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 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 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. 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 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 requires a notary and for the new address to be filed with the government.
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 200 kuna. 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 2.000 kuna.
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 for a monthly fee. The likelihood that their business will move will be lower than the chances you will move.
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.
UPDATE 27/2/19: R1s are no longer required, but official invoices still are. The only difference is you no longer need to write “R1” on it. This is so inconsequential, companies are leaving the R1 on their invoice template. Not a perk at all, but important to note.
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 print 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.
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.