Croatia flag Croatia: Investing in Croatia

Foreign direct investment (FDI) in Croatia

FDI in Figures

After experiencing a period of growth in 2005-2008, foreign direct investment inflows to Croatia collapsed as an effect of the global economic crisis (the tourism sector was particularly affected). Since then, FDI flows have been struggling to return to their pre-crisis levels. According to UNCTAD's 2021 World Investment Report,, total FDI inflows reached USD 1.3 billion in 2020, virtually unchanged from the previous year, but they have struggled to grow due to the global economic crisis triggered by the Covid-19 pandemic. The total stock of FDI stood at USD 32 billion in 2020. The sectors receiving the most FDI are financial services, wholesale trade, real estate and telecommunications. The main investing countries are the Netherlands, Austria, Italy and Germany (Source: Croatian National Bank). According to preliminary figures from the National Bank, after doubling y-o-y in the second quarter of 2021 (to EUR 400 million), the net inflow of foreign direct investment in Croatia increased to EUR 594 million in the third quarter of the year, up by EUR 379 million compared to the same period of the previous year, due mostly to retained profit of banks and enterprises in foreign ownership.

In addition to an unfavourable economic context, Croatia suffers from a poor image linked to corruption, high taxes and an inefficient judicial system, though reforms have been attempted in recent years. Still, the country has a high-quality infrastructure and high touristic potential, a well-educated workforce and a strategic position. Croatia does not have a foreign investment screening mechanism and does not discriminate between national and foreign investors. The Investment Promotion Act (IPA), amended in 2021, offers incentives to investment projects in manufacturing and processing activities, development and innovation activities, business support activities and high added value services, in the form of tax refunds or cash grants. According to the World Economic Forum (WEF), the country ranks 63rd on the latest Global Competitiveness Index. Croatia ranks 51st out of 190 economies in the World Bank’s latest Doing Business report, down by seven positions since the previous edition assessment.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 397136569
FDI Stock (million USD) 35,96138,45438,898
Number of Greenfield Investments* 1034028
Value of Greenfield Investments (million USD) 1,494644657

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Croatia Eastern Europe & Central Asia United States Germany
Index of Transaction Transparency* 5.0 7.5 7.0 5.0
Index of Manager’s Responsibility** 6.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 6.0 6.8 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Croatia

Strong Points

Croatia has a number of assets to attract foreign investors. These include :

  • Its membership in the European Union
  • A positive budget surplus since 2013
  • Low inflation (0,3% in 2020, IMF)
  • An advantageous geographical location along the Adriatic Sea, enabling a very vigorous tourism sector
  • A multilingual and well-trained workforce
  • Good quality infrastructure: Croatia continues to invest heavily in transport, telecommunications and energy infrastructure
  • Restructuring of the country's tax system started in 2015 that has already begun to bear fruit
  • A safe environment for investment and business by being a member of NATO and the European Union
Weak Points

Croatia still faces a number of challenges to gain competitiveness and attract more FDI:

  • Vulnerability of the national economy because of its dependence on the economic situation of the European Union.
  • The administrative and judicial system is slow and needs improvement
  • A high level of public debt despite tax reforms in the recent past
  • Structural weaknesses, including an imbalance in current payments, significant private external debt and a trade deficit
  • Highly dependent on the tourism industry
  • The population is decreasing due to the emigration of qualified people.
Government Measures to Motivate or Restrict FDI
Croatia is open to foreign investment. The government has committed itself to increase foreign investment and has taken measures to improve the investment climate in the country. To accomplish this it has implemented tax reductions and employment incentives for manufacturing, technology centres and support services. Amongst the main measures enacted by the government are:

  • Equal treatment of nationals and foreigners
  • Low company administrative fees
  • Laws protecting intellectual property (such as the Patent Act amended in January 2020)

All measures were enacted to create an attractive framework for investors and to make Croatia a trusted foreign investment recipient.

As a matter of fact, from 2020 to 2024, the Ministry of Justice and the Ministry of Economy and Construction will work together on the "Justice for Business" project. This project, for which the World Bank has approved a USD 110 million loan to Croatia, aims to support reforms that will improve justice sector services to improve the business climate.  

Also, the Investment Promotion Act (IPA), amended in 2020, provides incentives (tax refunds or cash grants) for investment projects in manufacturing and processing activities, development and innovation activities, business support activities, and high value-added services.  

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Latest Update: July 2022

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