NIS PROPERTY CROATIA

As a Mediterranean and Central European country with an average annual GDP growth of 4% over the last ten years, Croatia is one of the most dynamic transitional countries in this part of Europe. By entering into negotiations for full membership of the EU, Croatia has turned a new page in its history, both in terms of politics and economy. Overall political and economic stability, an effective legal system and free enterprise in a democratic environment are the essential prerequisites for economic development which have opened the door to full membership of the EU for Croatia. On this road, Croatia’s main tasks are to increase production and exports whilst cutting total public spending. Further restructuring of companies and improvements in general business conditions are necessary in order to help investors recognise Croatia as the hub for business expansion in this part of Europe.

Croatia can be divided into three geographic and climate zones: the lowland with a continental climate in the north of the country, the Mediterranean coastal zone in the south, and the mountainous zone across the central part. A diverse climate, landforms and soil are favourable for the production of a wide range of agricultural products, from field and industrial crops to vineyards, continental and Mediterranean fruits and vegetables. Agriculture and fishery generate 7.2 % of Croatian GDP. Out of a total of 3 million hectares of agricultural land, 63% are cultivated and the rest is pastureland. 67% of cultivated land are privately owned. Agriculture fully covers domestic needs for cereals and sugar, and also most of needs for industrial crops. Fruit- and olivegroves cover an area of 66,000 hectares, and vineyards 50,000 ha (90% are privately owned). There is a growing interest in wines from autochthonous grape varieties both in the European and global markets.

Fishery and fish processing have traditionally been the most important activities along the coast and on the islands. There are currently more than 30 fish-processing companies in Croatia. Their output amounts to some 14,000 t of fish products per year. Canned pilchard account for about 50% of this. The 2004 output of freshwater fish amounted to 5,000 t, and that of marine fish and other seafood to more than 40,000 t. White-fish and clam farming are a growing branch, and Croatia was among the first Mediterranean countries to launch tuna farming for the Japanese market (in 1997). The year 2005 recorded tuna exports to Japan in the value of USD 35.7 million, i.e. 62% of total fresh and frozen fish exports, which makes it one of the major exports.

Out of a total of 2 million hectares of forests, 80% are stateowned and the rest are in private hands. Beech is the most widely spread. Fir, spruce and ash are used for the manufacture of solid-wood furniture. The quality of Slavonian oak (quercus robur) makes this sort of wood one of the most demanded products in the world. Hence, wood and furniture manufacturers compete in the leading European and global markets. The production of food, beverages and tobacco generates 21.1% of Croatian industrial GDP. Croatian food companies are among the best performing in Croatia. Compared to other manufacturing sectors, the production of food, beverages and tobacco employ the largest number of persons and have the highest total revenues. Major and globally known exports of the food industry are: Vegeta (food seasoning), biscuits and wafers, filled chocolate, canned sardine, instant soups, olive oil, beer and cigarettes.

Croatia has 101,925 hotel beds, 363,282 beds in private accommodation and 205,754 beds in camps. There are 50 marinas with 15,407 berths along the entire coast. The advantages of Croatian tourism lie in a well-preserved environment and natural wealth, cultural and historical heritage, mild Mediterranean climate, proximity to European markets and possibilities for active holidays in environmentally protected destinations.

The restructuring trend in the Croatian construction industry over the past several years has followed modern European developments, where small and mediumsized companies adapt more easily to current market demands. This has resulted in a growing number of such companies, while the number of large ones has dropped significantly. The approximation of Croatian legislation and standards to those of the EU is one more step in creating conditions for rapid restructuring and adaptation in order to achieve a level of competitiveness in the Croatian construction industry which allows coping with a demanding European market. In recent years, the construction industry share of GDP has been around 5.7% of Croatian gross domestic product.

By the end of 2005, the Croatian construction industry employed a total of 81,893 persons in 8,088 active legal entities (companies). The total value of construction work carried out abroad in the first nine months of 2005 amounted to USD 107.38 m, 97% of which was earned in Europe. In order to meet the growing residential needs of citizens, housing construction is being systematically encouraged. the long-awaited Zagreb-Split motorway that links inland and coast was opened in mid-2005. Although much has been done in the construction of new roads, substantial investment is further necessary in both the existing and new infrastructures, with a special emphasis on better links between coastal and inland Croatia (completion of the Zagreb-Dubrovnik motorway).

Utility services may be provided exclusively by: companies and public institutions established by a unit of local government, services that are own facilities established by an authority of local government, and legal entities and natural persons (on the basis of concession contracts or contracts on the assignation of utility services). The law specifically defines and determines utility services as including: supply of potable water; waste water disposal and treatment; public transport of passengers; disposal of household waste; upkeep of public areas; maintenance of non-classified roads; retail market places; maintenance of cemeteries and crematoria, and provision of funeral services; chimney sweep services; street lighting and activities of local importance as defined by the representative body of local government.

Distributive trade holds an important place in the overall economy of the Republic of Croatia. Some 38% of Croatian business entities engage in distributive trade. They account for approximately 15% of Croatian total employment, 37% of total revenues and 17% of total investment, which is a clear indicator of good performance in this branch. Total turnover in distributive trade amounted to HRK 168.1 bn in the first nine months of 2005. Of this amount, companies generated a turnover of HRK 158.5 bn (VAT included), which is 9.2% more than a year before, and craft businesses (a separate category of small business in Croatia) generated HRK 9.6 bn, i.e. 2.8% more on the year. At the end of the third quarter of 2005, there were 211,909 persons employed in distributive trade, out of whom 166,829 with companies and 45,080 with craft businesses.

Aspiring to become a knowledge-based society, Croatia has started the reform of the whole system of education in order to adapt to the European framework. The modernization of the educational system is also achieved through the E-Croatia 2007 programme. The aim of this programme is to transform Croatia into an information society. It is implemented through a number of main fields: E-Government Administration, E-Education, E-Health and E-Business.

Foreign investors have the same rights, obligations and legal status within an enterprise as domestic investors, provided the condition of reciprocity is met. Foreign investors also enjoy some additional guarantees that are not given to domestic investors. The Croatian Constitution states that no law or any other enactment shall reduce the rights acquired through capital investment. It also ensures free repatriation of profits and capital upon termination of investment. Total foreign investment in Croatia from 1993 to September 2005 amounted to USD 11,216.9 million.

The Companies Act includes regulations for business operations in Croatia which are conducted by foreign companies and sole traders headquartered outside Croatia. As a rule, foreign companies and foreign sole traders enjoy the same rights as domestic legal entities in their operations in Croatia. The only condition for doing business in Croatia is the establishment of a branch. Branches do not have the status of legal entities. All the rights and obligations stemming from their operation belong to the founding company. Branches may engage in any operations that fall within the scope of company business activities.

The Foreign Exchange Act regulates the transfer of profits to a foreign country. Under this Act, the transfer of profits is unrestricted and may be effected after all legal obligations in Croatia have been settled. If a company with profits to be transferred generates income in foreign currency from the export of goods and/or services, the transfer of profits is effected through the companys own foreign currency account. In terms of profits generated in Croatian currency, a foreign investor may choose to keep them in his domestic currency account that is held with an authorised bank. Besides the transfer of profits abroad and payments in Croatia, such profits may also be used for loans to domestic entities, as provided by law, and for transfers into the domestic currency accounts of other foreign persons.