2. Doing Business in CEE Croatia

Transcription

1 2. Doing Business in CEE Croatia 1 Croatia

2 2.1. Facts & figures... 4 The Croatian economy in Key indicators Interview with Mr. Petar Radaković, President of Erste Bank Management Board, on the economic situation in Croatia Law relating to the founding of companies... 9 Corporate law... 9 Types of enterprise Joint stock companies Limited liability companies General partnerships Limited partnerships Economic interest association Branch offices Representative office Sole traders Capital requirements Starting up a company HITRO.HR Business activities requiring special licences Financial reporting and auditing: the Accounting Act Taxes and duties Corporation profit tax Value added tax (VAT) Excise duties on passenger cars, other motor vehicles, boats and aircraft Petroleum duty Alcohol duty Duty on beer Duty on non-alcoholic beverages Tobacco duty Coffee duty Duty on luxury goods Duty on third-party and comprehensive vehicle insurance Inheritance and gift tax Vehicle tax Boat tax Coin operated amusement machine tax Income surtax Local hospitality tax Tax on holiday homes Trademark tax Tax on the use of public land Personal income tax Property transfer tax Incentives for strategic investors Areas of Special National Concern (ASNC) Tax free zones Investment incentives/tax incentives State aid for research and development projects New employees Special increases in total state aid State aid for education and training Double taxation relief Croatia on the way to the EU Industrial parks/free zones Advantages of operating in a free zone Free zones in Croatia Labour market Employment of foreigners Wages and salaries Social security contributions Bilateral investment agreements Real estate market Property rights in Croatia Croatia

3 Property register Real Estate Business Association Export finance Croatian Bank for Reconstruction and Development Croatia

4 2.1 Facts & figures The Croatian economy in 2008 The available monthly economic indicators for the last quarter of 2008 suggest a continuing downturn in most non-financial sectors. Industrial production contracted year on year in the October December 2008 period, and similar changes were observed in retail turnover from October November. Registered tourist overnight stays were unchanged in the last quarter of 2008 compared to the same period of Construction activity, however, continued its strong growth during the first two months of the quarter. These trends largely reflected the global economic crisis which led to a weakening of export demand. The impact of the deteriorating international environment on business sentiment has also affected domestic demand. The fourth quarter of 2008 saw a further quarter-on-quarter decline in industrial production which fell at an annualised rate of 2.5% (seasonally adjusted). Industrial production for the year as a whole increased by only 1.6% in % less than in Weakening domestic and export demand led to an accelerating contraction in industrial output towards year end 2008, with a particularly sharp drop in December. Employment and job vacancies also declined. Companies anticipated the weakening of demand for manufactured goods during the last quarter (according to the September 2008 business confidence survey by Privredni vjesnik), but seem to have underestimated its severity, meaning that inventories of finished goods continued to grow. Output of all categories of goods decreased over the final quarter of 2008, according to MIGs. After increasing in October, production of intermediate goods declined in November and December, due to shrinking domestic and export demand, and extremely high inventories. The trend in output of capital goods was similar. Meanwhile production of consumer durables decelerated rapidly over the fourth quarter of 2008, largely due to weakening of export demand. Output of non-durable consumer goods was also down, with inventories piling up, but production of tobacco goods was up in November and December, due to preemptive buying ahead of an increase in tobacco duty on 1 January The tobacco and chemical industries made the largest contributions to manufacturing output growth in the last quarter of With most other industries recording declines, manufacturing output fell by 2.2% year-on-year. Energy production rose in December 2008, partly offsetting the sharp annual drop. Activity in the mining and quarrying sector slid, largely as a result of lower oil and gas production; there was also a sharp fall in other mining and quarrying in December. The first two months of the fourth quarter were marked by robust construction activity, which grew at an annualised rate of 11.3%, seasonally adjusted, with building construction leading the way. However most of the gain came from buildings already under construction, and both construction permits issued and the index of new construction orders declined in Seasonally adjusted real retail turnover was down by 3.1% year on year in October and November The effects of on household consumption of a recovery in the main sources of household finance were more than outweighed by weakening consumer confidence, sapped by economic fears. Sales of clothing, footwear and furniture all fell, as did those of motor vehicles particularly private and fleet purchases of cars. As a result, retail turnover for the year is set to decline. The number of tourist overnight stays in the fourth quarter of 2008 was steady, year on year. Bednights and arrivals rose by 2.0% and 0.9%, respectively over the year as a whole. Prices According to recent CBS data, the annual consumer price inflation rate rose from 2.9% in December 2008 to 3.4% in January Prices jumped by 1.2% in January as compared with the previous month. This was in line with expectations as it largely reflected government decisions. In particular, the price of gas for households rose by 15.2%, the prices of tobacco products by 6.9% (higher excise duty) and health care prices by 14.4% (introduction of charges for medical and hospital services). The change in the index was also driven by a sharper seasonal increase in vegetable prices than in the previous two years. These items were only partly offset by the seasonal fall in prices of clothing and footwear. The core consumer price index, excluding food and prices set by the government, fell by 0.1% in January month on month, mainly as a result of lower clothing and footwear prices. The annual core inflation rate was 4.2% in January, the same as in December The year-on-year rate of change of industrial producer prices fell from 4.7% in December 2008 to 1.8% in January This was largely due to a base period effect in the shape of strong monthly growth in producer prices in January Industrial producer prices fell by 0.1% in January 2009 relative to December 2008, largely as a result of lower energy and non-durable 4 Croatia

