Croatia is navigating two notable legal developments at the moment: a partly implemented FDI regime that has slowed non-EU investment activity, and a new zoning proposal that is drawing mixed reactions from the market, while broader economic pressures continue to unfold, according to Ostermann Ivancic Managing Partner Mojmir Ostermann.
“FDI has become a major point of focus for everyone lately,” Ostermann says. “The Croatian government, unsurprisingly, didn’t implement the EU framework in the time or manner it should have, and we now find ourselves facing a significant legal loophole. The EU adopted the FDI rules years ago and gave Member States three to four years to decide how to implement them. Croatia finally adopted its version last month – but only partially. The law was passed, yet the accompanying rulebook that should clarify the procedure hasn’t been published, and may not even have been properly discussed.”
This means that “any transaction involving non-EU investors, including US investors, is essentially stuck,” Ostermann points out. “All such deals must now be pre-notified, but since no competent authority has been appointed to review notifications, no transaction can actually be approved. This affects not only new investors entering the market but also companies already operating here. Even simple increases in shareholding or routine capital injections are caught in this freeze.” For instance, he says, “our Turkish client regularly increases capital to support the cash flow of its Croatian subsidiary, and the court registry has already told us they cannot proceed until the FDI issue is resolved.”
According to Ostermann, there are some potential workaround solutions. “We’ve heard that the Commercial Court and the Ministry of Justice have met and discussed temporarily suspending the problematic provisions, at least until the rulebook is adopted,” he notes. “However, nothing concrete has been decided, so we remain understandably concerned and uneasy.”
“Another important development, particularly for a real-estate-driven market like ours, is the new draft law on zoning regulations,” Ostermann continues. “It has triggered significant debate. Under the proposal, if you own at least 51% of a land plot, you could be entitled to initiate expropriation of the remaining part. Until now, this tool was available only to the state, and private investors could not rely on it. The draft would change that, allowing investors to consolidate adjacent plots more easily. While this is clearly investor-friendly, it raises serious concerns for local communities, and it may even interfere with constitutional rights. We’ll see how parliament handles these objections.”
“Beyond that, we are all following global developments closely – Ukraine, geopolitical tensions, economic trends – all of which inevitably affect Europe,” Ostermann adds. “There is growing fear that inflation will continue, especially after a long period of stability and low prices. For years, China absorbed global cost pressures, but that is no longer the case, and it will affect everything – including the competitiveness of law firms.”
And finally, Ostermann points out that the biggest day-to-day challenge for Croatian law firms is hiring. “Many firms are struggling to find trainees,” he notes. “This summer, some firms received zero applications for trainee positions. One reason is that the government significantly increased salaries in the public sector, making private-sector legal jobs less attractive for young graduates. At the same time, prices are rising daily, and many industries, including legal, are feeling the strain.”
