Chapter

CROATIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: May 29, 1995.
Exchange Arrangement
CurrencyThe currency of Croatia is the Croatian kuna.
Exchange rate structureUnitary.
Classification
Managed floating with no pre-announced path for the exchange rateThe exchange rate of the kuna is determined in the domestic foreign exchange market. The Croatian National Bank (CNB) may set intervention exchange rates, which it applies in transactions with banks outside the interbank market for leveling undue fluctuations in the exchange rate.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange market
Official cover of forward operationsThe CNB has provided, on occasion, swap facilities at par for banks in a limited forward market.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payment arrangements
Bilateral payment arrangements
OperativeThere is an arrangement with Italy.
Administration of controlThe CNB formulates and administers exchange rate policy and may issue foreign exchange regulations. Companies wishing to engage in foreign trade must register with the commercial courts. Effective May 19, 1999, the CNB subjected imports to exchange controls to prevent fraudulent and fictitious imports and to facilitate enforcement of existing restrictions on certain capital flows.
International security restrictions
In accordance with Executive Board Decision No. 144-(52/51)Yes.
In accordance with UN sanctionsIn compliance with the relevant UN Security Council resolutions, restrictions are imposed on certain financial transactions with Angola, the Federal Republic of Yugoslavia (Serbia/Montenegro), and Iraq.
Payment arrears
OfficialYes.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeThe exportation of unprocessed gold and gold coins by producers of gold or by authorized commercial banks is subject to the approval of the CNB. Importation of gold is subject to the approval of the Ministry of Economy (MOE).
Controls on exports and imports of banknotesAs a measure against money laundering, kuna or foreign exchange cash transactions above HRK 40,000 should be reported to the Office for the Prevention of Money Laundering.
On exportsThe exportation of domestic and foreign currency in cash or checks has to be declared to customs.
Domestic currencyThe exportation of Croatian currency by both residents and nonresidents is limited to HRK 2,000 a person; however, larger amounts may be exported with special permission from the CNB.
Foreign currencyResident natural persons may take abroad up to the equivalent of DM 1,000. An additional amount up to the equivalent of DM 2,000 may be taken out, provided that it is withdrawn from foreign currency accounts or purchased from banks for travel expenses. In both cases, the CNB may allow higher amounts to be taken out on a case-by-case basis.
On imports
Domestic currencyThe importation of Croatian currency by both residents and nonresidents is limited to HRK 2,000 a person; however, larger amounts may be imported with special permission from the CNB.
Resident Accounts
Foreign exchange accounts permittedResident natural and juridical persons may, in principle, open and operate foreign exchange accounts only in Croatia. However, the CNB has the authority to allow resident juridical persons to keep foreign exchange in accounts with foreign banks in order to cover the costs of business operations and to meet the requirement of regular foreign trade activities abroad. The law also makes specific provisions for resident juridical persons engaged in capital project construction abroad to maintain accounts with foreign banks, subject to a license issued by the CNB.
Held domesticallyYes.
Held abroadThese accounts are permitted, but approval is required.
Accounts in domestic currency convertible into foreign currencyResident juridical persons may convert domestic currency into a foreign currency for the purpose of their business operations.
Nonresident Accounts
Foreign exchange accounts permittedThese accounts may be credited freely with foreign exchange and debited for payments abroad for conversion into domestic currency; reconversion of domestic currency into a foreign currency is permitted. As a measure against money laundering, nonresident juridical persons may not credit these accounts with foreign banknotes exceeding the equivalent of $20,000 without special permission from the CNB. Nonresident juridical persons may withdraw up to the equivalent of HRK 15,000 each month from their deposit accounts. Larger amounts may be withdrawn with CNB permission. Nonresidents may open foreign exchange accounts with fully licensed banks in Croatia.On April 20, 1999, a decision was published on the documentation required for opening foreign exchange and domestic currency accounts by nonresidents.
Domestic currency accountsThese accounts may be opened with the proceeds from sales of goods and services or with foreign exchange transferred from abroad and converted into domestic currency.
Convertible into foreign currencyForeign exchange may be purchased with funds held in these accounts without restriction.