5 consumer goods prices. Lower energy prices were chiefly a reflection of falling petroleum product prices, while in the group of non-durable consumer goods the largest decrease was in tobacco product producer prices. The increase in excise duty was only partly passed on to the consumers, and the tobacco companies bore the remaining burden by lowering their cigarette prices. Exchange rate The kuna came under pressure in January 2009 due to demand for foreign exchange to service external government and private debt. The kuna/euro exchange rate continued to depreciate in the first half of January 2009, but slightly more slowly than in December The currency was shored up by a decision by the Croatian National Bank (CNB) to increase the kuna component of the reserve requirements from 50% to 75%. However the kuna/euro exchange rate started to slide more rapidly in the second half of January, reaching HRK 7.44/EUR on 24 January. CNB intervened in the foreign exchange market, selling EUR 328.3m to banks on 23 January and withdrawing HRK 2.4bn from circulation. The exchange rate then stabilised, recovering to HRK 7.37/EUR by the end of January a devaluation of 0.7% compared to the HRK 7.32/EUR recorded at year end The central bank also carried out foreign exchange transactions with the government in January, and on 26 January sold EUR 59.7m worth of foreign exchange to the Ministry of Finance for repayment of London and Paris Club debt. The US dollar appreciated by 9.3% versus the euro in January, largely as a result of weak economic indicators and expectations of continued monetary easing in the eurozone. On 15 January the ECB cut the base rate by 0.50% to 2.0%. In the same month, the Fed held its benchmark interest rate unchanged in the range of %. The HRK/USD exchange rate, also affected by developments on world s foreign exchange markets, depreciated by 11.0% in January, from HRK 5.16/USD on 31 December 2008 to HRK 5.72/USD on 31 January The kuna also weakened against the pound sterling and the Swiss franc in January, by 9.3% and 1.0%, respectively. These exchange rate movements, and the depreciation of the kuna versus the euro and US dollar, influenced the index of the daily nominal effective exchange rate of the kuna, which retreated by 3.5%, from 31 December 2008 to 31 January In November 2008 the fall in the index of the real effective exchange rate of the kuna deflated by consumer prices slowed to 0.3%. This was because foreign consumer prices declined more rapidly than domestic consumer prices. The index of the real effective exchange rate of the kuna deflated by producer prices appreciated by 0.2% in the same month, due to the much sharper fall in domestic producer prices than in those in the eurozone and the US. A bid to improve international competitiveness, Croatia launched an export drive ( in This programme is aimed at promoting mineral water, small shipyards, textiles and clothing, ICT, wood and furniture, and fish processing export clusters. To date the export drive has not brought a turnaround in export performance, and exports of food, wood, furniture and clothing actually declined by volume in Exports of textiles and transport equipment other than cars grew in However the future of the latter sector is doubtful due to the heavy losses of the five state owned shipyards; the shipbuilding industry is to be restructured ahead of EU accession. 5 Croatia

6 Key indicators 31 December 2008 (expected figures) Key economic indicators e Population (ave., million) GDP (nominal, EUR billion) GDP per capita (in EUR thousand) Real GDP growth (in %) Private consumption growth (in %) Exports (share of GDP in %) Imports (share of GDP in %) Unemployment (Eurostat definition, in %) Consumer price inflation (ave., in %) Short term interest rate (3 months eop, in %) EUR FX rate (ave.) EUR FX rate (eop) Current account balance (share of GDP, in %) General government balance (share of GDP, in %) Source: Erste Group 6 Croatia

