Croatia

Merchandise Trade

 

 

• Croatia has been a member of the World Trade Organization (WTO) since November 30, 2000. As of July 1, 2013, Croatia became a member state of the EU.


• The EU is party to some 50 free trade agreements (FTAs), and to other markets of the countries concerned is currently mediated through those agreements. The EU's Generalised Scheme of Preferences (GSP) entered into effect on January 1, 2014. Under the scheme, tariff preferences have been removed for imports into the EU from countries where per capita income has exceeded USD4,000 for four years in a row. Regarding Hong Kong, the territory has been fully excluded from the EU's GSP scheme since May 1, 1998.


• Prior to Croatia's accession to the EU, the country had signed over 40 international trade or economic cooperation treaties, with further agreements in place regarding investment promotion and protection. As part of EU membership negotiations, these agreements were adjusted to ensure their validity continued once Croatia joined the EU or were voided as the EU agreement took precedence. Once goods are cleared by customs authorities upon entry into any EU member state, they can move freely among EU member states without any additional customs procedures.


• Croatia applies the EU's Common External Tariff (CET), which means goods manufactured and imported from within the EU are not subject to customs charges. The average tariff rate for Croatia is just 1.3%, which is among the lowest globally, although goods imported from outside the EU incur duties of between 0%-48.5%.


• Trade bureaucracy and customs delays are a significant hindrance to foreign investors, particularly those outside the EU. Although there are increasing efforts to reduce trade bureaucracy, paper-based procedures remain cumbersome, and cost and connectivity issues add to market barriers.


• The EU has imposed various anti-dumping measures on a wide range of products - predominantly textiles, parts, steel, iron and machinery - on goods coming from Mainland China and a few other Asian nations to protect domestic industries. On November 13, 2016, the EC imposed a provisional antidumping duty on imports of some primary and semi-processed metals from Mainland China. The rate of duty is between 43.5%-81.1% of the net free-at-union-frontier price before duty, depending on the company. The rate of duty for similar goods from Belarus is 12.5% of the net free-at-union-frontier price before duty. In March 2016, EC imposed a definitive countervailing duty (8.7% or 9%) on imports consisting largely of textiles products originating in India.


• In 2016, the EC introduced an import licensing regime for steel products exceeding 2.5 tonnes. The regulation will be active until May 15, 2020.


• In Q215, the EC issued regulations on trade restrictions with Turkey, regarding cattle, beef, watermelons and prepared tomatoes. This will help to protect domestic agriculture and regional farming businesses.


• In March 2016, the EC announced a new support package for European farmers, which involves mobilising an estimated EUR500 million within the next two years. The intervention ceilings for dairy and other farm products have been nearly doubled. This will limit the ability of foreign businesses to export products, such as milk, fruits and vegetables to Croatia.


• Nine types of goods imported into the EU are subject to licensing. These goods are broadly:
   
  • Textiles
  • Various agricultural products
  • Iron and steel products
  • Ozone-depleting substances
  • Rough diamonds
  • Waste shipment
  • Harvested timber
  • Endangered species
  • Drug precursors


• At present, no quotas are imposed on textiles and clothing exports or on non-textile product exports from Hong Kong and Mainland China.


• The Croatian economy is dominated by the services industry (which accounts for almost 70% of GDP), of which tourism is an important element. Tourism accounted for 71% of services exports in 2016. Croatia's most valuable traded products are machines, technical equipment, medicine, and crude and refined petroleum. The country is a major manufacturer of passenger and cargo ships and is developing its automobile manufacturing capacity. It is also a textile manufacturing hub. Croatian product exports stood at USD11.6 billion in 2016, up from USD11.1 billion in 2012. Much of the import sector is dedicated to Croatia's manufacturing sector (for export products), with machinery, chemical products and base metals making up three of the top five imported products.

Sources: WTO – Trade Policy Review, Fitch Solutions

Major Multinational Trade Agreements

Active

1. EU Common Market: The transfer of capital, goods, services and labour between member nations enjoy free movement. The common market extends to the 27 member nations of the EU, namely Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.
    
2. European Economic Area (EEA)-European Free Trade Association (EFTA) (Iceland, Liechtenstein, Norway and Switzerland): While it enhances trade flows between these countries and the EU, only Switzerland is a fairly major trading partner.


3. EU-Turkey: The customs union within the EU provides tariff-free access to the European market for Turkey, benefitting both exporters and importers.


4. EU- CETA: CETA is expected to strengthen trade ties between the two regions, having come into effect in October 2016. Some 98% of trade between Canada and the EU is duty free under CETA. The agreement is expected to boost trade between partners by more than 20%. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.


