Croatia adopts the Strategic Investments Act

Lexology, November 28, 2013

1. Introduction

During the times of economic crisis, the governments tend to seek solutions to overcome economic issues and find various new ways of stimulating the investment cycle. Slow administration, vague practice of tax authorities, overregulation and high labour costs due to high taxes and social contributions are some of the key obstacles faced by foreign investors doing business in Croatia. In order to overcome this unfavourable situation, the Croatian Government adopted the Strategic Investments Act (“the SI Act”) which entered into force on 14 November 2013.

The SI Act regulates criteria for the selection of strategic investment projects, conditions for their evaluation, final preparation and implementation. Besides, the SI Act prescribes conditions for disposal of the state owned real estate, including the terms for concessions grant in relation to implementation of the strategic projects and administrative acts.

In the following, some of the basic features of the SI Act are being discussed.

2. What is a Strategic Project ?

The strategic projects are divided in:

  • private investment projects (projects that are entirely or in a part financed by Croatian based or foreign based legal persons and sole tradesmen);
  • public investment projects (projects that are conducted by the public enterprises or legal persons that are owned by the state or the local/regional self- governmental units); and
  • public-private investment projects (projects that are in line with the laws regulating public-private partnership).

The Croatian Government decides on whether the project is of strategic importance. In order for the project to be declared strategic, it has to include construction of buildings in relation to economy, energetic, tourism, traffic, infrastructure, environment protection, forestry, agriculture, fishing, culture, science, justice or technology etc.

A particular project shall be declared strategic if it:

  • creates conditions for additional employment;
  • significantly contributes to development and improvement of the conditions and standards for production of goods and services and introduction and development of new technologies;
  • increases competitiveness and efficiency in the economy or public sector and/or raises the overall level of safety and quality of life and environmental protection;
  • has a positive impact on several economic activities;
  • contributes to greater extent to sustainable development and protection of the environment and surroundings;
  • significantly contributes to the competitiveness of the Croatian economy.

Besides, in order for the project to be declared strategic it shall:

  • comply with documents on spatial planning; and
  • meet threshold of total capital investment costs being equal to or greater than HRK 150 million (EUR 20 million); or
  • be eligible to the EU funds and programs support, provided the total capital cost of the project is equal to or greater than HRK 75 million (EUR 10 million); or
  • be realised on the statutory defined supported areas, provided the total value of capital investment cost is equal to or greater of HRK 20 million (EUR 2,7 million); or
  • be realised on the islands, provided the total value of capital investment cost is equal to or greater of HRK 20 million (EUR 2,7 million); or
  • fall within the scope of ​​agriculture and fisheries projects provided the total value of capital investment cost is equal to or greater of HRK 20 million (EUR 2,7 million).

The private investment project may be declared strategic if it relates to one of the following activities:

  • manufacturing activities;
  • development/innovation activities;
  • business support activities;
  • high added value activities;
  • energy sector activities;
  • infrastructure activities.

3. What Procedure Must Be Followed?

Strategic projects and construction of strategic buildings are of special interest for Croatia. In order for the project to be considered strategic, it is required to undergo a particular procedure divided in four phases: a) administrative check; b) evaluation by the committee; c) inclusion into the list of strategic projects and publication; and d) preparation by the operative group.

a. Administrative Check

In the first step, the potential investor is required to lodge a “strategic project application” with the Ministry of Economy. The Ministry of Economy performs administrative check of the application. Within the administrative check it shall be determined whether the documentation meets formal requirements for putting into further procedure. The application shall include abbreviated description of the project, explanation regarding the fulfilment of the legal criteria for the strategic project, as well as all the required documents and other information.

Along with the application, the investor is obligated to submit the detailed feasibility study containing conceptual description, status and location of the project, strategic, business and financial plans and investment plans for concrete investment project in a period of five years, proof of financial capacity/financial sources, detailed profile of the company including subsidiaries and reference list, confirmation that all the obligations regarding outstanding tax liabilities and liabilities for pension and health insurance have been duly paid, documentation on solvency and creditworthiness of the investor.

b. Evaluation by the Committee

After the procedure of administrative check has been performed, the Ministry of Economy shall forward the documentation to the committee assessing the eligibility of the entire documentation for declaring the project as strategic. The committee consisted of president, vice president and 4 permanent and 3 variable members is established by the Croatian Government.

The committee is in charge for evaluating the strategic project application and its documentation and rendering the decision on the inclusion of the project into the list of strategic projects. The committee also adopts the decision on establishment of the operative group which is in charge for preparation and implementation of each particular project.

c. Inclusion into the List of Strategic Projects and Publication

In the case that the committee finds certain project of strategic importance, it shall be included into the list of strategic projects. Upon proposal of the committee, the Croatian Government publishes the decision on declaration of certain project as strategic in the Official Gazette.

d. Preparation by the Operative Group

After inclusion of the project into the list of strategic projects, the operative group shall commence with the procedure of final preparation of the project. The operative group is in charge for determining all the required procedures that need to be performed in the course of time and for obtaining all of the necessary data on the competent authorities participating in the preparation and implementation of the project. The operative group is also in charge for mutual coordination and preparation of the final documentation for the implementation of the project.

4. Urgent Procedure

Preparation and implementation of strategic investment projects is considered to be an urgent procedure. The administrative authorities shall issue required opinions and decisions within 15 days as of the day of obtaining the request from the potential investor. In case of especially complex matter, the time limit may be extended for additional 15 days.

5. Disposal with State Owned Real Estate

Besides in the SI Act, the regime and prerequisites for disposal with the state owned real estate are regulated in a number of special laws such as Management of State Property Act, Expropriation Act, Forest Act, Agricultural Land Act, Water Act, Roads Act, Concessions Act, Maritime Property and Seaports Act, Public Procurement Act, Protection and Preservation of Cultural Heritage Act.

The SI Act authorizes the Government to dispose with the state owned real estate, including forests and forest land, agricultural land and public roads, which assets are considered to be necessary for the implementation of the strategic projects. The disposal with the state owned real estate is exempted from public procurement or public tender procedure.

By obtaining the prior approval of the competent ministry, the Government is also authorised to dispose with the forests or forest lands either by transferring the ownership right or by establishing the building right on such land.

A special regime is provided for in respect to status and disposal of the public roads in general use what may be linked to actual project of “monetisation of highways”. The Government is authorised to determine and change the status of public roads and grant special real rights. Before conclusion of the respective agreement on ownership transfer/establishment of the building right/servitudes, the Government shall obtain the opinion of the State Attorney’s Office.

6. Final Remarks

Just a few days after enactment of the law, we are witnessing numerous debates on doubtful purpose of the SI Act. The furthest has gone the major opposition party which believes the SI Act provides legal basis for the Government to freely dispose with the state owned property by setting aside the influence of the public and the local governments in decision making process.

It is indisputable that the SI Act provides for greater authorities to the executive bodies (Government) in decision making process and disposal of the assets in public ownership. Such a regime should enable more flexible administration with the state owned assets and ease cumbersome procedures and formalities that are necessary for the implementation of projects. On the other side, such broad authorities should be carefully exercised in order not to be experienced as a temporary granted privilege to the ruling class at disposing with valuable assets.

From legal point of view, the novelties are expected to mitigate typical barriers faced by investors doing business in Croatia. It is needless to say that the SI Act is only a small step that needs to be performed simultaneously with a number of other economic incentives in order for the investment climate to be made more attractive.

Return to index