Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

CROATIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of March 31, 2005)

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 predetermined path for the exchange rateThe exchange rate of the kuna is determined in the foreign exchange market. The Croatian National Bank (CNB) may set intervention exchange rates, which it applies in transactions with banks outside the interbank market to smooth 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 requirements
Controls on the use of domestic currencyYes.
Use of foreign exchange among residentsThis is allowed only in prescribed cases.
Payments arrangements
Bilateral payments arrangements
OperativeThere is an arrangement with Italy that applies only to certain Croatian districts.
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.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Yes.
In accordance with UN sanctionsIn accordance with the relevant UN Security Council resolutions, restrictions are imposed on financial transactions with the Taliban and on transactions relating to known terrorist groups.
Payments arrears
OfficialYes.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeImports and exports of monetary and nonmonetary gold (including gold in unwrought, semimanufactured, or powder form, or plated with platinum; gold bars, rods, wires, and sections; gold plates; and gold sheets and strips exceeding 0.15 mm in thickness, excluding any backing) are subject to approval of the Ministry of Economy, Labor, and Entrepreneurship.
Controls on exports and imports of banknotesImports and exports of kunas and foreign exchange exceeding HRK 40,000 or its equivalent in cash and checks must be declared to customs to prevent money laundering.
On exports
Domestic currencyThe exportation of Croatian currency by natural persons (both residents and nonresidents) is restricted to HRK 15,000 a person; however, larger amounts may be exported with CNB approval.
Foreign currencyResident natural persons may take out the equivalent of €3,000 in foreign currency and checks; larger amounts require CNB approval.
Resident natural persons may take out bank and traveler’s checks up to the equivalent of €3,000 for the payment of goods and services abroad only.
Other residents may take out foreign currency and checks for the payment of goods or services imports up to the equivalent of €3,000; larger amounts require CNB approval.
On imports
Domestic currencyNatural persons—both resident and nonresident—may import up to HRK 15,000; larger amounts require CNB approval.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadResidents may, in principle, open and operate foreign exchange accounts only in Croatia. However, the CNB has the authority to allow residents (except banks) to open and maintain accounts abroad. These accounts may be opened for the following purposes: investment and research projects abroad; deposit guarantees; drawing of funds under foreign credits; insurance against interest rate, currency, and other market risks; purchases and sales of securities abroad; payments of the costs of representative offices abroad; payments of the costs of residents providing services in international goods and passenger traffic, and residents involved in insurance of property and persons; settlements of claims in nontransferable currencies; and some other purposes.
Accounts in domestic currency held abroadThe regulations governing foreign exchange accounts held abroad apply.
Accounts in domestic currency convertible into foreign currencyResidents may convert domestic currency into foreign currency without limitation.
Nonresident Accounts
Foreign exchange accounts permittedNonresidents may open foreign exchange accounts with fully licensed banks in Croatia. A CNB decision sets forth the documentation required for opening foreign exchange and domestic currency accounts by nonresidents. Legal and natural persons domiciled or resident abroad that are engaged in economic activity and other foreign organizations engaged in business abroad may deposit into their accounts up to the equivalent of €25,000 a month and may withdraw from their accounts €5,000 worth of foreign currency cash a month. Amounts in excess of these limits require approval from the CNB.
Domestic currency accountsLegal and natural persons domiciled or resident abroad that are engaged in economic activities and other foreign organizations doing business abroad may withdraw and/or deposit up to HRK 30,000. Amounts in excess of this limit require approval from the CNB.
Convertible into foreign currencyForeign exchange may be purchased with funds held in these accounts without limitation.
Blocked accountsBalances in foreign exchange accounts held by residents (natural persons) of the former Federal Republic of Yugoslavia, blocked since 1992, have been replaced with claims on the Croatian government.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsAn 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 agreements (such as arms, gold, illegal drugs, and narcotics), and a small number of other products (notably iron tubes and bars and fertilizers—except those imported from WTO members). Imports are not limited on the basis of quantity or value, except as stated in relevant international conventions. Licenses, where required, are issued on a case-by-case basis.
Negative listYes.
Import taxes and/or tariffsImports of industrial products are subject to customs tariffs of up to 15.2%. For a number of agricultural and food products, compound duties (ad valorem plus a specific customs duty) apply. The maximum ad valorem duty is 58% (previously, 61%) and, where a compound duty is applied, the maximum ad valorem component is 15%. The exemption for duty-free imports by travelers is HRK 300 or the equivalent. For imports exceeding that value, the regular import tariffs and taxes (including a VAT of 22%) apply. Goods imported by travelers and postal shipments up to the equivalent of HRK 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 apply. Returning citizens who have resided abroad for at least five years without interruption may import household effects that were in use for at least 12 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 requirementsNo.
Financing requirementsNo.
Documentation requirements
GuaranteesYes.
Export licensesExports are free of limitations, except for certain products for which permits must be obtained (e.g., weapons, drugs, and art objects).
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instrumentsInward portfolio investment is subject to certain limitations. In general, outward investment in capital and money market securities by banks, investment funds, insurance companies, and pension funds is liberalized, while controls apply to transactions by other legal and natural persons.
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsNonresidents are allowed to invest freely, but the instruments must be held for a minimum of one year.
Sale or issue locally by nonresidentsThe MOF has been authorized to impose certain conditions on the issuance, sale, and listing of foreign securities in local capital markets.
Purchase abroad by residentsResidents may freely purchase abroad securities issued by OECD member countries and international financial institutions; minimum issuer rating conditions are imposed on purchases of securities issued by private issuers.
Sale or issue abroad by residentsResidents are allowed to sell or issue securities abroad, although prior notification to the Croatian Securities Commission is required.
