“These are really exciting times in Croatia,” says Kallay & Partners Managing Partner Ivna Medic. On January 1, 2019, she says, the rule book of electronic communications in commercial court procedures was changed to provide the conditions for communicating in electronic form. Medic explains that the regulation represents something completely new for the Croatian legal system. “For the very first time we have the opportunity to communicate with courts electronically, and most definitely this will speed up court proceedings and reduce costs for the proceedings,” she says.
However, this is not Croatia’s first entry into the digital world, Medic says. “The government is actively implementing digitalization when it comes to public administration,” she says, adding that, “these days in Croatia everything is about digitalization.” According to her, the government wants to make its administration accessible to the general public, as well as help those doing business in Croatia, by implementing such processes as e-signatures, e-trades, and e-invoices. “This is a big thing!” she exclaims.
Additionally, Medic says, the Croatian government is establishing a shared service center for approximately EUR 50 million. The goal, she reports, is to centralize a significant part of the IT system and digital data of all authorities in Croatia into one place, allowing for internal data exchange. According to her, “this will speed up our slow administration and help make business easier.”
In less positive news, Medic reports that Croatia is still struggling to secure a safe environment for foreign investors, who are often intimidated by the country’s high tax burden, overstaffed and ineffective state administration, and slow-moving justice system.
But the main challenge, she says, is to find the right balance between the protections offered to investors and the protections offered to debtors. Medic says that recent actions undertaken by the authorities, primarily relating to the Law on Annulments of Loan Agreements that came into force in 2017, are quite questionable from the investment protection point of view. The Law on Annulments introduced the possibility of retroactive actions on annulments of loan agreements, which Medic reports led to uncertainty and inconsistency in Croatian courts, as well as violating the obligation to protect investments. “Investors could not know that laws would be enacted that have retroactive effect, potentially affecting their own investments,” she says.
The good news, according to Medic, is the judgment issued by the EU Court of Justice on February 14, 2019, concluding that “national laws cannot retroactively annul loan agreements that were deemed valid at the moment of execution.” Medic says that the law is under review by the Croatian Constitutional Court, which is expected to follow the judgment of EU Court of Justice to retain balance. Even though the courts in Croatia are obliged to adhere to the decision of the EU Court of Justice, there is an ongoing debate among the representatives of the Parliament on how and whether to apply the ruling. As a result, she says, “the Constitutional Court's decision is crucial for the political and internal legal order.”
Further, Medic says, a new Enforcement Law, which is currently under parliamentary review, is expected to be enacted by the end of this year. Medic reports that the main goal of the law is to protect debtors from complicated and long-lasting procedures and eviction from their homes. Although the law sounds promising, Medic says that the public has expressed real skepticism during the consultations process, with debtors, creditors, judges, public notaries, and the Croatian Bar association raising real concerns. “The law has a huge impact on the whole situation in Croatia and everybody is waiting to see the final decision the parliament will adopt,” she says. “Personally I do not believe that the law’s goals will be accomplished,” and she says that “the only positive aspects are for debtors.”
Also, Medic reports, another piece of good news in the Croatian legal system is the establishment of the register of the ultimate owners of all companies. The rulebook on the register is in the procedure and it is expected that the register will be established by the end of this year. In her opinion, the development is a step forward for the business community, as the information contained in the register will be now made available to the public, bringing a measure of control and transparency into Croatia’s business sector.