Doing Business in Croatia AGN World Congress New Orleans October, 23

Croatia General info: 4,3m inhabitants Major economical info: As of 01.07.2013 Croatia is going to be part of EU Croatian Kuna is linked to € (1 € = app 7,5 HRK) → most companies get loans in € currency. Possibility of finance through Pre-Accession Funds of EU (i.e. for agricultural and food processing industry there is possibility to get even 50% of investment needed) Liquidity problems in Croatia (mostly by state owned companies) →new Financial stability Act as of 01.10.2012 that should secure liquidity in economy. In a process of encourageing small business and major investors in Croatia Political stability: 2 major parties (democratic party and socialistic party) → government change happened in January 2012

Business entities 2 major business entities: Limited liability company (d.o.o.) Most frequent type of company in Croatia Minimal capital = 20.000 HRK (app. 2.700 €, 3.500$) Opening LLC takes app. 2 weeks, cost – app. 7.500 HRK (app 1.000€, 1.300$) Company is liable to settle its debts with all its assets. Owners are not personally liable for the obligations of the company, unless the Company Act provides otherwise. Members of company management board can be foreigners Stock company (d.d.) Minimal capital = 200.000 HRK (app. 27.000€, 35.000$) → we are in process of introducing „small LLC”, which can be found with a minimal capital of 10 HRK

Accounting and Auditing Requirements: Accounting Requirements Croatian FRS = short version of IFRS. In case Croatian FRS does not prescribe how it should be booked, company needs to use IFRS. Auditing requirements Ending with the financial statements for 2013, all companies with income greater then app. 4m EUR (5,2 m $) should have an audit After Croatia joins EU, all medium sized and big companies will be subject to obligatory audit → app. 50% less obligatory audits. Size of company: Accounting standards: Small Croatian FRS Medium sized Big IFRS as used in EU

Taxation in Croatia (I): VAT One of the highest VAT rates in EU – 25% standard rate (increased due to the crisis within a period of 3 years for 3% - i.e. from 22%) Additional rates: 10% for tourism, 0% for milk, bread and books →Until the end 2012, Croatia needs to adopt new VAT tax law, due to the harmonization with EU laws. We are expecting some major changes in VAT regulations. Profit tax Standard rate 20% Tax losses can be forwarded for 5 years → there are no indications that Profit Tax Act will change with entrance of Croatia in EU.

Taxation in Croatia (II): Withholding tax 15% for parent company interest, dividends, market research services, audit services, tax consulting services and business consulting service, royalties and other intellectual property rights (copyright, patent, licensing, trade mark, design or pattern, production procedure, production formulas, drafts, plan, industrial or scientific experience and similar rights) →In case of double taxation treaty – taxation is based on double taxation treaty. Croatia has signed a double taxation treaty with most of the EU members. 20% of all services paid to persons who have their permanent establishment or headquarters in the countries, except EU, in which general or average nominal profit taxation rate is lower then 12,5%

Taxation in Croatia (III): Personal taxation: Tax rates: 12%, 25% and 40% for payroll Calculation of a monthly payroll in gross amount of 22.500 HRK (app. 3.000€) Position: % Amount in HRK: 1. Bruto payroll: 22.500 2. Pension security: 20% 4.500 3. Personal allowances 2.200 4. Income taxation 4.714 5. City tax 18% 849 6. Net payroll 12.437 7. Taxation on payroll 15,2% 3.437 8. TOTAL PAYROLL COST 25.920

Taxation in Croatia (IV): Personal taxation (II): Taxation of dividends = starting 01.03.2012 = 12%; Taxation of interest rate received by bank = 0%; Taxation of interest rate received by a company (i.e. owned by the physical person) = 40% Taxation of capital gains = 0%

Tax incentives in case of new investments: Amount of investment Amount of employees: Max. years of tax incentive Profit tax deduction Manufacturing activities Technological development and innovation 0.3-1.5 mil € 0.1-1.5 mil € 10 5 50% 1.5-4.0 mil € 30 15 65% 4.0-8.0 mil € 50 25 85% 8.0+ mil € 75 100%

Labor law: Minimal pay: 2.800 HRK (app. 375€) There is a new labor law expected (final date 01.07.2013 –i.e. with entrance of Croatia in EU), that should be more flexible regarding: hiring and firing employees; possibility to be employed part time at several employees; possibility to work from home (i.e. for mothers with small children); Employment of pensioner. Due to the high unemployment rate of young people, there is a possibility to employ young employees without previous employment without a payment (those people are receiving 1.600 HRK from Government).

More about investing in Croatia: Croatia Your Business Partner.PDF How to Start Up an Enterprise in Croatia.PDF Croatian Tax System.PDF ..\Documents\D.K. - jr - privatno\CV\CV_DK_eng.doc