Foreign Direct Investment

After experiencing a period of growth in 2005-2008, foreign direct investment inflows to Croatia collapsed as an effect of the global economic crisis (the tourism sector was particularly affected). Since then, FDI flows have been struggling to return to their pre-crisis levels. According to UNCTAD's 2022 World Investment Report, total FDI inflows reached USD 569 million in 2021, more than three times higher than the level recorded one year earlier. In the same year, the total stock of FDI stood at USD 38.9 billion, around 57.3% of the country’s GDP. The sectors receiving the most FDIs are financial services (26%), manufacturing (17%), real estate (16%), wholesale and retail trade (14%), and ICT (7%). The main investing countries are the Netherlands (16%), Austria (13%), Luxembourg (11%), Germany and Italy (10% each - source: Ministry of Economy). According to preliminary figures from the National Bank, the net inflow of foreign direct investments to Croatia stood at EUR 2,875 billion in the first third quarters of 2022, up from EUR 2,002 billion in the same period one year earlier, thanks to an increase in liabilities mainly related to retained profit accounted for by the improved business results of banks and enterprises in foreign ownership, as well as new equity investments (over 90% of the banking sector is foreign-owned).
 
Croatia suffered from a poor image linked to corruption, high taxes and an inefficient judicial system, though reforms have been attempted in recent years. Still, the country has a high-quality infrastructure and high touristic potential, a well-educated workforce and a strategic position. Croatia does not have a foreign investment screening mechanism and does not discriminate between national and foreign investors, except in certain sectors in which foreign ownership is restricted (e.g. inland waterways transport, maritime transport, rail transport, air-to-ground handling, freight-forwarding, publishing, ski instruction, and primary mandated healthcare). The recently amended Investment Promotion Act (IPA) offers incentives to investment projects in manufacturing and processing activities, development and innovation activities, business support activities and high added-value services, in the form of tax refunds or cash grants. On 1 January 2023 Croatia adopted the euro and became the 20th member of the euro area. The country ranks 46th out of 132 in the latest Global Competitiveness Index, 57th out of 180 in the Corruption Perception Index, and 49th out of 82 in the Economist Business Environment ranking.