Starting a new business abroad is not very easy and often requires help from a national expert due to language barrier, specific legislative provisions that are not determined only in one law but in various pieces of legislation as well as different interpretations of the law and often they are not easy to understand even for the nationals. Croatia is no exception.
Although the relevant legislation on business companies in Croatia is promoting a very liberal concept regarding foreign investments in Croatia, the setup itself is not so easy.
Choosing a Legal Form for the Company
First you must choose a legal form, from the closed list available in Croatia. For example you can register a subsidiary of your foreign company, you can work as a natural person and register as self-employed and then pay personal income tax (but you are then liable for all the debts and obligations with all your personal assets); or you can register a separate legal person, in most cases a limited liability company (d.o.o.), and in this case the company will be subject to corporate income tax on the profit generated and when the profit is distributed then the personal income tax also applies (however the double tax treaties that Croatia has signed with around 60 countries must be taken into account).
Partnerships are not considered and cannot be registered as a legal person, so the partners (natural persons) must submit a joint personal income tax declaration and are taxed separately at the levels of the partners.
If you choose a legal form, the first thing you have to decide is about the name for your company and check the register to find out whether a company by the chosen or similar name already exists.
Therefore, in addition to the selected company names it is recommended to prepare alternative names. After checking the names of companies, you must make a reservation for the company name.
Be aware of several constraints when choosing a company name (for example a company name must be in Croatian language and Latin script or in official language of Member State of European Union and Latin script, and Arabic numerals may be used).
Documents necessary for company registration must be sealed by the Public notary. When paying a visit to a public notary, take your ID card or passport (required if you are a foreign national) with you. All founders and other persons whose signatures are to be verified must be present. For foreign nationals who don’t speak Croatian there must be court interpreter for the language present.
Registration documentation sealed by the Public notary must be submitted to the court for registration and to the National Bureau of Statistics, and the payment of court fees and the initial capital must be carried out before registration. After registration is completed your company needs to open a business account so that the initial capital could be transferred into your company account.
After registration there are some more formalities that need to be carried-out with other institutions as well, for example with the Tax Administration, with the institutions in charge for the obligatory social contributions etc.
Company Structure is Important
Regarding the latter, a foreigner must be very careful when registering in Croatia (as self-employed or setting-up up a limited company), because provisions of obligatory social distributions apply on a lump sum basis, even if there is no income nor profit generated (there are some exceptions only if the person is resident of one of the other EU member states and a handful of countries with which Croatia has signed bilateral agreements, and if it can prove that is registered for obligatory social contributions in his/her residence country).
This caught-out many US citizens a few years ago who wanted to buy houses and apartments in Croatia, and somebody suggested that they set-up a company in Croatia because in this case there is no restriction and they can buy any property they want in the company name.
However, a few years later they received a huge bill from the Tax Authorities in Croatia because they were not advised that if they register in the company as members of the board, then the Tax Administration will charge them for social security contributions if they are not registered in Croatia on any other basis.
In conclusion, depending on the type of business you want to conduct in Croatia, what you want to do with the profit (invest further or distribute it), for how long, are you planning to invest in R&D or in property or other types of assets, it is good idea to get independent advice from a local English-speaking expert who can guide you through all the processes and who can help you choose the appropriate form and inform you about all the benefits and consequences that you can expect with any of the alternatives discussed above.