| The Croatian
Advantage: |
| Why I invested
in Croatia |
| By Hank Brill |
| July 2006
When I decided
to move to Croatia early in 2005, my friends and business associates were
shocked. "Where is it?" "Isn't there a war going on there?"
"Why would you start a business there?" At the time, my short
answer was that the war had been over for ten years and the Croatian coast
where I was going was a beautiful place with a mild, Mediterranean climate
that was located in the heart of Europe. After living here a year, registering
a company, obtaining a business visa and operating my consulting and real
estate firm, I'm able to provide a much more complete response: Croatia
is an emerging economy with tremendous prospects for growth because of
its location, its anticipated accession to the European Union by the end
of the decade and its stable government that is working hard to encourage
foreign investment. |
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The Heart
of Europe
The Austrian
Foreign Trade Office recently surveyed foreign investors in Croatia and
found that 61% of them listed the little republic's location in the center
of Europe as the primary motivation for their investing here. I 'd certainly
include myself in that 61 per cent. My business is located in Istria,
a heart-shaped peninsula smaller than the state of Rhode Island that Innsbruck,
Munich, Vienna, Zagreb and Budapest. The local airport in Pula has
non-stop flights to London's Gatwick, Amsterdam, Munich, Edinburgh and
Glasgow, many of them on low-cost carriers like FlyGlobeSpan. The
seaport of Rijeka at the northeast corner of Istria is undergoing a $266
million makeover financed by the World Bank that will turn it into a world
class port of the caliber of Baltimore or Barcelona and the Adriatic's
"Gateway" to Europe.
Istria is also
among Europe's top tourist destinations. Visitors from around the world
are drawn by the azure blue Adriatic that is clearer than the water around
the Bahamas and unique towns like Pula with its Roman ampitheatre, the
Venetian-flavored seaside village of Rovinj and medieval Motovun surrounded
by ancient walls and perched atop a cone-shaped hill. |
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| According
to the Croatian Chamber of Economy, tourist visits to Croatia have increased
300% since the war ended in 1995, and the rate of growth is increasing
- Istria's "room-nights" are up 35% this year over last.
Natural beauty
and central location are also driving the real estate market. London's
Telegraph reported in March that Istria is the "regional hotspot, the
fastest growing part of Croatia in both property and tourism."
The Italian
fashion house Brioni is building a new luxury resort on its namesake islands
off the coast near Pula while Jack Nicklaus has signed on to build Croatia's
first championship golf course between Pula and Rovinj. These location-driven
advantages are propelling economic growth that is in turn producing more
optimism and investment. |
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Offshore Resources Gallery
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| The Croatian
economy grew at a solid 4.3% in 2005 and spurted to 6% in the first quarter
of this year.
Foreign investment
increased by 36% in 2005 compared to 2004, and the Austrian survey of foreign
investors would predict even greater growth in the future: more than 70%
expect business to improve in the coming year.
Integration
Into Europe
As part of
former Yugoslavia under Marshall Tito in the 1970's and 80's, Croatia enjoyed
the economic advantages of being a "middle man" between the Soviet
Union and the West. Croatian ports were busy handling goods making
their way around various trade embargos while Croatian manufacturing was
protected from foreign competition. The death of Tito, the end of the Cold
War and the breakup of Yugoslavia drove the economy into decline. Employment
and deficits were high, and growth was slow. The current Center-Right government,
led by Dr. Ivo Sanader since 2003, recognized that serious reforms were
necessary to make Croatia both eligible for European Union membership and
also competitive in a global economy. |
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| The Austrian-educated
Ph.D., fluent in German and English as well as Croatian, has succeeded
in moving his nation to the front of the line for EU membership while leading
an effort to modernize and enlarge the Central European Free Trade Agreement
to include all the former Yugoslav republics along with Romania, Bulgaria
and Albania.
