Croatia - Foreign investment

Attracting foreign investment is a key goal of the comprehensive strategy for long-term development, "Croatia in the 21st Century," adopted 21 June 2001 with an aim of becoming a fully integrated member of the European Union. The day before, the bilateral investment treaty (BIT) with the United States entered into force. Croatia does not have a separate foreign investment law, so foreign firms generally receive national treatment under the 1995 Company Law. The Law on Free Trade Zones (FTZs) was adopted in June 1996. Companies making infrastructure investments of at least $125,000 are eligible for a five-year tax holiday, while others (except those in retail trade, which are excluded from FTZs) pay half Croatia's corporate income tax rate (10% instead of 20%). Exported goods are fully exempt from custom duties and taxes. The government has designated 12 FTZ locations. The Croatian constitution states that rights acquired through capital investments cannot be withdrawn by law or any legal act and it also insures free repatriation of profits and capital upon disinvestment.

From 1993 to 2000, total foreign investment in Croatia totaled $4.68 billion, about 24% from the United States and 24% from Germany. Most foreign direct investment (FDI) has come through the privatization of government-owned assets and most has been directed to trade, services, banking, and telecommunications, rather than industry. The inflow of FDI was $0.55 billion in 1997, $1 billion in 1998, and peaked at $1.6 billion in 1999, due largely to the sale of 35% of the state telecommunications company, Hrvatske Telekomunikacye (HT), to Deutsche Telekom (DT) for $830 millions. In 2000, FDI inflow fell back to $1.1 billion, then recovered to almost $1.5 billion in 2001 due to the sale of another 16% of HT to DT for $422 million, giving DT 51% majority ownership. In 2002, FDI fell back to $900 million.

In foreign portfolio investment, as of 31 December 2001, US investors held $734 million of Croatia securities, $255 in equity shares in Croatian companies, and $479 million in long-term debt securities.

Outward investment by Croatian firms from 1993 through the first quarter of 2001 totaled $413 million, 39% going to Poland and 28% to Bosnia and Herzegovina.

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