Investing in Croatia

Croatia - Business climate at a glance

Croatia is moving up at lightning speed and is expecting full EU membership in 2009 or 2010. The Republic of Croatia is considered to be on the major emerging market hotspot of Eastern Europe, but Croatia is different from the other emerging markets as properties cost a lot less here.

From the years 2000 to 2005 the Croatian economy grew by 2.9%, 3.8%, 5.2%, 4.5%, 3.7%, and 4% respectively and inflation was 3.3% in 2005. Strong growth is expected to accelerate for years to come.

Property Market Forecast

Though the Croatian Real Estate Market is in the transitional phase and somewhat immature, yet new big infrastructure projects, construction activities and property prices have witnessed a rise all along the Adriatic coastline in the Croatian capital of Zagreb on an average of 17% in the year 2003, mostly due to the strong demand by foreign buyers along with the lower interest rates on loans for the Croatian citizens. Speculation has it that the prices will rise the more Croatia is closing to EU.

At present Croatia may not be the easiest place to purchase property as the buying process is quite bureaucratic but it is already adjusting its rules and regulations to comply with the EU standards and current restrictions on foreign real estate ownership are set to be abolished in two years. Also inheritance and gifts are exempted from taxation in the first line of succession and other cases where there is a single rate of only 5%.

Since foreign investors now have the same rights as the local investors, there are a handful of privatizations in the making. Croatia's biggest natural asset is its coastline, and it is being rediscovered resulting in the return of the tourists making investors sweep into "The Pearl of the Adriatic".

Croatian house buying process

According to the Croatian Law of Property Ownership, non Croatian people and companies need to obtain consent from the Ministry of Justice, in the Republic of Croatia and the application may be initiated by the applicant or through an attorney by sending a written request to the Ministry of Justice in Zagreb.

Houses can be bought in two ways in Croatia. Either the individual overseas buyers can own real estate after satisfying the "condition of reciprocity" and attaining proof from the Croatian Ministry of Foreign Affairs which can take several months. Or a foreign individual can register a company in Croatia to purchase house and evade the requirement of permission, though it does impose tax implications.

In certain cases, purchase of property can be completed before the permission is granted by the Ministry of Justice but if the application is refused, the property can be purchased through the company route. This route includes incorporating a company in the Republic of Croatia which will cost approximately 7000 Kuna and will take somewhere between four to six weeks to get completed. One needs to deposit 20000 Kuna with a Croatian bank as the minimum investment capital and it can be used to pay for company expenses.

Hence, the important stages of buying property in Croatia include the 'Reservation Contract' which is formed in order to reserve the house, a 'Preliminary Contract' which is required by a non Croatian national to apply for permission to buy a house via a deposit (circa 10%) and the 'Final Contract' upon the signing of which, the final payment is made and the purchase is registered with the local Land Registry. Individuals have to be present when they start the incorporation process though a 'Power of Attorney" can be grated if the buyer is not in attendance at this stage.

The fees that relate to a purchase of property in Croatia include Transfer Tax, Stamp Duty, Registry Fees and Notary Fees. It is typical to note in this case that the fees and charges total at around 7 to 8 % of the price of the house purchased. Another factor is that buying a property built after December 31st, 1997 as a private sale, one has to pay 5 % RETT (Real Estate Transfer Tax) on the value of the contract assuming that no refurbishment has been made on the building which would attract VAT.

Conclusion

Croatia is on a roll as far as economic development is concerned, though it still has a lot of distance to cover and as the transformation of the country will be completed, prices of everything will become much higher there. Croatia is seen as the second home destination or an area for property investment and the existence of certain fiscal advantages make the high tax regime of the country somewhat bearable resulting in the country gaining fast popularity in the sphere of tourism and investment.