- Basic data
- Public finances and the state budget
- Banking system
- Tax system
After the economy contracted by -8.1% in 2020, robust gross domestic product growth of 10.4% was recorded last year. According to European Commission statistics, it was the second largest growth in EU countries after Ireland. The economy thus returned to the pre-pandemic growth trend after a year. Economic growth is expected to be between 2.5% and 3% this year, and 1.6% to 2.5% in 2023. The economy, which is heavily dependent on tourism (almost 25% of the total GDP), is greatly affected by the war in Ukraine, the sanctions imposed on Russia and rising inflation (9.4% in April). In 2021, over 1 million tourists visited Croatia, which is 70% compared to 2019 (when 19.6 million tourists arrived in the country), revenues amounted to over HRK 9.1 billion, the most tourists came from Germany, Austria, Italy, Slovenia and Poland. 740,000 people visited Croatia last year. Czech tourists. Check ebizdir for economical facts of Croatia.
The current account of the balance of payments was positive in 2021 (4.396 billion USD), which is a very good result after 2020, when a slight deficit was recorded (-54 million USD). Unemployment was 8.2% last year. Inflation surged to 6.1% in 2021. In 2022, it should range between 7.5% and 7.8%. In accordance with the declared entry into the Eurozone, Croatia is trying to fulfill the conditions of ERM II (exchange rate mechanism). In this context, the growth of foreign exchange reserves, which reached USD 28.3 billion (the highest historical level) in January tr, is gratifying. In response to inflation talks, the Croatian government introduced a number of fiscal measures during 2021. Value added tax on gas (from 25% to 5%), heat (from 25% to 13%) and food (from 25% to 5%) was reduced. In the area of fuel prices, the government set the margins for gasoline and diesel at the level of 0.75 HRK/l and reduced the consumption tax (for gasoline by 0.40 HRK/l, in the case of diesel by 0.20 HRK/l). According to preliminary data, the state budget deficit in 2021 amounted to HRK -1billion (2.9% of GDP). This is a much better result than in 2020, when it amounted to HRK 27.7 billion, i.e. 7.3% of GDP. State debt at the end of 2021 was HRK 34 billion and slightly decreased to 79.8% of GDP (from 87.3% of GDP in 2020, when it was HRK 330.4 billion). The public debt for 2021 should reach HRK 351 billion at the end of 2021, i.e. decrease to 83.1% of GDP, then to 80.7% of GDP in this year 2022, then to 78% in 2023 and 75.3% in 2024.
Croatia’s trade balance has been in deficit for a long time, which is offset by the balance of services, which, on the other hand, is in a significant surplus. Croatia’s most important foreign trade partners are the EU member states, trade with the EU accounts for around 70% of total exports and around 80% of imports. The main export commodities include machinery and transport equipment, chemicals, mineral fuels, lubricants and oils, foodstuffs, live animals and tobacco. The main trading partners are Germany, Italy, Serbia, Slovenia and Austria.
|GDP growth (%)||3.5||-8.1||10.4||3.7||2.5|
|Export of goods (billion USD)||17.2||15.1||20.5||23.4||24.2|
|Import of goods (billion USD)||28||25.4||36.3||45.5||48.3|
|Trade Balance (Billion USD)||-11.7||-9.9||-15.8||-22.1||-24.1|
|Industrial production (% change)||0.3||-4.6||6.3||2.4||2.2|
|OECD export risk||04.VII||04.VII||04.VII||04.VII||N/A|
Source: EIU, OECD, IMD, DZS Croatia
Public finance and state budget
|State budget balance (% of GDP)||2.9|
|Public debt (% of GDP)||79.8|
|Current account balance (billion USD)||3.4|
|VAT||25%, 13% and 5%|
According to preliminary data from the Croatian Statistical Office (DZS), the state budget deficit in 2021 amounted to HRK -1billion (2.9% of GDP). It is a much better result than in 2020, when it amounted to -27.7 billion HRK (7.3% of GDP). Public debt at the end of 2021 was HRK 34billion and slightly decreased to 79.8% of GDP (from 87.3% of GDP in 2020 when it was HRK 330.4 billion). The Croatian National Bank (HNB) predicts that the public debt should decrease further in the coming years (to 78% in 2023 and to 75.3% of GDP in 2024). According to CNB forecasts, the current account of the balance of payments in 2021 amounted to EUR billion (3.4% of GDP).