7 2.2 Interview with Mr. Petar Radaković, President of Erste Bank Management Board, on the economic situation in Croatia How have the current economic situation and difficult market conditions affected Erste Bank's operations in Croatia? Petar Radaković: While the second half of 2008 gave some indication of a slowdown in economic growth, the downturn became even more acute at the beginning of the year. Even though it is difficult to make any reliable predictions at this point, we expect the negative trends from the first quarter to stabilize towards the end of the year. However, we need to be realistic and cannot expect the economy to rebound significantly in the very short term. That will depend largely on the recovery in other European economies and the implementation of structural reforms in the medium term. In this context, it is clear that the business environment has become more complex and challenging. However, the developments so far have illustrated that the financial system and monetary policies were robust and well positioned. This has ensured the stability of the overall system and the economy, and also cushioned some of the negative effects of the global crisis. How have Erste Bank clients been dealing with the current situation? Petar Radaković: Erste Bank has a satisfactory client structure with a range of above-average quality customers. Our primary task at this point is to maintain that stability in order to help our clients emerge from this situation as unscathed as possible. We have also been taking steps to neutralize the effects of the crisis, mainly by focusing on the needs of our clients and improving our own efficiency. How are you helping your corporate clients overcome the financial crisis and the recession? Petar Radaković: The problem of insolvency has become apparent, especially in big state-run companies and the biggest players in the construction industry. In this respect, we are using factoring to secure the necessary working capital for companies. In other words, we are trying to free up their monetary assets for everyday operations, so that they have sufficient cash flow to settle all payables including those to us once the company becomes stable again. Furthermore, in response to the current situation in the Croatian real estate market, and with the aim of giving impetus to that market, we are cooperating with our corporate clients from the building industry to offer more favourable housing loans for our existing and prospective borrowers. By joining forces with our clients from the construction business, we have developed a model that tries to bring potential buyers and residential property developers closer together. This should encourage communication between them and breathe new life into the real estate market. What measures has Erste Bank taken to alleviate the current difficult economic situation for the retail customers? Petar Radaković: Bearing in mind the aggravated market conditions and the potential negative effects on people s everyday lives, Erste Bank introduced benefits for certain categories of clients at the end of last year. Pregnant women, new mothers and people who have lost their jobs now have the possibility to agree a grace period for loan repayment during which interest rates can be decreased by up to 25 percent. And customers with consumer, agricultural and tourist loans have been allowed to extend their repayment period by up to two years. Can you tell us about Erste Bank s plans and strategy in the near future? Petar Radaković: In the short to medium term, Erste Bank will in line with its business strategy continue to support quality, profitable projects in the corporate sector. However, these projects will have to be better prepared and a slightly higher participation in total financing will be necessary. The Bank will retain its strategic focus on the tourist sector and will not think twice about taking over companies that we believe have good long-term prospects. The current crisis will come to an end one day and we are already looking to plan for more positive future scenarios. Furthermore, in line with the market situation, the Bank will provide its customers with competitive credit terms. In structuring our credit exposure to specific industries we will continue to adhere to the principles of positive evaluation of customers credit ratings, their businesses, and especially the markets they operate in. Depending on the needs of a specific customer or a project, an appropriate financing model can be chosen from a wide array of credit products. The priority in increasing our placements will be given to private individuals, but 7 Croatia

8 also to small and medium-sized enterprises, which we plan to support with additional efforts. We will cooperate with our customers in an attempt to find the best business solutions for all parties. This will allow us to overcome the current situation together and avoid any serious consequences. 8 Croatia

9 2.3 Law relating to the founding of companies Corporate law All the opportunities open to domestic investors are also available to foreigners investing in Croatia. However foreign investors enjoy additional guarantees that are not given to domestic investors. The Croatian Constitution provides that no law or other legal document shall reduce the rights granted to a foreign investor at the time of investment in Croatia. It also guarantees the free repatriation of profits or capital upon fulfilment of all legal obligations. When foreign investors start up or participate in the start-up of an enterprise in Croatia, their rights, obligations and positions are identical to those of domestic investors, provided that the condition of reciprocity is met. Foreign legal entities and persons may: Invest capital on a contractual basis; Invest in a company; Invest in a bank or insurance company; Set up as craftspeople or do business as sole traders; Obtain a concession to exploit natural resources or other assets of interest to Croatia; Participate in build-operate-transfer (BOT) and build-own-operate-transfer (BOOT) operations. A company is a legal entity established and organised in accordance with the Companies Act. All companies are registered in a court register, in accordance with the Court Register Act and the Rules of Court Register Entry Procedures. Under the Companies Act, it is possible to start a company as a limited liability company or a partnership, which is an association of persons. Note: The Croatian Companies Act includes legal forms that are not regarded as corporate by some other legal systems (e.g. partnerships as defined by Croatian law). Limited companies comprise: Limited liability companies; Joint stock companies; Economic interest associations. Partnerships may be: General partnerships; Limited partnerships. The Croatian Companies Act also regulates the establishment of branch offices and the position of sole traders. Further regulations governing the establisment of companies: Companies Act (Narodne novine [Official Gazette; abbreviated: NN] 111/93, 34/99, 52/00, Decision of the Constitutional Court of RC, 118/2003) Court Register Act (NN 1/95, 57/96, 45/99) Rules of Procedure for Entry into a Court Register (NN 10/95, 101/96, 62/98, 123/2002) Decision on the Procedure and Requirements for Access to Court Register Information (NN 138/2002) National Classification of Economic Activities Act (NN 98/94) Decision on the National Classification of Economic Activities (NN 13/2003) 9 Croatia

