Croatia: Overview

RENTAL YIELDS

One of the most expensive in Southeastern Europe

Rental apartments in central Zagreb can cost around €2,000 to €2,400 per sq. m., among the most expensive capital cities in southeastern Europe. Property prices in Croatia are generally at par with Romania, but higher than Greece or Macedonia. Bigger properties are usually proportionately more expensive. Prices of houses in the suburbs range from €1,700 to €1,900 per sq. m.

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TAXES AND COSTS

Effective tax rates are moderate in Croatia

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	10.5%	10.5%	10.5%
Click here to see a worked example
Source: Disclaimer

Rental Income: Rental income, excluding deductible expenses, is considered ordinary taxable income and is taxed at 20%.

Capital Gains: Capital gains are considered ordinary business profits, and are subject to regular profit tax of 20% on the net gains.

Inheritance: Inheritance tax is levied at a flat rate of 5% in Croatia.

Residents: Personal income tax for residents is at progressive rates, from 15% to 45%.

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BUYING GUIDE

Total transaction costs are high in Croatia

Total roundtrip transaction costs are high, ranging from 13.6% to 21.5% for old properties. The bulk of the cost is accounted for real estate agent’s fees, at 6% to 12%, split between buyer and seller. The real estate transfer tax is 5% but does not apply to the first sale of new buildings. Instead, the sale is subject to 22% VAT on the net construction value.

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LANDLORD AND TENANT

Croatian laws are neutral between landlord and tenant

Croatian law is neutral between landlord and tenant.

Rent: There is neither rent control nor a maximum deposit. One or two month’s deposit is customary.

Tenant Eviction: Evicting over-staying tenants can be difficult. Zagreb’s courts are clogged, and cases take time. Informal methods of using ‘agencies,’ i.e., thugs, are common and tend to be recommended by realtors.

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ECONOMIC GROWTH

Economic rebound continues

Croatia, formerly part of the now defunct Yugoslav Republic, is struggling hard to introduce economic and political reforms.

Croatia has a population of about 4.4 million and a GDP per capita of US$9,582 as of 2006. Tourism is its major industry. Dubrovnik, with its nearby beaches and recently restored historical town, is a primary tourist destination. The Northern peninsula of Istria is also very popular.

After a recession in 1999, the Croatian economy rebounded, and has grown by 3% per annum since 2001. It posted a healthy 4.8% GDP growth in 2006, up from 4.1% in 2005. However, unemployment remains high at 11.8% as reported by Croatia’s Central Bureau of Statistics. Inflation was at 3.2% in 2006, and is projected by the IMF to dip to 2.7% in 2007.

External debt continues to pose a threat to the economy. It rose to €29 million or 84% of GDP in 2006, up from 82.5% of GDP in 2005. The consolidated government balance has been negative since 1999. A worsening current account deficit, now at €2,617.4 million, and rising external debt, now at €29.032 million, make Croatia vulnerable to external shocks.

The country is expected to be admitted to the EU in 2010.