The new Croatian government is on the top of Danijela Simeunovic’s list of encouraging signs for businesses and foreign investors in the country.
After over a year without a functioning government the country has finally put one together, and Simeunovic — one of the founding partners at Croatia’s Kovacevic Prpic Simeunovic law firm — reports that projects in the country have already begun picking up. She concedes that the exact nature of the increase is hard to gauge, especially as it coincides with the traditional end of year pick up in business anyway, but she’s confident that investors are responding positively to the predictability that comes with political stability. “It kind of doesn’t even matter if, politically, you agree with the new government or you don’t,” she says. “Just having the stability after a year of no government is going to be good.”
Simeunovic also refers to a hope that the new government will reactivate the list of special investment projects in Croatia which has fallen dormant in the past year or so, including the long-awaited LNG project at Krk and major Croatian motorways tender. “Projects in the infrastructure, tourism, and energy sectors have been at a standstill,” Simeunovic reports, “and maybe now they’ll pick up."
The second encouraging development Simeunovic refers to is the significant tax reform proposed by the Ministry of Finance. According to Simeunovic, the government is proposing to lower the profit tax, especially for small companies, lower the income tax, and to some extent reduce VAT. All taxes should be lowered across the board, Simeunovic reports, “and not one should be raised.” She believes this is good for business, will encourage consumer spending, and will attract foreign investment.
Most of the anticipated tax measures should go into effect on January 1, 2018, and some are expected even sooner.
According to Simeunovic, “it will be interesting to see what the consequences of these developments are.”
Turning to a sector analysis, Simeunovic starts with Transportation and Energy, which her firm specializes in, and although there’s much of significance happening in the transportation sector at the moment in Croatia, Simeunovic is seeing some significant new developments in the Energy sector, especially in Renewables. On January 1, 2016, Croatia enacted its first Renewable Energy law, changing from a “tariff” system to a “Market Premium” system, making producers of Renewable energy subject to the tendering system. “It’s a big change,” reports Simeunovic. “I’m not saying it will immediately boost FDI, but it’s a big change.” As a side effect of the change, both lawyers and clients are needing to come up to to speed on the new rules, and Simeunovic reports a number of seminars on the subject across Croatia in the past year. The country is awaiting secondary legislation, expected to provide further details and clarification.
There has been a standstill in Renewables in recent years, Simeunovic reports, in large part because of a quota on the amount of megawatts that could be produced. That quota has recently opened up on wind, biomass, and solar energy, apparently, and she reports that her firm has already begun getting inquiries from foreign investors, so she expects to see things happening in the sector soon.
“Another buzzword related to energy is ‘energy-efficiency,’” Simeunovic notes, pointing out that this topic is also getting a significant amount of attention at the EU level, which has passed regulations to increase energy efficiency of buildings, public transportation, street lighting, etc. Simeunovic says many companies in Croatia are now preparing or proposing work on “Energy Performance Contracting”, which she describes as “a complex type of service.” Simeunovic believes this is an “important change and development in the market,” and she says “it will be interesting to see what kind of legal work comes from it.”
In addition to Renewables and Energy Efficiency, the third sector Simeunovic points to is the Banking and Insurance. She notes that the NPL sales have been going on in Croatia as elsewhere in CEE for some time now, but although many Croatian NPL portfolios have been sold, “the process is not over yet, as banks are starting to sell NPLs connected to asset management in the tourism and commercial sectors. Simeunovic points to recent sales of NPLs related to specific tourist complexes, shopping centers, and commercial buildings in the country as evidence of this new phenomenon.
In addition, Simeunovic says, an increasing number of Croatian banks are merging with foreign banks, and transferring their competency centers abroad, leaving the Croatian operations as little more than branch offices. This trend both in banks and in the insurance sector is a subject of some concern in the market. On top of everything else, she concedes, “it means less work for lawyers.”
The legal market in Croatia remains stable at the moment, though Simeunovic notes she’s seeing an increased number of spin-offs and new firms popping up on the market.
In “The Buzz” we interview experts on the legal industry living and working in Central and Eastern Europe to find out what’s happening in the region and what legislative/professional/cultural trends and developments they’re following closely.