10 Source: Croatian Chamber of Economy Rooseveltov trg 2 HR Zagreb Tel: +385 (0) Fax: +385 (0) hgk@hgk.hr Start-up companies A number of general principles apply to any start-up company: Founders A domestic or foreign legal entity or natural person may establish a company. Legal entity status A company is a legal entity. The status of a legal entity is acquired by being entered in a court register. Company liability A company is liable to settle its debts with all its assets. Owners/shareholders in limited liability and joint stock companies are not personally liable for the obligations of the company, unless the Companies Act provides otherwise. Partners in general partnerships and general partners in limited partnerships have unlimited liability to satisfy the debts of their partnerships jointly, severally and with all their personal assets. Company name A company name is the name used by a company in business transactions and legal affairs. It must be clearly different from the name of any other company entered in the register of the same register court. It must consist of a proper name and an indication of the company s business activity. It must be written in the Croatian language but may contain foreign words if these are part of the name/company name of a partner/owner/shareholder, of the trade/service mark of a partner/owner/shareholder or their company registered in Croatia, or if such words are common in Croatian. The company name may also be entered in a court register in a translation into one or more foreign languages. If the word Croatia or any word form derived from it is to be used in the company name, special consent from the Central State Administrative Office for Public Administration is required. A company must use the company name and abbreviated version thereof as those registered. Its stationery (invoices, letterheads, etc.) must display the company name, registered office, court of registration, registration number, company name, bank account number and sortcode. Business activity A company may be registered to engage in any permitted business activity. The business activity of the company (object of business) is specified in the memorandum or articles of association. It is also entered in a court register, using the respective activity code specified by the National Classification of Economic Activities. In the case of activities that require a licence, permit or other document issued by a governmental authority or an institution, registration is not possible until this document has been obtained. Registered office A company s registered office is the premises used by its management and from which it is run. It is indicated in the memorandum or articles of association. The entry in the register of companies may not include more than one registered office. Representation The authority to represent a company is accorded to the persons specified in the Companies Act for the legal form in question. The persons representing the company and restrictions on their representative powers towards third parties are entered in the register. The law distinguishes between legal representatives, representatives by proxy and authorised signatories. Source: Croation Chamber of Economy 10 Croatia

11 Types of enterprise English name Joint stock company Limited liability company General partnership Limited partnership Economic interest association Croatian name Dioničko društvo (d.d.) Društvo s ograničenom odgovornošću (d.o.o.) Javno trgovačko društvo (j.t.d.) Komanditno društvo (k.d.) Gospodarsko interesno udruženje (g.i.u.) Joint stock companies A joint stock company is based on capital, with owners (shareholders) investing in share capital divided into shares. A joint stock company may be formed by a single owner, i.e. it may have only one shareholder. A joint stock company is a legal entity. This legal status is established by entry in a court register. The company is liable for its debts with all its assets. Shareholders are not liable for the debts of the company. The basic document for a joint stock company is the articles of association, as they specify the internal organisation of the company. Share capital The company s share capital and shares must be denominated in the currency of the Republic of Croatia. The minimum share capital is HRK 200,000. The company may issue shares with an indication of their par value or no par shares. The par value of a share may not be below HRK 10. Par values higher than this minimum amount must be in multiples of HRK 10. In the case of shares indicating par value, the portion of the share capital held is determined by the ratio of the par values of share capital and shares, whereas in the case of shares of no par value the portion of capital held is based on the number of shares. Shares may only be registered or bearer shares. As a rule, shares are freely negotiable. Bearer shares are transferred when handed over, while registered shares are transferred by endorsement or assignment (cession). Shares may be ordinary or preference shares depending on the rights they confer. Ordinary shares ensure the right to vote at general meetings, to receive dividends and to receive the respective portion of the bankruptcy estate. Preference shares confer certain preferential rights, such as the right to a dividend in an amount or percentage of the par share value, priority in the disbursement of dividends or in receiving the remainder of the bankruptcy estate, and such other rights as are provided for by law and articles of association. Company formation procedure The Companies Act provides for the simultaneous and staged establishment of joint stock companies. Company founders are the shareholders who have adopted the articles of association. The formation of a joint stock company is simultaneous when the founders: Take possession of all company shares and make a notarised statement to this effect; Accept and sign the company articles of association, and make a notarised statement to this effect; Make a notarised statement declaring that they are establishing a joint stock company. The formation of a joint stock company is staged when the founders: Adopt the articles of association; Take possession of a certain number of shares; Make a public invitation to subscribe to the remaining shares, and such subscription then takes place. 11 Croatia

