Croatia

Despite the huge growth in the number of tourists over the past 4-5 years and outstanding predictions up to 2010, Croatia still remains a charming and unspoiled destination. The Croatian Government have developed and maintained excellent policy to encourage overseas investors and with a maturity beyond their years have managed not to sacrifice the environment for the allure of the tourist dollar.

Strong demand from overseas investors is creating a very buoyant market showing growth in property prices in excess of 20-30% per annum with some investments double in price over the last 18 months in particular "hotspots". Although the Croatian market has experienced a spectacular rise over the past three years there is no doubt that it will continue to yield impressive returns over many years to come and is considered to have significant scope for further growth which is why Croatia is viewed by many investors as one of the most attractive investment opportunities available today.

Private or Company Route?

There are two avenues available when purchasing property in Croatia, the traditional Private Buyer Route, or, factor dependant, The Corporate Buyer Route - forming a company. Our in-house legal team analyse our client's needs and expectations, on a case-by-case basis, and then advise on the most appropriate route to meet our client's objectives.

The Private Buyer Route

UK and Irish Citizens, under condition of reciprocity, may acquire real estate in Croatia subject to approval by the Ministry of Foreign Affairs and possibly the Ministry of Justice. This process of approval can take from 6-12 months.

The traditional practice assumed that a pre-contract was drawn-up, the purchaser paid a 10% deposit, and then waited the 6-12 month period for approval from the Ministry before taking possession. If the purchaser withdrew from the deal in the interim, the deposit would be forfeited – where the vendor withdrew, they were required to return the deposit and pay an additional 10% as a penalty.

However, in such a buoyant property market, with rapidly rising prices, there is distinct risk that the purchaser may be gazumped. The rising market price makes it worthwhile for the vendor to break the contract and return the deposit and penalty to the purchaser, and still be well ahead.

In addition, vendors prefer buyers with upfront payment.

We advise payment of the full upfront price allowing our clients to:

• Take occupation before the permission is granted.
• Earn rental income during the approval process.
• Begin internal refurbishment (within the same footprint)
• Have peace of mind in that the property is theirs and there is no risk of gazumping.

(Please note that when buying property off-plan, the payments can be staged with traditionally a down payment of 35% of the contact value followed by up to five equal installments over the development period.)

The Corporate Buyer Route

There can be advantages in purchasing property in Croatia via the ‘ Corporate Buyer Route '. These advantages need to be offset with the initial and ongoing costs in maintaining the new entity. Our in-house legal team analyses our client's needs and expectations, on a case-by-case basis, and then advise on the most appropriate route to meet our client's objectives.

Our legal team can assist our clients in forming a limited liability company and this can be completed in 1-2 weeks.

The advantages of the corporate buyer route are as follows:

• Approval by The Ministry of Foreign Affairs is not required and you have full ownership of the property as soon as the final payment is made.
• If you plan to sell your property within the first three years, the profit realised (appreciation) from the sale is not subject to Capital Gains tax (35%). However, company (profit) tax is payable and is currently 20%. There are provisions in the Croatian tax law to account for amounts invested in the real estate, as well as depreciation of buildings. Our legal staff advise our clients on this issue, case by case.
• When selling the property purchased under the corporate buyers route, depending on the date the property was built, there are additional tax benefits to the seller. The sale of a Croatian company that owns real estate may the most tax efficient exit strategy for a foreign investor.

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