5. EU-Japan Economic Partnership Agreement (EPA): In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. According to the EC, the EU-Japan EPA will create a trade zone covering 600 million people and nearly a third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and came into force on February 1, 2019, after the European Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products and it seeks to open up services markets, particularly financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after Mainland China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.


6. EU-Southern African Development Community (SADC) EPA (Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland): An agreement between EU and SADC delegations was reached in 2016 and is fully operational for SADC members following the ratification of the agreement by Mozambique. The remaining six member of SADC not included in the deal (the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe) are seeking economic partnership agreements with the EU as part of other trading blocs, such as the East African Community and the Economic Community of Central African States.
    
7. EU-Singapore FTA (EUSFTA): On February 13, 2019, the European Parliament passed the agreement which would see the creation of the EUSFTA. The main aims of the agreement are to eliminate almost all customs duties; enhance the trade of electronic goods, food products and pharmaceuticals and stimulate green growth, remove trade obstacles for green technology and create opportunities for environmental services. All the states involved were required to ratify the agreement through their individual legislatures for it to be implemented. The agreement entered into force on November 21, 2019.

Provisionally Active

CETA: CETA is an agreement between the EU and Canada. CETA was signed in October 2016 and ratified by the Canadian House of Commons and EU Parliament in February 2017. However, the agreement has not been ratified by every European state and has only provisionally entered into force. CETA is expected to strengthen trade ties between the two regions, having come into effect in 2016. Some 98% of trade between Canada and the EU will be duty free under CETA. The agreement is expected to boost trade between partners by more than 20%. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.

Ratification Pending

EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize and the Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification (29 of the 34 parties have ratified the agreement as of October 2018). The agreement has been provisionally applied since 2013.

Under Negotiation

1. EU-Australia: The EU, Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017 and bilateral trade in services added an additional EUR27 billion. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on equal footing with those from countries that have signed up to the Trans-Pacific Partnership or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.


2. EU-United States Transatlantic Trade and Investment Partnership: This agreement was expected to increase trade and services, but it is unlikely to pass under the administration under United States President Donald Trump in the Untied States against a backdrop of rising global trade tensions.


3. EU-Vietnam FTA: In July 2018, the EU and Vietnam agreed on final texts for the EU-Vietnam FTA and the EU-Vietnam Investment Protection Agreement. As of March 2019, the final text of the agreement has been finalised and is awaiting signature and conclusion.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 0%, 5%, 13%, 25% on goods, services and imports
• Corporate Income Tax: 18%

Source: Tax Administration, Republic of Croatia

Important Updates to Taxation Information

The headline corporate tax rate in Croatia is 18%. However, Croatia has so many corporate tax exemption schemes that the majority of businesses do not need to pay any corporate profit tax. Social Democratic Party leader Davor Bernardić has called for VAT rates in the hospitality and hotels sectors to be reduced to 13% and 10% respectively.

Source: Total Croatia News

Business Taxes

Sources: Tax Administration, Republic of Croatia, Fitch Solutions
Date last reviewed: May 30, 2020

The Ministry of Labour announced in June 2018 that the country required 35,500 foreign workers, up from the 31,000 it had initially anticipated requiring. The workers are necessary to support Croatia's booming tourism industry. In November 2019, the Croatian government laid out a draft of its law on foreigners, which states that an employer from Croatia seeking to hire a foreign – (non-EU – worker will have to contact the Croatian Employment Services’ regional office to verify whether or not there are any unemployed persons in their records who meet the employer’s requirements.

Localisation Requirements

Owing to the high emigration levels of highly qualified individuals from Croatia, the country is flexible when it comes to importing labour to meet its market needs. Although the country is a part of the EU and is open to international migrants, the majority of migrants are unskilled workers from neighbouring countries. This is a cause of domestic tension, considering Croatia's high unemployment rates.

Foreign Worker Permits

In recent years, owing to EU membership, the Croatian government has been under pressure to increase annual work permit quotas by 40% for foreign workers. As an EU member Croatia can easily recruit for its skills shortages from within the union as citizens have freedom of mobility. Work permits for non-EU nationals are issued for a period of up to two years (EU Blue Card) and require the applicant to go through more bureaucratic procedures than citizens of the EU.

Visa/Travel Restrictions

As a member of the EU Croatia does not impose any travel restrictions upon any other European state. Countries such as the United States, Canada, Australia, Japan and South Korea, along with a number of Latin American states do not face any travel restrictions. However, African citizens, along with most Asian and Middle Eastern citizens, may not travel to Croatia without obtaining a visa in advance.

Sources: Government websites, Total Croatia News, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators

Sources: World Bank, IMD, Transparency International

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: May 30, 2020

Hong Kong’s Trade with Croatia