12 The subscription period may not exceed three months. If, within this period, all the shares are not subscribed and paid up in accordance with the public offering, the company founders are entitled to subscribe for or take possession of the unsubscribed shares within 15 days. If they fail to do so, the company formation is deemed to have failed, and the founders will ask the subscribers to take their payments back within 15 days. If all the shares have been subscribed for, the founders deliver them to their owners within 15 days of expiry of the subscription period and call the first general meeting. Shares may be paid for in cash, or in kind where it is possible to determine the value of the assets concerned. If shares are paid for in cash, at least one quarter of the par value of each share must be paid up, and if the shares are sold above par the entire amount exceeding the par value must be paid up. If a share is paid for partly in kind, the amount not so paid must also be fully paid up before the company is registered. If shares are paid for in cash, the full amount must be paid into a temporary bank account. Contributions in kind must be made in full prior to registration. If they involve undertakings to transfer assets to the company, these transfers should be completed not later than five years after registration. All investments in the company must be fully paid up for the capital to be freely available to the company. The founders must make a notarised statement appointing the first supervisory board of the company or the board of directors, and the auditor for the first financial year. Following this, the supervisory board or board of directors appoints management board members or executive directors. Croatian joint stock companies are allowed to choose between the old two-tier system with supervisory and management boards, and the new unitary system with only a board of directors. The founders must then submit a report on the completion of the formation procedure so that the management and supervisory board members or board of directors can review the process. Upon completion of the procedure, the management and supervisory boards or board of directors apply for registration. The application should contain the following information: Company name, registered office and business activity; Shareholders (name and surname, citizen s personal ID number [MBG] or, if it is a foreign person or entity, passport number, issuing country and domicile, i.e. company name and registered office); Information about persons authorised to represent the company and their powers; Legal form of the company; Date of adoption of the articles of association; If the legal entity is not a going concern, period of operation; Circumstances constituting grounds for dissolution of the company. The application must also contain the following information: The share capital; The amount of capital represented by the shares issued; The total amount paid for the shares issued and form of payment; A declaration by the management board or executive directors that they are aware of their obligation to report to the court and that they meet the criteria for membership of a management board/board of directors; Information about the management and supervisory board members or directors. In addition, the following should be enclosed with the application: The company s articles of association, the documents submitted when the articles were adopted and documents evidencing that the founders have taken possession of their shares; In the event that certain benefits are granted or contributions in kind made, contracts to this effect; Evidence of the contributions in cash or in kind and of the company s right to freely use them; 12 Croatia

13 An itemised statement of the formation costs; Documents evidencing the appointment of management and supervisory board members or directors; Reports on the company formation and on the audit of the formation procedures, together with accompanying documentation; The permit or licence from a governmental body or institution, if required by the company s business activity or another provision of the articles of association; A notarised statement to the effect that neither the shareholders nor the companies in which they have interests or shares have overdue liabilities; a confirmation from a financial institution that neither the shareholders nor companies in which they hold interests have a recorded unpaid payment order in their accounts, and confirmations from the Tax Administration, the Croatian Pension Insurance Institute and the Croatian Institute for Health Insurance that neither the shareholders nor companies in which they hold interests are in default of obligations to these institutions. Governing bodies The management board consists of one or more members (directors), their number being determined by the articles of association. If the management board consists of several members, one must be appointed as the chairperson. At least one member of the management board of an active company must be an employee of the company. Any person of full legal capacity may be appointed as a management board member, unless he/she has been sentenced for criminal offences within the past five years. The latter restriction also applies to persons who have been barred from a profession included in the objects of business to the extent that the ban remains in force. Both Croatian and foreign nationals may be members of a management board, and they are appointed by the supervisory board for a maximum term of five years. The management board has the following rights and obligations: Management of the company; Representation of the company; Drafting of resolutions for general meetings; Preparation of contracts; Implementation of the general meeting s decisions; Reporting to the supervisory board on issues relating to company management. The supervisory board must have at least three members. Their number is determined by the articles of association and should be an odd number. A foreign national may be a member and there is no obstacle to all members being foreign nationals. Members of the supervisory board are elected by the general meeting for a maximum term of office of four years, and can be re-elected. The supervisory board supervises the management of the company, and has the right to examine its accounting records and all other company documents. The board reports to the general meeting on the supervision carried out. The general meeting is a body consisting of all the shareholders, and it allows them to exercise their rights in company matters. All shareholders are entitled to attend the general meeting. The responsibilities of the general meeting are set out in the articles of association. Decisions are generally taken by a simple majority of votes. The articles of association may state that a joint stock company has a board of directors instead of management and supervisory boards. A board of directors must have at least three members. The directors are elected for a maximum term of office of six years and may be re-elected. The board of directors appoints one or more executive directors. Limited liability companies Limited liability companies are the most common legal form in Croatia. A limited liability company is one in which one or more legal entities or natural persons invest in initial business shares, with which they participate in the total share capital contractually determined beforehand. Interests in the company are not necessarily of the same amount. In the process of company formation, the founder can have multiple business shares. However, their subsequent acquisition is possible. The interests in the company may not take the form of securities. 13 Croatia

