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
• Set up a business bank account
• Gain access to the rights and privileges 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 recommended to have an accountant

The accountant will file your tax returns, communicate with the government, file your PDV reports and calculate the salary payments for all of your employees. They can also pay invoices on your behalf. The cost of an accountant can be range from 133 euros to 266 euros 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 may also need to pay for your end of year calculations on top of the monthly fee, which could cost at least 266 euros.

#2 Know what the PDV system means before you sign up

PDV is Croatia’s VAT (value added tax) system. It is a hefty tax added to the sale of most items. If you are registered with the PDV system, you are entitled to a refund on all PDV that your company pays to other companies. 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. This was temporarily changed in response to the pandemic so that PDV wasn’t due until an invoice was paid, but there is discussion about making this change permanent. Fingers crossed!
• Once registered with PDV, you are required to be in the system for 5 years.
• If your company takes in 39.816,84 euros or more of revenue in a year, you are required to be in the PDV system.
• 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 can be 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 later will require a notary and may require you to re-file your formation documents, which is pricey.

If you are changing your address within the same city where your company is registered AND your formation documents include the language that you can change the address, the only cost will be for the notary, which is about 27 euros.

However, if you are changing your business address to a different city OR your formation documents do not include the ability to change the address, then you’ll need to re-file the formation documents. The cost to do this is about 266 euros.

Most Croatians use the address of a home they or their family owns. As an expat, since you may not own a home, some accountants will allow you to use their address for your company and accept mail on your behalf for a monthly fee. The likelihood that their business will move will be lower than the chances you will move.

To avoid this insanity, make sure that only the city is listed in the formation documents and that your physical address is listed in an addendum. This way, only the addendum must be changed, rather than your articles of incorporation.

#4 You can’t claim everything as an expense

To claim a purchase as a business expense, the vendor must create an R1 invoice for your company that includes the formal company name, registered address and OIB. Make sure you keep all business receipts and give them to your accountant.

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 buy printer ink at a store using your business debit card, you must request they generate an R1 invoice for you. Just having the receipt is not enough. The good thing is that once you register you business with a store, they will keep you on file for future purchases making it easier to get an official invoice.

You can get reimbursed by your company for personal business expenses like meals and mileage, but there are a lot of restrictions depending on the situation. Check with your accountant for details.

#5 Accepting cash increases your reporting liability

As of January 1, 2013, all businesses that accept cash payments OR online payments with credit cards 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 or credit card payment makes you liable.

Fiscalization software isn’t cheap and can be a bit of a beast to deal with. It’s also strictly controlled, so do not risk exposure with the tax authority by evading this requirement. Here is everything you need to know about fiscalization.

Check out 5 more things to know about opening a Croatian company here and yet another 5 things here.