Yet another 5 things you should know before starting a business in Croatia

**This is a guest post in cooperation with T4C Razred, a FREE business consultancy service running until September 2021 that is available to anyone not born in Croatia. And now, I hand the mic to Michael Freer.**

PUBLISHED: 15/06/2021

Running a business in Croatia is not for the faint of heart. There are some facets that are similar to other countries, but there are many aspects that are specific to Croatia. Familiarity with these nuances will determine whether or not your business is successful or not.

Across this site, we’ve noted the nightmare that operating a business in Croatia can be. While it is possible to run a profitable business in this country, the road will be bumpy no matter what and the chances of success are limited if you don’t inform yourself first.

In this post and this post and this post and now this post, we cover the most important things you need to know before starting a company in Croatia to help you avoid embarrassment, headaches and significant loss of funds.

The facts are these…

#1 You can now set-up a company online… if you have an ID card

The past 18 months has seen Croatia move a number of things online – including your ability to set up a business through the online service START. It’s a straight forward process, and means you can open a j.d.o.o., d.o.o. or obrt, however there is one catch. You need to clear security level 4, which means you need to have a Croatian ID card (called “osobna iskaznica”). This should not to be confused with a residence permit card. Osobna iskaznica are only issued to Croatian citizens. [Read: How to open a company online using START]

As a foreigner, it’s likely the highest security level you’ll have is level 3, which can be accessed using an app called mToken, which you can get from FINA. Therefore, despite the new digitalisation, those without an osobna iskaznica will still have to set up a company the traditional way.

Strangely, to open an obrt, you only need level 2 clearance through e-obrt services – yet a level 4 is required to use START. Go figure.

We recommend popping into your local FINA to register for the mToken so you can easily download documents that could see you queuing for hours or running from building to building to find.

#2 Anyone can see your company accounts

As we already explained in our first installment, d.o.o and j.d.o.o. are required to have dual accounting for which it is recommended to have a trained and certified accountant. It’s not completely terrible as handing it off to a professional makes your life a hell of a lot easier and prevents you from navigating the choppy waters of tax, finance and payment bureaucracy.

So, what happens with those end of year documents you sign off? Well, they’re all online and anybody can see them thanks to the court register.

All you need is the name of a company, and you can easily view their balance sheet, profit and loss accounts and statement on profit. You can look up a company here.

If you’re not a business owner, please note that Croatian businesses are usually very creative with how they report their income and expenses, so take what you see with a grain of salt.

#3 There is a difference between being an owner and a director.

Let’s try to get this clear.

• An owner is a person that owns part of a company.
• A director is a person who is a member of the management board (Član uprava).
• An owner can also be a director, but doesn’t have to be.

So, what’s the difference?

The owner does not have to pay contributions or salary, unless they are also a director. Every company must have a director and directors must be paid at least the minimum wage and contributions for directors.

A director is the person who runs the company, and therefore, in Croatian law, has to be at least paying into the system even if they’re not receiving a salary (and must be legal to work). If the director is already being paid through another company in the amount exceeding director’s minimum wage), they don’t have to be paid through this company as well.

So, what does this mean in theory?

In theory, it means that you could own a company in Croatia and earn income through dividends without being in the Croatian tax, pension and health system. It also means you can own a company in Croatia without being legal to work in Croatia. However you’d have to employ someone else to direct the company.

If, instead, you are living and working in a country listed in the picture below, you don’t even need to appoint somebody else as a director as long as you inform HZMO (Croatia’s pension institution) that you are working and paying contributions in your own country.

You can do that by providing them with a document called A1 (for EU countries). Non-EU nationals must always pay for healthcare, because as you may know, health insurance is usually a requirement for getting a permit here – except for digital nomads. This is outlined in the below table.

Overview of countries with which the Republic of Croatia applies international agreements on social security (EU regulations on the coordination of social security systems) and relevant social security certificates

In practice, people from non-EEA/EU countries can employ this method of ownership to get out of the requirement of employing 3 Croatian citizens, given that they already have residence on another basis. If you go this route, it’s important to note that you cannot work for the company or be involved in operations.

What would the inspector say about this loophole? We’re not going to ask.

#4 Your personal allowance can be shared

In many places in the world, the government allows citizens to receive a tax-free amount of income. In Croatia, this is called “osobni odbitak”. We’ll refer to it as a personal allowance. The amount of this allowance varies on your status, including how many children you have on your tax card and if you’re a veteran.

If you start your own company whilst working for someone else, and then go on to sharing your working time between the companies, you actually get to state where this personal allowance is used.

So, for example, you could state that your employer’s company cannot use any of your personal allowance and keep it all for own company, thus reducing your company’s tax bill.

A word of warning though, you have to be clear about the agreed amount with all the places you work!

#5 You may have to overpay in contributions

Contributions (called “doprinosi” in Croatian) are the payments your company makes to the tax man for health and pension costs on your behalf. They are linked to your earnings. If you are an employee, and not an owner or director, then you have no need to worry about these costs since they are an obligation of the company, not of you.

However, when you open your own company, you will quickly learn how the sausage is made. First, you must pay contributions according to your director’s salary. If you’re a third-country national, there is a third-country national directors’ salary too, which is higher than the one for Croatian or EU citizens.

The law states that to be issued a work and stay permit, it should be 1,5x the average Croatian salary, but this is often flexible and negotiated at the local MUP station. [Read: How to get residence in Croatia by opening a business]

Below is the relevant excerpt from the Law on Foreigners.

Članak 113.
3. njegova brutoplaća iznosi najmanje 1,5 prosječne bruto isplaćene plaće u Republici Hrvatskoj u protekloj godini prema službeno objavljenom podatku tijela državne uprave nadležnog za statistiku.

which translates to…

Article 13
3. his gross salary amounts to at least 1,5 of the average gross paid salary in the Republic of Croatia in the previous year according to the officially published data of the state administration body responsible for statistics.

If you are employed by another company, the contributions from each job still need to add up to at least minimum wage contributions.

If you decide to open an obrt alongside a d.o.o. (yes, that’s a thing), then you also have to pay a minimum amount of contributions there, even if you are paying them through your company already.

Fortunately, for all that we contribute, the government provides us with amazing sea, mountains and fresh air – so it’s all worth it, right?

Need help opening a business in Croatia?

As part of a European project, T4C offers free business support to any foreigner or returning Croatian born abroad. This service is free to anyone living in Split-Dalmatia County and can help you with things such as business planning, marketing, financial planning, strategy and product development.

It can also connect you with the necessary contacts to help grow your business and be successful. For more information, join the Facebook group here or e-mail Michael Freer at michael.freer@cedra.hr.

SOURCES:

mirovinsko.hr
Zakon o strancima