14 Founders Owners may be domestic and foreign legal entities or natural persons. A sole owner may also establish this type of company. A limited liability company is a legal entity. This status is established by entry in a court register. Company assets are strictly separated from the property of the owners. The company is liable for its debts with all its assets. Owners are not liable for company debts. Exceptionally, they may be held liable for company debts if they abuse the principle of their non-liability. Share capital The initial share capital of a limited liability company must be denominated in Croatian currency. The minimum capital is HRK 20,000. The minimum capital must be a whole number that is a multiple of 100. The initial capital must be equal to the total capital. Prior to registration each founder must pay up at least one-quarter of his/her/its cash contribution, and the total cash contribution may not be lower than HRK 10,000, i.e. at least one-half of the share capital must be contributed in cash. The initial contribution may also be made in kind, in which case it must be made in full prior to registration. Cash contributions must be made to a company account at a bank in Croatia. Company formation procedure A limited liability company is established on the basis of articles of association, which must be signed by all the founders in the form of a notarised document. If the company is established by only one person, the founding document is a memorandum submitted by the company founder in the form of a notarised document. The memorandum or articles of association should contain the following: Information about the founder (name and surname or company name, founder s residence or registered office, and, if the founder is a natural person, citizen s personal ID number [MBG]); Company name and registered office; Business activity of the company; Total share capital; Amount of each investor s interest (if the investment is a contribution in kind, a detailed description and valuation of the assets is required); Indication whether or not the company is established for a limited or indeterminate period; The owners rights and obligations with respect to the company, in addition to the obligation to pay for the interest in the company, as well as the rights and obligations of the company with respect its founders. The totality of each individual owner s rights and obligations constitutes his/her interest in the company. As a rule, the size of this is proportionate to the size of the paid-up share capital. Formation costs The cost of the preparatory procedures and formation may not be refunded to the founders from the share capital. In particular, it is not permitted to add such costs to the capital as an investment. Compensation for formation costs may only be approved up to the amount specified in the articles of association. Unless otherwise contractually agreed, the founders bear the cost of formation in proportion to the size of their holdings. Governing bodies A limited company must have a management board and a general meeting. The company management board may have one or more members (directors). Foreign nationals may be members of management boards. Members are appointed and released from their duties by the owners of the company. The management board is responsible for management of the company, representation of the company, the orderly keeping of the company s accounting records, preparation of financial reports, and maintaining records of the ownership interests in the company. A company must have a supervisory board only: if the average number of employees in a year exceeds 200; if the law explicitly requires a supervisory board for a given business activity; if the initial share capital of the company exceeds HRK 600,000 and the company has more than 50 owners; if the company has a single management that runs joint stock and limited liability companies with mandatory supervisory boards, and its direct share in these companies exceeds 50%; and in both cases if the average number of employees at one of the companies or the combined number of employees at all of the companies exceeds 200; or if the company is a general partner in a limited partnership with the total average number of employees in the company and limited partnership together exceeding 200. The supervisory board must have at least three 14 Croatia

15 members, and the membership should be an odd number if larger. Foreigners may also be members of supervisory boards. Company owners appoint supervisory boards. The holding of general meetings is mandatory for limited liability companies. The owners must vote at general meetings on matters that are their responsibility under the Companies Act and the articles of association. General partnerships A general partnership is a business entity in which two or more individuals associate to conduct business as a going concern and under a common company name. Every partner has unlimited and joint liability in respect of the partnership s debts with all his/her assets. A partner may not dispose of his/her interest without the consent of the other partners. Founders Any legal entity or individual, domestic or foreign, may become a partner. The articles of association define the legal relationships between the partners. The latter enjoy maximum freedom in this respect, because the Companies Act applies only where the articles of association do not regulate certain matters otherwise. Share capital A general partnership does not have share capital. Unless otherwise provided by the articles of association, partners must make equal contributions to the company. The contributions may be made in cash or in kind (in the form of tangible assets, rights, work, and other goods and services). Management is the responsibility of all the partners. However the articles of association may stipulate that only one or a limited number of partners run the company. Each partner is authorised to represent the company unless the articles exclude one or more partners from representing the company. Formation procedure A general partnership is established by adopting the articles of association, which need not be a notarised document. A notarised application for entry in a court register is then submitted. The application for registration must contain the following information: Company name, registered office and business activity; Partners (name and surname, tax number and domicile i.e. company name and registered office of each partner); Persons authorised to represent the company and their powers; Legal and organisational form; Date of adoption of the articles of association; If the partnership is not a going concern, period of operation; Circumstances constituting grounds for dissolution of the company. Enclosures: Articles of association; List of partners; Notarised statement confirming that neither the partners nor companies in which they hold interests have overdue liabilities; A confirmation from a bank that neither the partners nor companies in which they hold interests have a recorded unpaid payment order in their accounts; Confirmations from the Tax Administration, the Croatian Pension Insurance Institute and the Croatian Institute for Health Insurance that neither the shareholders nor companies in which they hold interests are in default of obligations to these institutions. A notarised statement containing information about all accounts held by the founders and the legal entities that manage these accounts; a list of all companies where the partners individually or jointly hold interests of more than 50% and information about all the accounts of these companies, the legal entities managing these accounts, as well as confirmations for these companies issued by the Tax Administration, Croatian Pension Insurance Institute and Croatian Institute for Health Insurance. 15 Croatia

16 Original documents or certified copies may be submitted. As a rule, they should not be more than one year old. Limited partnerships A limited partnership is a company in which two or more individuals associate to conduct business as a going concern under the same company name. At least one partner must have unlimited and joint liability for company debts with all his/her assets (general partner), and at least one partner must have limited liability proportionate to the assets invested (limited partner). Founders Both domestic and foreign individuals and legal entities may be partners in a limited partnership. A limited partnership is a legal entity that achieves such legal status by being entered in a court register. Share capital A limited partnership does not have any share capital. Formation procedure A limited partnership is formed by adopting articles of association, which need not take the form of a notarised document. These should designate the general and limited partner(s). The application for registration of a limited partnership should contain the following: Company name, registered office and business activity; Partners (name, surname and residence, or company name and registered office); Information about the limited partners; Amount of investment contracted for and paid by each limited partner; Persons authorised to represent the company and their powers; Legal and organisational form; Date of adoption of the articles of association; If the entity is not established as a going concern, period of operation; Circumstances constituting grounds for dissolution of the company. Management and representation of the company are the responsibility of the general partner(s). Economic interest association An economic interest association is a legal entity established by two or more natural persons or legal entities for the purpose of facilitating and promoting their business activities, but on a non profit-making basis. Share capital The association is established without share capital, and the rights of members may not take the form of securities. The business activity of the association must of assistance to members business activities. Formation procedure An economic interest association is formed by concluding a formation agreement which must be notarised and entered in a court register. The agreement should contain the following: Company name, registered office and business activity; List of partners; If not established as a going concern, period of operation. The association becomes a legal entity upon registration. The application for registration should be submitted by all members of the new management board. While the association is liable itself, the members also have secondary unlimited liability including all their assets. The management board runs and represents the association. The board may consist of one or more natural persons appointed by association members. 16 Croatia

