Croatia

Croatia, a parliamentary republic in Central Europe that sits along the Adriatic Sea, is bordered by Slovenia to the north, Hungary and Serbia to the east, and Bosnia and Herzegovina and Montenegro to the south. Croatia is divided into 20 counties and the city of Zagreb, which is also the capital of Croatia. The official language of Croatia is Croatian, and the currency is the kuna (HRK). As of 1 January 2023 the official currency is euro (EUR).

Croatia was part of the Austro-Hungarian Empire until the end of World War I. In 1918, the Croats, Serbs, and Slovenes formed a kingdom known after 1929 as Yugoslavia. Following World War II, Yugoslavia became a federal social independent state. Croatia declared its independence from Yugoslavia in 1991.

On 1 July 2013, Croatia became the 28th European Union (EU) member state. Croatia officially became the newest member of the European Union’s borderless area of Schengen on 1 January 2023.

The estimated growth of the Croatian gross domestic product (GDP) in 2021 is, in real terms, higher by 10.2% compared to 2020. The recovery in 2021 is supported by exports of goods and services in the first 11 months of 2021. Merchandise exports grew by 26.5%, which is the third fastest growth in the European Union, due to the good tourist season and personal consumption.

The value of Croatian merchandise exports in 2021 amounted to HRK 143.4 billion, which is a 27.9% increase compared to 2020, while imports increased by 23.2% to HRK 212.5 billion. The coverage of imports by exports in 2021 was 67.5%, and it was 65.0% in the same period in 2020. Looking at the total exports of the Republic of Croatia in 2021, the most exported products were oil and petroleum products (worth HRK 12.4 billion), electrical machinery, appliances, and devices (worth HRK 10.6 billion), and medical and pharmaceutical products (worth HRK 7.6 billion). In the same period in 2021, the most imported products were oil and petroleum products (worth HRK 15.4 billion), road vehicles (worth HRK 13.7 billion), and medical and pharmaceutical products (worth HRK 11.9 billion).

After a general government budget deficit of 7.4% of GDP in 2020, in 2021 a general government deficit of 4.5% of GDP could be realised due to the economic recovery and the phasing out of anti-crisis measures. According to quarterly data on the execution of the consolidated general government budget, in the first half of 2021 there was a budget deficit of HRK 9.3 billion. This achievement is an improvement over the deficit of HRK 15.2 billion in the same period in 2020, which reflects milder anti-pandemic measures, economic recovery, and reduced need for fiscal aid. Observed by quarters, in the first quarter there was a deficit of HRK 4.6 billion, comparable to the same period in 2020, and in the second quarter the deficit amounted to HRK 4.7 billion, which is a noticeable improvement compared to the deficit of HRK 10.8 billion realised in the same period 2020.

In the period from July to September, the growth of economic activity accelerated compared to the previous quarter, and employment growth continued. Although the number of unemployed has decreased, unemployment is still above pre-pandemic levels due to imports of foreign seasonal workers. According to seasonally adjusted data, the number of employees in September increased by 0.4%, as compared to August, while in the period from July to September it increased by 1.0%, as compared to the previous quarter. The biggest contribution to this increase was made by employment outside the public sector. At the same time, the unemployment rate decreased, reaching 7.0% of the workforce according to seasonally adjusted data, with the number of unemployed in September higher than in the same period in 2019.

At the level of the whole year 2021, the average annual rate of consumer price inflation increased to 2.6% (from 0.1% in 2020), the increase in inflation in 2021 is mainly the result of accelerating growth in energy prices. In December 2021, prices of goods and services for personal consumption measured by the consumer price index remained at the same level on average compared to November 2021.

Some of the main macroeconomic indicators in the period from 2017 to 2021 are presented in the figure below.

The client base of PwC Croatia includes some of the largest Croatian and multinational companies in Croatia. We have more than 250 professionals in Croatia who are focused on providing innovative advice and solutions. Our teams of local and expatriate professionals have the skills and the experience in all areas of taxation, corporate and personal, direct and indirect, to help clients grow and develop.

* Considering that the official currency in Croatia as of 1 January 2023 is EUR, the Croatian government issued new acts on changes to local regulations, which are valid from 1 January 2023 and in which the amounts are stated in EUR. Therefore, the WWTS Croatia discloses amounts in HRK which are valid until 31 December 2022 and amounts in EUR which are valid from 1 January 2023 (e.g. HRK xxx / EUR xxx).