Croatia’s foreign debt increased by 2.5% year-on-year and amounted to USD 50,475.71 million at the end of 2021. External debt is expected to likely increase in 2022. At the beginning of 2021, Croatia’s gross external debt to GDP ratio was 86%. At the end of last year, external debt amounted to EUR 4billion, which is 77.8% of GDP. The growth of foreign exchange reserves is gratifying, reaching USD 28.3 billion at the end of January 2022, a new all-time high, almost 25% higher than in January 2021, according to data from the Croatian National Bank (HNB).
Banking is considered one of the stronger sectors of the economy, mainly due to effective regulation and relatively disciplined borrowers. The banking sector includes twenty banks and four savings banks owned mainly by foreign financial institutions (eleven banks are owned by banking houses from the EU). The Croatian banking system is comparable to other Central and Eastern European countries.
Croatia’s total capital ratio is above the EU average, making the banking system relatively stable and recession-proof. However, the interest rates are relatively high (the discount rate is 3%, depending on the risk, even more). In Croatia, there is a high proportion of loans in foreign currency (especially EUR). Among the strongest and largest banks is Privredna banka Zagreb, since 2007 belongs to the group Intesa Sanpaolo (Italy), Zagrebačka Bqanka (www.zaba.hr), which is owned by the Italian Unicredit Bank. Founded in 1994, Raiffeisenbank Hrvatska (RBA) is 100% owned by Raiffeisenbank Banking Group (Austria), overseeing a network of 70 branches in 36 Croatian cities. Erste banka (www.ESB.hr) was founded in 2003, the bank is a member of the Erste Group and manages 132 branches and 635 ATMs throughout the country. OTP banka (formerly Splitska Banka), founded in 1965. The bank, based in Split, is a member of OTP Bank (Hungary). Hrvatska Poštanska Banka (HPB) – founded in 1992, is the largest domestic bank in Croatia. The bank manages a network of 55 branches. A continuously updated overview of Croatian banking institutions and savings banks can be found on the website of the Croatian National Bank (www.hnb.hr). Detailed information on individual banks is also provided here, including a list of banks in bankruptcy proceedings. It successfully took over the Russian bank Sberbank, dd in Croatia after its closure this year Nova Hrvatska Banka, d.d.
The Croatian tax system is relatively clear and stable. Croatia signed the Double Taxation Agreement with the Czech Republic in 1999. The weakness of the tax system is the ambiguity of the interpretation of some tax laws.
Corporate income tax
Residents are taxed on their total income; non-residents are taxed only on income in Croatia. The standard corporate tax rate is 18% (income above HRK 7.5 million), taxpayers with an annual income below HRK 7.5 million are taxed at 10% (it was reduced from 12% from 1 January 2021). Income from dividends is not subject to corporate income tax in Croatia. However, dividends are subject to withholding tax, except for dividends paid to a resident entity. Capital gains are included in taxable income and taxed at the standard corporate income tax rate. Social security contributions consist of pension contributions (paid by the employee but withheld by the employer) of 20% of gross wages and health and employment insurance (paid and paid by the employer) of 16.5% of gross wages.
Personal income tax
Natural persons (residents) are taxed on all income if they have permanent residence or habitual residence in Croatia. Non-residents are taxed only on income from Croatian sources. The annual tax base is the total income from employment, self-employment and other income. Gross income is reduced by employee pension contribution payments (20% of gross income). Rates are progressive at 20% and 30%. Income up to HRK 12,500 is exempt from income tax. Up to income of 360 thousand HRK per year is a tax of 20%, above 360 thousand. HRK annually then 30%. Interest on savings accounts is taxed at a flat rate of 10%. Value added tax (VAT) is levied on the sale of goods, the provision of services, the acquisition of goods within the EU and on imports. The standard rate is 25% with a reduced rate of 13% and 5%. Registration for VAT purposes is mandatory, if the annual value of transactions exceeds 300 thousand HRK. A company can register voluntarily if the limit is not reached, but voluntary registration is for a minimum period of three years.