The drive for
European integration makes Croatia attractive to investors for several
reasons. First, it provides additional incentives for the government
to reduce taxes, trade barriers and regulatory burdens in order to meet
EU standards.
Second, it
offers to those who invest now the opportunity to enjoy the benefits of
the kind of appreciation of assets that has attended EU accession in other
countries like neighboring Slovenia and the Czech Republic. |
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Offshore
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| Finally, once
accomplished, it will provide Croatian companies with full access to European
markets, especially those growing economies in eastern and central Europe.
Sanader summed up the status of the EU accession process in a recent interview
with Leaders magazine:
'My country
is rightfully cited as a leader in Southeast Europe, serving as an example
to our neighboring countries. We remain determined to continue to play
this important role in the future. Regarding the pace of the negotiations
and the target date for EU membership, I have stated on many occasions
that substance is more important than speed. However, I am sure that
we will strive to conduct quick and quality negotiations. It would
be great if Croatian citizens could participate in the next elections for
the European Parliament in June 2009.
Policies
Designed to Encourage Foreign Investment
Croatian leaders,
recognizing that foreign investment is critically important if their economy
is to grow, have implemented policies designed to foster the inflow of
foreign capital. According to the Croatian Foreign Ministry, three
foundational principles shape these policies:
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Domestic treatment
of foreign investors, equality of foreign investors with local companies,
whilst fulfilling any reciprocal conditions.
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Constitutional
guarantees that investment rights can not be subsequently annulled or reduced.
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Free repatriation
of profits after the fulfilment of all obligations and payment of taxes.
The free repatriation of capital when withdrawing investments is also guaranteed
by the Constitution of the Republic of Croatia.
Foreigners can
establish any legal business entity that a Croatian citizen can: owner-operated,
limited liability company or publicly-traded company. Croatian companies
owned by foreigners enjoy full economic rights to employ, purchase and
sell real estate, and import and export goods.
There are also
substantial incentives to encourage foreign investment:
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Grants of 15,000
Kuna (about $2,500) per job created
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Reiumbursement
of up to 50% of retraining costs
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Reduced tax rates
in some areas
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Duty free imports
on business equipment
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Complete exemption
from the 20% profits tax for five years in declared "free zones."
Establishing a
company in Croatia is quite simple and inexpensive. Only 20,000 Kuna
(about $3,500) of share capital is required, and the registration process
takes less than a month and costs less than $2,500 in most cases.
In addition to the financial and tax benefits enjoyed by the company itself,
the owner and lead directors enjoy an advantage in obtaining business and
work visas that allow them to reside in Croatia long-term.
The Croatian
Advantage: Lifestyle
Aside from
its location, its imminent integration into Europe and its investor-friendly
laws, there is one more aspect to the "Croatian Advantage" that
was well-stated by Prime Minister Sanader in a recent U. S. interview:
'It is true
that Croatia still has some way to go before achieving the financial standards
of Western European countries, but in terms of quality of life, Croatia
is one of the more attractive countries. When asked about the biggest
advantage of Croatia, foreign investors, managers, diplomats, and others
who live in Croatia almost unanimously answer, "quality of life."
This quality manifests itself through geographical variety, from the Mediterranean
to the mountains; great road infrastructure; and, most importantly, through
the people and their way of life. lifestyle is not as hectic as elsewhere,
yet at the same time Croatia does not neglect business needs and opportunities.
Our society is family-oriented, inviting, and extraordinarily safe.
All of this makes Croatia a place people do not want to leave and the right
place to do business.
Why would you
start a business in Croatia? Dr. Sanader puts it well. 'The
growing economy and investor-friendly laws are part of it, but "quality
of life" is the most important "Croatian Advantage" as far as
I'm concerned.
Hank Brill's
consulting firm, INKOM, assists companies and individuals wanting to invest
and/or live in Croatia, especially the peninsula of Istria.
You can visit
his website at www.inkom.hr or write
him at hb@inkom.hr |
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