Croatia Economy Overview

Currency

Euro €

Working hours

40 hours/week

Public/bank holidays

13 public holidays

Capital

Zagreb

Languages

Croatian

Population

174.7 million

Minimum hourly salary

150 BDT (1.42 USD)

Tax year

1st Jan – 31st Dec

Date format

DD/MM/YYYY

Misclassification penalties

€2,654.14 per misclassified employee plus the possibility of having the business premises, devices, and equipment for work sealed by the labour inspector.

Fun fact

The number of Croatians living in their home country is close to the number of expatriates — 4.2 million.

Bouncing back quickly after the global challenges of 2020, Croatia’s GDP grew by 3.1% in 2023, one of the highest levels of growth in the European Union (EU). It has made effective public investments with the funding it has received since joining the EU in 2013 and is now seeing favorable developments across its labor market, which has been strengthened by increased tourism and construction.

In general, Croatia’s economy is stable and enjoys a young, active, and experienced labor force. The country holds a strategic position in the heart of the EU with easy access to both Western and Eastern Europe in addition to the markets of Asia.

In this guide, we present an overview of the Croatian economy and an introduction to the benefits and challenges of doing business in the country.

Overview of Croatia’s Economy

Building on above-average growth compared to the wider EU region over the last few years, Croatia’s economy is projected to continue growing at around 3% of GDP or more each year.

Its economy is boosted by membership of the EU, the single currency of the Euro, and the borderless Schengen area.

Strong Performing Industries
AgricultureManufacturing
AutomotivePharmaceuticals
FoodIT

Service sector
(particularly tourism, representing over 60%)

 

It is a beautiful country which offers excellent standards of living. All of this makes Croatia extremely attractive for both foreign investors looking to expand and expatriate workers searching for opportunities in Europe.

Taxes

Employer Tax: 16.5% + €5 – €527

Pension Plan

16.5%

Chamber of Commerce Contributions

€5 – €527

Employee Tax: 40% – 50% + municipal tax levied as surtax to the income tax

Social Security

20% (capped at EUR 970 monthly and EUR 12,095 annually)

Municipal Tax

10% – 18% (Depending on the city of residence, levied as a surtax to the income tax liability)

Income Tax

Croatia applies a progressive personal income tax system on employment income. Income tax is withheld monthly by the employer, and rates are now largely set at the local (municipal or city) level, following nationwide reforms.

Gross Income

Up to €60,000

More than €60,000

Tax Rate

15 – 23%

25 – 33%

Business Regulation in Croatia

Croatia invites foreign investment through simple registration, low taxes, and strong incentives. It allows foreign businesses to create entities of various forms within the country, such as Limited Liability Companies, Joint-stock Companies, and branches of a parent business. However, every business that establishes itself within Croatia is expected to comply with all local regulations, including proper registration and meeting tax obligations.

Some of the key regulations when doing business in Croatia include:

Business Registration

Registering a business in Croatia requires a number of steps. These include listing an approved name with the Croatian Commercial Court, opening a bank account and depositing the initial share capital, and presenting the memorandum, articles of association, and the company’s core documents. The business must then join the Croatian Pension Insurance Fund. ‍

Taxation

Once a business establishing itself in Croatia has received a certificate of incorporation, it must register itself for taxation. Taxes that must be paid under standard circumstances in Croatia include corporate income tax at 18% and VAT at 25%.

Reductions are available on both for low-turnover businesses or those offered exemptions as part of an incentive for new or international companies. These include reductions for businesses creating jobs in certain sectors, those making capital investments in the country, and those operating within innovative and developing industries.

Labor laws

Employment in Croatia is regulated in several ways. This includes anti-discrimination rules, an obligation to provide safe working conditions, and assuring equal pay for different demographics performing similar tasks.

The legal framework in Croatia has also established a maximum working week, mandatory leave entitlement, obligatory social security contributions, and a minimum wage.

In addition to domestic laws, businesses working in Croatia should maintain compliance with all applicable EU labor laws. One way of ensuring all this is adhered to correctly is to work with a local Employer of Record (EOR) or Professional Employer Organization (PEO).

What Are the Benefits of Doing Business in Croatia?

Over the last decade, Croatia has proved to be a shrewd investment for many. It has seen significant interest from affluent nearby countries such as Austria, Germany, and the Netherlands alongside those from wider regions.

The country is currently ranked 51 out of 191 by the World Bank for ease of doing business, and its economy is predicted to continue growing steadily. Among the benefits of doing business in Croatia are:

Access to the EU & Schengen

In 2013, Croatia became a member of the EU and, with it, the world’s largest trading block. In 2023, it adopted the Euro single currency and became part of Schengen, the world’s largest visa-free area. This grants free movement of capital, goods, people, and services between 29 counties and a total population of over 400 million people.

Any business operating in Croatia has access not just to the country itself but to vast areas of Europe. Added to strong relationships with non-EU Eastern European nations and close proximity to Asia, Croatia offers huge political and geographical advantages for international businesses.

Stable Economy

The GDP of Croatia has grown steadily every year since 2015, except for 2020, during which almost every economy in the world was forced into decline. This growth has measured between 2% and 4% every year, with a spike of 13% in 2021. This consistency creates a stable environment, which is ideal for businesses that rely on being able to predict the factors that influence their own growth.