17 Branch offices Under Croatian law foreign companies and sole traders may conduct business in Croatia by setting up branch offices. The start-up and operation of branch offices owned by foreign companies are governed by the same regulations that apply to the establishment of branches by domestic companies. A branch office is not a legal entity. The liabilities and rights stemming from its operation do not attach to the branch office but to the founder. The branch office operates under its own name. The name should also indicate both the branch s and the founder s registered office. A branch office may be established in the following ways: By a special decision taken by a sole trader in accordance with the memorandum; By a special decision of a company s authorised body in accordance with the memorandum or articles of association. The decision to establish a branch office must be notarised, and should contain: The company name and registered office of the founder and of the branch; The business activity of the founder and operations of the branch; If the founder is a limited company, the share capital and paid-up capital, and if the founder is a partnership, the names of the general partners or of the sole trader; The name(s) and domiciles of the individual(s) authorised to represent the founders in branch operations; A branch office is registered in the registers of the court with jurisdiction over the area where it has its registered office. To register a branch office, it is necessary to apply for registration enclosing the following original documents and certified translations into Croatian: An excerpt from the register in which the founder is entered showing the legal form and the date when the foreign founder of the branch was formed; The founder s decision to establish the branch; A certified transcript of the memorandum or articles of association in accordance with the legislation of the country where the founder has its registered office. A certified abridged financial report for the founder s previous financial year. The register court may approve the entry provided that the founder has proved that: The branch office has been legally established and that the founder exists in the country of its registered office; The branch office has appointed persons to perform operations in Croatia that are authorised for representation and are resident there; Croatian nationals are permitted to establish branch offices in the founder s country, under the same conditions as those that apply to the founder in Croatia. The founder is obliged to report any changes in the registration data to the register court. If the same founder intends to establish several branch offices, the establishment procedure is carried out separately for each branch. The application for registration must specify the main branch, while identifying the others with ordinal numbers. The founder is obliged to authorise one or more individuals at each branch to represent it, or the same person to represent several branch offices. As they are not legal entities, branch offices may not independently assume legal rights and obligations. The founder legally holds all rights and obligations of branch offices. In the event of a dispute with a third party it is not the branch but the company or sole trader that owns it which is a party to the dispute. Branch offices are required to keep accounting records that comply with the applicable legislation in Croatia, which includes the Accounting Act, International Accounting Standards and the tax regulations. 17 Croatia

18 Representative office In case a business involves only limited activities then the Trade Act offers the possibility to establish the business in form of a representative office. A representative office may be established in Croatia by any foreign entity engaging in business, and by any national or international business association. A representative office may be established for the purpose of market research, promotion, provision of information and representation. A representative office is not a legal entity, and is considered part of the entity that has established it. It may not carry out operations that the founder naturally performs, but may only carry out activities as ordered by the founder. As an exception, air carriers representative offices may sell tickets in conformity with Croatian international agreements and with international treaties. A representative office operates under the name of its founder with the indication of its status as a representative office. A foreign entity with a representative office in Croatia may establish one or more branches of that office. Representative offices are registered in the Croatian Register of Foreign Entities Representative Offices, maintained by the Ministry of Economics, Labour and Entrepreneurship, and may not commence operations until registered. Applications for registration submitted by foreign entities or their authorised representatives must contain the following: Company name, registered office and business activity; Registered address of the representative office in Croatia; Basic information about the person responsible for operation of the representative office (name, surname, citizen s ID number [MBG], and passport number and issuing country in the case of foreign nationals). The following documents must be submitted with the application: The founder s decision to establish a representative office in Croatia; Evidence of a foreign entity s registration in the country where it has its registered office or other valid document evidencing establishment in compliance with the legislation of the country where the founder has its registered office and showing the founder s legal form and time of establishment; A description of the representative office s business activity; A decision to appoint a person responsible for the operations of the representative office (manager); Evidence of payment of the administrative fee (HRK 1,000). Original documents must be submitted together with a certified translation into Croatian. The Ministry of the Economics, Labour and Entrepreneurship registers representative offices within 30 days of application and document submission. A representative office must be managed by a person appointed as the office manager by the founder. The founder must notify any changes in the registration data. The representative office may employ domestic or foreign nationals, but it may also operate without employees. Labour relations, salaries and other employment conditions for Croatian nationals working at representative offices are governed by the applicable Croatian legislation. The founder must conclude an employment contract with any person it employs, and the terms may not be worse than the minimum terms established by labour legislation and the relevant collective agreements. Foreign nationals and individuals without citizenship who are to be employed in a representative office are required to obtain a work permit in accordance with the applicable regulations. The founder of a representative office may open a non-resident foreign currency and a local currency account with a bank licensed for international transactions. These accounts may not be used for payment and collection (with the exception of foreign air carriers representative offices). The founder is expected to use them for the payment of operational costs of the representative office. 18 Croatia

