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 2022 World Investment Report, total FDI inflows reached USD 569 million in 2021, more than three times higher than the level recorded one year earlier. In the same year, the total stock of FDI stood at USD 38.9 billion, around 57.3% of the country’s GDP. The sectors receiving the most FDIs are financial services (26%), manufacturing (17%), real estate (16%), wholesale and retail trade (14%), and ICT (7%). The main investing countries are the Netherlands (16%), Austria (13%), Luxembourg (11%), Germany and Italy (10% each - source: Ministry of Economy). According to preliminary figures from the National Bank, the net inflow of foreign direct investments to Croatia stood at EUR 2,875 billion in the first third quarters of 2022, up from EUR 2,002 billion in the same period one year earlier, thanks to an increase in liabilities mainly related to retained profit accounted for by the improved business results of banks and enterprises in foreign ownership, as well as new equity investments (over 90% of the banking sector is foreign-owned).
 
Croatia suffered 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, except in certain sectors in which foreign ownership is restricted (e.g. inland waterways transport, maritime transport, rail transport, air-to-ground handling, freight-forwarding, publishing, ski instruction, and primary mandated healthcare). The recently amended Investment Promotion Act (IPA) 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. On 1 January 2023 Croatia adopted the euro and became the 20th member of the euro area. The country ranks 46th out of 132 in the latest Global Competitiveness Index, 57th out of 180 in the Corruption Perception Index, and 49th out of 82 in the Economist Business Environment ranking.

 
Foreign Direct Investment 202020212022
FDI Inward Flow (million USD) 1464,4273,675
FDI Stock (million USD) 38,49639,20038,314
Number of Greenfield Investments* 402934
Value of Greenfield Investments (million USD) 6691,0372,002

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: December 2023

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