Croatia: Overview

RENTAL YIELDS

Last Updated: Sep 03, 2009

Moderate at 5.29%Yields in Zagreb reasonable; no data elsewhere

It has always been very difficult for us to get good data in Croatia. Rentals on the islands tend to be seasonal, and data about rents on Croatia’s mainland is hard to find.

The result is that we only have data for gross rental yields in Zagreb. Apartment yields in Zagreb range from 4.50% to 6.00%, with larger apartments yielding more (which is unusual).

Yields on houses in Zagreb range from 5% to 6.5%; again, it is rather unusual that houses should yield more than apartments. But the differences are small and may not be significant.

In conclusion: yields on property investments in Zagreb seem to be reasonable.

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TAXES AND COSTS

Last Updated: Oct 01, 2009

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, of non-resident foreigners is considered ordinary taxable income and is taxed at 15%.

Capital Gains: Capital gains are taxed at a flat withholding rate of 25%. Capital gains realized from properties held for more than three years are not subject to capital gains tax.

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

Last Updated: Mar 06, 2007

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

Last Updated: Jul 14, 2006

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

Last Updated: Aug 19, 2008

Waiting for Nato and EU accession

Croatia had a population of 4.4 million and GDP per capita of USD 11,576 in 2007. Tourism is its major industry and the service sector continues to be a large part of Croatia’s GDP. Dubrovnik, with its nearby beaches and recently restored historical town, is a primary tourist destination. The Northern peninsula of Istria is also very popular.

Croatia, once a part of the now defunct Yugoslav Republic, was ravaged by the Serbo-Croatian War that occurred from 1990-1995. It was then somewhat isolated due to the corrupt and authoritarian regime of Franjo Tudjman, who ruled Croatia from its separation from Yugoslavia in 1989 until his death in 1999.

The entry of a new regime in 2000 ushered in political and economic reforms and lifted Croatia from international isolation. The country is expected to be admitted to NATO in 2009 and to the EU in 2010. These moves are expected to usher in more foreign investment and lead to stronger economic growth.

After a mild recession in 1999, the Croatian economy rebounded. The economy has been expanding by an average of 4.5% from 2000-2006.GDP growth was 5.7% in 2007 but is expected to slow to 4.2% in 2008.

Pushed by rising global fuel and food prices, annual inflation has been rising since June 2007. Inflation reached 7.56% in June 2008, the highest rate recorded since 1995. The annual average inflation from 2001 to 2007 was only 2.67%.