For expat entrepreneurs living in Croatia, setting up a Croatian company may seem like a natural step. Having a company in Croatia allows you to:
- Gain residency in Croatia if you are not an EU citizen
- Purchase property in Croatia
- Set up a business bank account
- Gain access to the rights and priveleges of a Croatian company
However, there are downsides as well. Before starting a business in Croatia, there are 5 things you should absolutely know before pulling the trigger.
1. Croatian businesses are required by law to have an accountant
The accountant will file your tax returns, communicate with the government, file your PDV and calculate the salary payments for all of your employees. The cost of an accountant can be range from 400 to 1.500 kuna per month for a basic d.o.o. business. The more activity your business has, and the more services you request (for example, paying your bills), the higher the cost will be. You’ll also need to pay for your end of year calculations on top of the monthly fee, which will cost at least 2.000 kuna.
2. Know what the PDV system means before you sign up
PDV is Croatia’s VAT (value added tax) system. It is a 25% tax added to the sale of all items (10% on select tourism products). If you are registered with the PDV system, you are entitled to a refund on all PDV that your company pays out. It also means you are required to charge PDV on all of your outgoing invoices, which balances out what you’ve paid in PDV. Sounds nice, doesn’t it, but don’t be fooled. Once in PDV system:
- Your accountant has to file PDV on your behalf (which raises your accountant’s fees they will charge you)
- Once you issue an invoice with PDV, you are then required to pay the invoiced PDV to the government regardless of whether or not that invoice has been paid yet. So, if any of your customers pay late, you can end up fronting the cost to the government.
- Once registered with PDV, you are required to be in the system for 5 years.
- For service-based companies or companies with expensive products, you may find that customers are unwilling to pay the PDV and instead will forgo the purchase entirely or pay in cash (aka under the table).
3. It is expensive to change your business address
When you start a company, think carefully before you decide on your official registered address. Changing your company’s registered address requires a notary and for the new address to be filed with the government. This can cost between 2,000 and 4.000 kuna, depending on the notary.
Most Croatians use the address of a home they or their family owns. As an expat, since you may not own a home, many accountants will allow you to use their address for your company and accept mail on your behalf. The likelihood that their business will move is low.
4. You can’t claim everything as an expense
To claim a purchase as a business expensive, it MUST be invoiced to your company along with the company OIB (ID number) with an R1 invoice. An R1 is an official invoice that meets certain guidelines. It will say R1 on it.
Here are some examples of common expenses:
- If you work from home, you cannot deduct your rent, water bill, electricity or internet unless the respective contracts are in your business’ name and are paid for by the business.
- If you have a business lunch, you cannot deduct that cost using a receipt you paid personally.
- If you buy printer ink at a store using your business debit card, you MUST request they print an R1 invoice for you. Just having the receipt is not enough.
- If drive to see a client, you cannot deduct your mileage or the cost of gas. You can only use your car as an expense if the car is in the company name.
5. Accepting cash increases your reporting liability
As of January 1, 2013, all businesses that accept cash payments are required to purchase and use a fiscalization software that automatically reports every cash transaction to the government in real time. Even accepting one cash payment makes you liable.
Have any questions about starting a business in Croatia? Ask them in the comments.
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