planning. 
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