Blocked accountsBalances in foreign exchange accounts held by residents (natural persons) of the former Socialist Republic of Yugoslavia, blocked since 1992, have been replaced by claims on the Croatian government.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance payment requirementsEffective April 20, 1999, advance payments and down payments for imports are permitted under certain circumstances.
Documentation requirements for release of foreign exchange for importsEffective May 19, 1999, imports are subject to exchange controls. An invoice or agreement is required for transfers.
Import licenses and other nontariff measuresThere are no import quotas, although the trade law allows for such quotas in principle, under conditions envisaged by WTO rules. All imports are free from licensing requirements except for a list of products whose importation is controlled by international agreement for noneconomic reasons (such as arms, gold, illegal drugs and narcotics, and artistic and historic work), and a small number of other products (notably iron tubes in bars—except for WTO members—and tractors older than five years). The importation of these items is allowed on a case-by-case basis. Effective May 15, 1999, Croatia reintroduced MFN trade with Bosnia and Herzegovina.
Negative listYes.
Import taxes and/or tariffsImports are subject to customs tariffs of up to 25% ad valorem. For a number of agricultural and food products, compound duties (ad valorem plus specific customs duty) are applied. The exemption for duty-free imports by travelers is HRK 300. For imports exceeding that value, the regular import tariffs and taxes (VAT 22%) are applied. Goods imported by travelers and postal shipments up to the equivalent of $5,000 are subject to a simplified customs procedure with a unified tariff rate of 10%. For imports exceeding that value, the regular import tariffs and taxes are applied. Returning citizens who have resided abroad for at least five years without interruption may import household effects that were in use for at least twelve months, as well as goods for private business purposes, subject to customs approval, without paying customs tariffs or taxes. Under certain conditions, goods imported by nonresidents for investment purposes are exempt from import duties. Imports under special customs procedures, such as temporary imports and goods to be processed under customs surveillance, are exempt from customs duties.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsExport proceeds must be collected and repatriated in full within 90 days of date of exportation. This period may be extended for 60 days with permission from the CNB. If payment terms in excess of 90 days have been agreed to with foreign importers, the credit arrangement must be registered with the CNB. Export proceeds from the countries of the CIS must be repatriated within 180 days, with the possibility of a further 60-day extension, subject to the approval of the CNB.
Financing requirementsNo.
Documentation requirements
GuaranteesYes.
Export licensesExports are free of restrictions except for certain products for which permits must be obtained (e.g., weapons, drugs, and art objects). As of January 1, 1999, quantitative export restrictions were eliminated.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsProceeds from services are, in principle, subject to the same regulations as those applying to exports.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital and money market instrumentsInward portfolio investment is not restricted, except in central bank short-term securities in the primary market. In general, outward investment in capital and money market securities is not allowed for either natural or nonbank juridical persons.
On capital market securities
Shares or other securities of a participating nature
Purchase abroad by residentsThere are controls in place for all residents, except banks and investment funds.
Bonds or other debt securities
Purchase abroad by residentsThere are controls in place for all residents, except banks, investment funds, and pension funds.
Sale or issue abroad by residentsThe same regulations apply as for financial credits.
On money market instruments
Purchase locally by nonresidentsOnly purchases in the primary market are restricted.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsThe same regulations apply as for bonds and other debt securities.
Sale or issue abroad by residentsThe same regulations apply as for financial credits.
On collective investment securities
Purchase abroad by residentsThe same regulations apply as for bonds and other debt securities.
Controls on derivatives and other instruments
Purchase abroad by residentsYes.
Controls on credit operationsEffective December 31, 1999, foreign credit operations have to be registered with the CNB.
Commercial creditsFor statistical purposes only, such transactions have to be registered with the CNB.
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Financial credits
By residents to nonresidentsResident juridical persons may extend financial credits only to nonresident juridical persons in which they have the majority of voting rights.
To residents from nonresidentsResident juridical persons may obtain financial credits from abroad only for performing activities they are registered for.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsResident juridical persons may issue guarantees, sureties, and financial backup facilities only for performing activities they are registered for.