19 The Ministry of the Economics, Labour and Entrepreneurship may deregister a representative office if: The founder decides to close the representative office; The founder discontinues its operations in Croatia; There is no one responsible for office operations and the founder fails to appoint a manager within two months of a reminder from the Ministry; Croatian regulations are infringed; Activities other than those of representing the foreign founder are conducted; The founder has been sentenced by the relevant court for business violations or offences more than twice in the course of the previous two years. Applications for registration of representative offices should be submitted to: Ministry of Economics, Labour and Entrepreneurship Ulica grada Vukovara 78 HR Zagreb Tel: +385 (0) Fax: +385 (0) Sole traders A sole trader is a natural person conducting a business activity independently and according to the regulations governing trades, and registered as such. A tradesman/woman who meets the relevant criteria may be registered as a sole trader. Registration as a sole trader is open to any tradesperson whose annual revenue exceeds HRK 2,000,000, and is mandatory for tradespersons whose annual revenue exceeds HRK 15 million. Sole trader status is acquired by registration, and is terminated upon deletion from the register. Applications registration should contain the following: Sole trader s name, registered office and business activity; Information on annual revenue; The name and number of the register of trades in which registration is desired. Capital requirements Type of enterprise Minimum capital Joint stock company Minimum equity of HRK 200,000 (approx. EUR 27,000); minimum nominal value per share HRK 10 (approx. EUR 1.35). Limited liability company Minimal equity of HRK 20,000 (approx. EUR 2,700) of which at least HRK 10,000 (EUR 1,350) must be paid up prior to registration. Starting up a company Starting up a company in Croatia requires registration with the commercial court, the Central Bureau of Statistics, the Tax Administration, the Croatian Pension Insurance Institute and the Croatian Institute for Health Insurance. It is customary to engage a domestic lawyer to handle the formation procedure. Prior to registration, it is necessary to check with the commercial court whether the desired company name already exists in the register. Business premises A company must have an official address in Croatia in order to be registered. A legal representative may temporarily use his/her own office address as the address of a company that is in the process of registration. 19 Croatia

20 Certification of documents All legal documents must be certified by a notary public. Under Croatian law, a notary public is a private person with some of the powers of a public official who certifies and authenticates certain legal documents. The costs of notarisation depend on the amount of share capital and average HRK 2,500. Certified translations If a relevant document is in a foreign language, a certified translator must translate it into Croatian. The cost of translations depends on the length. Company bank accounts Share capital (HRK 20,000 for a limited liability company and HRK 200,000 for a joint stock company) must be paid into a bank account, and the receipt of deposit should be enclosed when registering a company. Accounts used by legal entities and natural persons to conduct payment transactions are opened and managed by banks on a contractual basis and conformity with the applicable regulations. A business entity may hold accounts with several banks of its choice. Only one account per bank may be used for regular transactions, one for each organisational unit and several accounts for special purposes. If a business entity has more than one account for regular transactions it must specify which account will be used for the payment of statutory contributions and public dues, for collection on the basis of securities and instruments guaranteeing payment, for the execution of courts writs of execution and other documents of this kind, and for records of payment orders not executed. Public announcement of a company registration Upon entry in a court register, the commercial court in question sends the registration data to Narodne novine (the Official Gazette) and daily newspapers. The announcement of formation in Narodne novine costs HRK 810, and HRK 450 is charged by daily newspapers. Official Gazette: Narodne novine Odjel oglasa i pretplate Ulica SR Njemačke 6 HR Zagreb Tel: +385 (0) Fax: +385 (0) Company stamp Upon receiving the certificate of registration it is necessary to have a stamp made. A copy of the registration certificate should accompany the stamp order form. The stamp must show the company name and registration number. Company number A request must be submitted to the Central Bureau of Statistics to classify the company s operations in accordance with the National Classification of Business Activities, i.e. to issue a company number (matični broj MB) and activity code within 15 days from receiving the certificate of court registration. The following must be enclosed with the request: Certificate of court registration; Form RPS-1 (available at Narodne novine shops); Copy of the administrative fee receipt (HRK 55). Central Bureau of Statistics Ilica 3 HR Zagreb Tel: +385 (0) Tax number Upon registration with the Commercial Court and Central Bureau of Statistics, the new company must be registered with the tax office having jurisdiction over the area where the registered office is located. Data is entered directly in the computer system, with the profits tax and value added taxpayer registrations taking place simultaneously, such that separate 20 Croatia