Vukmir and Associates

Act on Investment Promotion and Development of Investment Climate

By February 11, 2013 No Comments

In September 2012, the Croatian Parliament introduced a new Act on Investment Promotion and Development of Investment Climate which has replaced the earlier Investment Promotion Act. The introduction of the above mentioned Act was aimed at eliminating major economic distortions brought by the global and local economical crisis, but also harmonizing Croatian laws with the European Union’s legislation (Guidelines on National Regional Aid, OJ C 1998, 2000, 2006; European Commission’s Multisectoral Framework on Regional Aid for Large Investment Projects OJ C 2002, 2003). In this respect, the Government of Croatia, as the proponent of the Act, expects that the Act will make the realisation of investment projects easier, creating, in this manner, conditions for economic growth and development at national level, i.e., Croatia’s involvement in the international trade flows and strengthening the competitiveness of Croatian enterprises. In light of the accomplishment of these objectives, said Act imposes a number of measures related to production-processing activities, development and innovation activities, business support activities, high value added service activities and tourism.

The incentive measures provided by this Act include:

  • Incentives for micro enterprises;
  • tax incentives;
  • customs incentives;
  • incentives for eligible costs of new jobs associated with an investment project;
  • incentives for eligible training costs associated with an investment project;
  • incentives for innovation and development activities, business support services and high value added service activities;
  • incentive measures for capital expenditures of an investment project;
  • incentive measures for labour-intensive investment projects.

Tax and customs incentives
Among the novelties introduced by this Act, tax and customs incentives are probably the most appealing to entrepreneurs. Tax incentives are reflected in a reduction of tax rate proportional to the value of investment and number of new employees hired in connection with the investment. Said measures are provided for a 10-year period from the beginning of investment. A special benefit is provided if an investment project aims at modernizing an existing technological process, in which case incentives are available even without hiring new employees. The Act also provides incentives for eligible costs related to job creating, which amount depends on the regional unemployment rate in the region where the employee is hired.

Besides the novelties related to tax incentives, customs incentives are also subject to several changes. Namely, the equipment which is imported and constitutes part of eligible costs of the investment projects shall be exempt from customs duties. It is understood that the foregoing provision shall apply until Croatia’s full accession to the European Union.

The Act also describes in detail the procedure for allocating incentives to entrepreneurs.

Moreover, we should emphasize that, in addition to the Act in question, a proposal of the Act on Strategic Investment Projects, which would enable the Government to declare certain investment projects as projects of interest for Republic of Croatia, is also in the process of preparation. In addition, such Act would provide the criteria for determination and realization of such projects, as well ways of attracting potential investors.

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