In addition to this, Croatia is one of the safest countries in the world as a member of both the EU and NATO. It has not seen conflict since the end of its War of Independence in 1995.

Tax Incentives

In comparison to many nations in Europe, Croatia imposes low taxes on the businesses operating within it.

Companies pay a corporate tax of just 12% or 18%, depending on their revenue, and this is often reduced for new businesses. Similarly, while the standard VAT is a little high at 25%, this is reduced to as low as 5% for certain products and services.

Croatia also provides tax incentives for enterprises with low turnovers, for those who create jobs within the country or offer training to workers, and for companies operating in innovative industries. Croatia’s incentives for both foreign and domestic businesses are extensive and constantly being reassessed to create nurturing environments in targeted areas.

Varied Industries

Tourism is a huge industry for Croatia, generating the equivalent of more than $15 billion in 2023. Excellent weather, a long coastline, spectacular national parks, and beautiful towns make Croatia ideal for international visitors while a high standard of living attracts foreign investors who wish to do business within the sector while residing in Croatia.

However, tourism is not the only industry in Croatia. It also offers great opportunities for foreign businesses in agriculture, automotive industries, food, IT, manufacturing, and the pharmaceutical industry.

Business Expansion Options in Croatia

Croatia supports foreign businesses that choose to begin operations within its borders. It has worked to ensure the registration process is simple and policies are in place, which make it attractive to do business in the country. Some of the key ways of establishing an entity in Croatia are:

Croatia Employer of Record (EOR)

This method is fast and efficient, making it perfect for companies that need to quickly deploy staff on the ground. 

An EOR handles payroll, benefits, taxes, and compliance with local labor laws, allowing businesses to focus on their core activities. They may also provide additional services, such as Croatia talent acquisition and visa support. 

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Recruitment Agencies

Recruitment agencies in Croatia help businesses expand by connecting them with skilled local talent across various industries.

Remote People provides recruitment solutions that simplify hiring and ensure compliance with Croatian labor laws.

For businesses looking to grow in Croatia, Remote People offers the expertise and resources needed to build a local workforce quickly and effectively, making it a practical solution for market expansion.

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Croatia Professional Employer Organization (PEO)

When seeking to hire a local labor force, the process can be made significantly easier by working with an Employer of Record (EOR) and a Professional Employer Organization (PEO). These are outsourcing services that handle many of the processes required for expanding and operating a business in Croatia. Though they operate similarly, the key difference between the two is that an EOR works as a sole independent employer and assumes all liabilities for legal compliance, while a PEO is a partnership that shares its responsibilities as a co-employer with the foreign client business.

Partnering with a professional employer organization (PEO) allows companies to employ local staff in China without the need to establish a legal entity. This approach is quicker and less expensive, making it ideal for businesses testing the Chinese market or those with limited operations. PEOs handle administrative tasks and ensure that companies comply with Chinese regulations, reducing the complexity and risk associated with hiring local employees. 

LEARN MORE

Subsidiary Incorporation

Incorporating a subsidiary in Croatia is straightforward. Businesses must complete the registration process, provide all necessary documents and assurance, and sign up for all required taxation, health, and pension schemes.

A private Limited Liability Company (LLC) must have a share capital of at least EUR 2,700 ($2,900), while public LLCs must deposit share capital totaling EUR 27,000 ($29,000) into a local bank.

Branch Registration

An alternative to subsidiary incorporation in Croatia is to open a branch of the existing international company. In addition to standard registration requirements, certain documents and assurances must be provided before this is permitted. Businesses are also expected to share their manager’s details in the Articles of Association and have a native branch representative in place.

Business Opportunities in Croatia

With a strong and stable economy, and membership in the world’s largest trading bloc and Europe’s largest border-free community, Croatia presents an exceptionally appealing opportunity for global investors.

The country offers a variety of attractive business prospects, fueled by its strategic location, well-educated workforce, and expanding economy. As a member of both the European Union and the Schengen Area, Croatia grants access to a vast single market and benefits from the free movement of goods, services, and people. Key sectors with significant investment potential include:

Business Opportunity Reason
Tourism and Hospitality With its stunning coastline, rich cultural heritage, and increasing number of international visitors, Croatia presents opportunities for investments in hotels, resorts, marinas, and tourism-related services.
IT and Software Development Croatia’s highly skilled IT workforce, competitive labor costs, and growing tech ecosystem create opportunities for investments in software development, outsourcing, and digital services.
Renewable Energy As Croatia aims to increase its share of renewable energy sources, there are growing opportunities for investments in solar, wind, and biomass projects, supported by government incentives and EU funding.
Manufacturing and Automotive Croatia’s strategic location, access to key markets, and competitive production costs make it an attractive destination for investments in manufacturing, particularly in the automotive, machinery, and electrical equipment sectors.
Agriculture and Food Processing With its fertile land, diverse climate, and strong agricultural tradition, Croatia offers potential for investments in organic farming, food processing, and niche agricultural products, such as olive oil, wine, and truffles.

Croatia boasts a robust infrastructure, featuring modern transportation networks and dependable utilities, which creates a strong foundation for businesses aiming to establish themselves in the region.

With its expansive and rapidly growing tourism sector, alongside opportunities in both traditional and cutting-edge industries, Croatia provides a diverse range of business prospects and fosters a supportive environment for foreign investment. Given the promising growth forecasts, it’s an ideal time to explore business opportunities in Croatia.