To residents from nonresidentsFor statistical purposes only, such transactions have to be registered with the CNB.
Controls on direct investment
Outward direct investmentNatural persons may not make foreign direct investments abroad. Foreign direct investment abroad by juridical persons is free under certain circumstances, but must be registered with the MOE within 30 days from the signature of the contract.
Inward direct investmentInvestments must be registered with the commercial courts only.
Controls on liquidation of direct investmentProceeds may be transferred after settlement of legal obligations, including tax payments.
Controls on real estate transactions
Purchase abroad by residentsA natural person may not transfer capital abroad for the purpose of buying real estate. Juridical persons may buy real estate abroad for the purpose of foreign direct investment.
Purchase locally by nonresidentsSubject to the permission of the Ministry of Foreign Affairs and the Ministry of Justice, foreign natural and juridical persons may, if not otherwise determined by law and if under the assumption of reciprocity, acquire the ownership of real estate in the territory of the Republic of Croatia.
Controls on personal capital movementsFor statistical purposes only, such transactions have to be registered with the CNB.
Loans
By residents to nonresidentsNatural persons may not grant credits to nonresidents.
To residents from nonresidentsResident natural persons are obliged to use foreign financial credits through the authorized domestic banks.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsCash gifts and endowments greater than the equivalent of DM 3,000 must be approved by the CNB.
Transfer of assets
Transfer abroad by emigrantsThe approval of the CNB is required.
Provisions specific to commercial banks and other credit institutions
Lending locally in foreign exchangeDomestic commercial banks may not give foreign exchange credits to resident natural persons. Commercial banks may, under certain circumstances, give foreign exchange credits to juridical persons for activities they are registered for. Foreign commercial banks may extend credit in foreign exchange to both natural and juridical persons.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsCommercial banks are required to hold reserve requirements in foreign exchange at 55% of the average balance of household deposits with a remaining maturity of three months. A minimum 50% of these reserves must be held in a special account kept at the CNB, while a maximum 50% may be maintained in accounts earmarked for liquid foreign currency claims and held on accounts with banks not rated lower than AA. In addition, there are reserve requirements on banks’ foreign liabilities arising out of foreign credits received for the purposes of conversion into kuna. These reserve requirements, which are payable in kuna and are not remunerated, range from 10% on guarantees and 15% on foreign exchange interbank deposits, to 30% for foreign borrowing of up to one year.
Liquid asset requirementsShort-term foreign exchange liabilities must be covered by 53% short-term foreign exchange assets of a maturity of less than one year.
Open foreign exchange position limitsThe limit is 30% of the bank’s Tier I capital.
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investorsOn May 13, 1999, anew law on obligatory and voluntary pension funds was enacted.
Limits (max.) on portfolio invested abroadInvestment funds may not invest more than 5% of the value of the fund in the securities of a single issuer. However, this limit may increase to 10% provided that not more than 40% of the assets of the fund are invested in securities of other issuers. In addition, investment funds may acquire bonds of one issuer only if the total face value of these bonds does not exceed 10% of the total face value of all the bonds of the same issuer, if they are in circulation. For purposes of determining this limit, bonds of the Croatian state, member states of the EU, and other member states of the OECD are valued at one-half their face value.
Other controls imposed by securities lawsNo.
Changes During 1999
Exchange arrangementSeptember 30. The exchange rate arrangement was reclassified to the category managed floating with no preannounced path for the exchange rate from the category pegged exchange rate within horizontal bands.
Nonresident accountsApril 20. A decision was published regarding the documentation requirement for opening nonresident foreign exchange and domestic currency accounts.
Imports and import paymentsApril 20. Advance import payments were allowed under certain circumstances.



May 15. MFN trade with Bosnia and Herzegovina was reintroduced.



May 19. Imports are subject to exchange controls.
Exports and export proceedsJanuary 1. Quantitative export restrictions were eliminated.
Capital transactions
Controls on credit operationsDecember 31. Foreign credit operations have to be registered with the CNB.
Provisions specific to institutional investorsMay 13. A new law on obligatory and voluntary pension funds was enacted.

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