Croatia woos new investors

ZAGREB – Croatia is preparing a new law on investments aimed at attracting capital, fighting unemployment and cutting the persistent trade deficit, a senior Economy Ministry official said yesterday. The law, due to take force next January, will be in line with European Union regulations on regional aid distribution. Croatia started EU membership talks last year and hopes to become a member by the end of the decade. «Besides adjusting to EU standards with the new law, we want to boost production and cut unemployment,» Slobodan Mikac, an assistant economy minister, told Reuters in an interview. He said some sectors like banking and telecommunications were already very profitable and needed no help. Croatia’s unemployment has been floating at between 15 and 20 percent for years, despite efforts by various governments. The country also runs a considerable trade deficit, which is partly offset by services in its strong tourist industry. At present, only start-up firms are eligible for state investment incentives. Under the new law, the incentives will also be available for companies seeking to expand business. It will not matter whether they are local or foreign-owned. «The lowest investment eligible for incentives will have to amount to at least 2 million kuna ($353,200),» Mikac said. The state will cover at most 50 percent of an investment by big companies, while small and medium-sized enterprises could get incentives worth up to 70 percent of an investment project. The longest period for using an incentive will be 10 years. Specific packages Croatia sees small and medium-sized businesses as a leading driver in its efforts to boost exports and reverse the trade deficit in the next three to five years. «When helping projects it deems viable, the state will also give benefits by renouncing profit tax in the period of 10 years. The investments worth up to 10 million kuna will enjoy a 50 percent tax cut, while those surpassing 60 million kuna will have no tax at all,» Mikac said. Besides the overall amount of investment, tax exemption will also be linked to the number of new jobs. «Those fully exempt from paying profit tax for 10 years will have to open at least 75 new jobs. Of course, for smaller investments that threshold is lower,» Mikac said. «What’s also new is that there is no one-size-fits-all package of incentives. The investors will be entitled to specific packages including benefits at the local level, depending on the region where they invest,» Mikac said. He added that the ministry was devising a strategy to attract as many greenfield investments as possible. Last year Croatia had 1.3 billion euros ($1.66 billion) in direct foreign investments and Mikac said they for the first time had included more than 50 percent in the greenfield sector. «In previous years, more investments were directed into privatization, but from this year we hope that greenfield investments will prevail,» Mikac said.