Bonds or other debt securities
Purchase locally by nonresidentsNonresidents are allowed to invest freely, but these instruments must be held for at least one year.
Sale or issue locally by nonresidentsThe MOF may impose conditions on the issuance, sale, and listing of foreign securities in local capital markets.
Purchase abroad by residentsResident individuals may purchase securities issued by OECD member countries and international financial institutions. Minimum issuer rating conditions are imposed on purchases of securities issued by private issuers.
Sale or issue abroad by residentsThese transactions must be reported to the CNB for statistical purposes.
On money market instruments
Purchase locally by nonresidentsNonresidents are not allowed to purchase CNB bills or MOF treasury bills. The CNB may impose restrictions on the acquisition of other short-term securities and the transfer thereof prior to maturity.
Short-term securities purchased by nonresidents must be held until maturity. Residents may not sell to nonresidents domestic short-term securities with a remaining maturity of less than six months.
Sale or issue locally by nonresidentsIssues of short-term securities by nonresidents are subject to minimum rating requirements. Securities issued locally must be denominated in kunas.
Purchase abroad by residentsThe regulations governing bonds and other debt securities apply.
On collective investment securities
Purchase locally by nonresidentsNonresidents may not purchase shares in domestic investment funds whose portfolios are more than 50% composed of CNB bills and treasury bills of the MOF.
Sale or issue locally by nonresidentsThese are permitted subject to reciprocity.
Purchase abroad by residentsResidents may purchase stakes in foreign investment funds provided that the following conditions have been met: (1) the head office of the investment fund management company must be located in a member country of the OECD, and (2) at least 40% of the investment fund assets must be invested in securities of OECD member countries and international financial institutions. In addition, these transactions are subject to reciprocity.
Controls on derivatives and other instruments
Purchase abroad by residentsPurchases for the purpose of hedging against risk are permitted.
Sale or issue abroad by residentsSales or issues for the purpose of hedging against risk are permitted.
Controls on credit operationsForeign credit operations must be reported to the CNB.
Commercial creditsFor statistical purposes only, commercial credits with a maturity of more than one year must be reported to the CNB.
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Financial credits
By residents to nonresidentsThe extension of financial loans with a maturity of less than one year to nonresidents is prohibited, except when made by banks or direct investors in foreign companies.
To residents from nonresidentsYes.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Controls on direct investment
Outward direct investmentInvestments must be reported to the CNB for statistical purposes.
Inward direct investmentInvestments must be registered with the commercial courts and reported to the CNB for statistical purposes.
Controls on liquidation of direct investmentProceeds may be transferred after settlement of legal obligations, including tax payments.
Controls on real estate transactions
Purchase locally by nonresidentsForeign natural and legal persons may acquire real estate in Croatia under the condition of reciprocity, subject to permission from the minister of foreign affairs, which is granted after the prior opinion of the minister of justice.
Controls on personal capital transactions
Loans
By residents to nonresidentsThe extension of financial loans with maturity of less than one year to nonresidents is prohibited. This prohibition does not apply to residents extending financial loans to immediate relatives.
To residents from nonresidentsResident natural persons are required to use foreign financial credits through the authorized domestic banks.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsGifts and endowments greater than the equivalent of €3,000 (if made in foreign exchange) or HRK 15,000 (if made in kunas) must be approved by the CNB.
Transfer of assets
Transfer abroad by emigrantsCNB approval is required for transfers exceeding HRK 15,000 or the equivalent of €3,000 in foreign exchange.
Provisions specific to commercial banks and other credit institutions
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsEffective November 8, 2004, deposits denominated in domestic and foreign exchange are subject to a reserve requirement of 18% (previously, 19%). The calculation period follows the calendar month, but the maintenance period, which also lasts a month, extends from the eighth of the calendar month to the seventh of the following month. Kuna and foreign exchange components of the calculation are determined separately. Forty-two percent of the calculated foreign reserve requirement is included in the calculated kuna reserve requirement. Effective July, 1, 2004, new foreign borrowings by commercial banks are subject to a reserve requirement of 24%.
The rate of remuneration for the deposited kuna component of required reserves is 1.25%. The remuneration of the foreign exchange component is 75% of the U.S. federal funds target rate for funds allocated in dollars and 75% of the ECB minimum bid refinance rate for funds allocated in euros. Effective March 8, 2005, banks are required to deposit 30% of the net increase in foreign liabilities in an unremunerated foreign exchange account in the CNB.
Liquid asset requirementsEffective February 24, 2005, 32% (previously, 35%) of foreign exchange liabilities must be covered by short-term foreign exchange assets with a maturity of less than three months.
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsThe required reserves applicable to nonresident accounts in foreign exchange are to be deposited with the CNB, while reserves applicable to resident accounts in foreign exchange may be partly deposited with foreign banks.
Open foreign exchange position limitsThe limit on open positions in foreign exchange is 20% of a bank’s regulatory capital.
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investorsA law on obligatory and voluntary pension funds is in effect.
Limits (max.) on investment portfolio held 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 be raised 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, but 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 and 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 of their face value.
Other controls imposed by securities lawsNo.
Changes During 2004
Capital transactions
Provisions specific to commercial banks and other credit institutionsNovember 8. The reserve requirement for domestic and foreign currency deposits was reduced to 18% from 19%.
Provisions specific to institutional investorsJuly 1. New foreign borrowing by commercial banks was made subject to a reserve requirement of 24%.
Changes During 2005
Capital transactions
Provisions specific to commercial banks and other credit institutionsFebruary 24. The minimum ratio of short-term foreign exchange assets to foreign exchange liabilities was reduced to 32% from 35%.
Provisions specific to institutional investorsMarch 8. Banks were required to deposit 30% of the net increase in foreign liabilities in an unremunerated foreign exchange account in the CNB.

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