Category: Croatia

On the 9th of March 2022, the Croatian Parliament adopted the amendments to two crucial Croatian laws – the Companies Act (ZTD) and Court Registry Act (ZSR). Most of the amendments to the ZSR entered into force on the 24th of March; two articles will be entering into force on the 1st of August 2022, and another one on the 1st of August 2023. Amendments to the ZTD are still to come into force, some on the 1st of June 2022, and others (the most significant ones) only on the 1st of August 2023.

As is usual in the past 15 years, the amendments were initiated to harmonize the national laws with the European regulation. This time it was the Directive (EU) 2019/1151 regarding updating the rules on the application of digital tools and processes in the company law. How successful was the implementation? Almost – taking into account that some of the crucial changes related to fundamental processes were removed between the drafts, and the whole plan was diluted into several basic process changes. Moreover, those exact amendments are the ones entering into force in more than a year’s time. Due to that, this text focuses on the remaining amendments – those that have already entered into force or will enter come the 1st of June 2022.

1. Ability to give “On my mother’s, I don’t owe anything“ statement via proxy

Anyone forming a company in Croatia or acquiring a share in one certainly remembers giving the famous notarized statement: “I swear, neither I nor any business venture in which I hold no less than 5% of stake owe any salaries or taxes or contributions.“ Foreign investors and entrepreneurs especially remember that statement since it couldn’t have been signed by proxy, only strictly personally. It led to complications where large multinational investors that wanted to form a subsidiary in Croatia or to acquire shares in another company had to organize one or more of the board or c-suite members to either (a) come to Croatia personally to sign the said statement, or (b) to translate the statement in their official language, to sign and notarize it in their country of residence, to obtain an apostille on that statement, and then to translate the entire thing back to Croatian, and have it in Croatia in front of the notary signing off the formation documents, all in 30 days or less. The punchline was that the statement was relevant only for potential debts towards employees in Croatia or Croatian, which meant it was common to get an empty notarized statement merely to satisfy the form. Once the statement was received, the proxy could execute all other actions in the company formation process in front of the Croatian public notary.

However, thanks to the active participation of Porobija & Špoljarić in the amendment drafting process, at least a partial victory was achieved. Even though the obligation on providing such a statement has not been removed, and the investors from, e.g., USA or Hong Kong, will still need to state not owing taxes in Croatia, a proxy authorized to execute the company formation documents will also be authorized to give the said statement on behalf of the founder/acquirer. Even though it does not sound as much, it is a significant step towards expediting the company formation and share acquisition in practice.

2. Procurators will have to provide a written appointment acceptance

One of the glaring loopholes created after the lawmakers revoked the obligation to deposit the appointed company representatives’ signatures in the registry was the one where the procurators were registered in the court registry solely based on the appointment decision. Because of that, it was entirely possible to legally register someone as a company procurator without that person being aware of their appointment. Naturally, such a “procurator” had a remedy to request the deletion of the registration on account of never giving consent for the appointment, but that was a process that didn’t happen overnight, and the whole false appointment could damage that person’s reputation.

Procurators were the only registered company function that didn’t require proof of consent or acceptance. Both the directors and the supervisory board members have been obligated to provide a written acceptance statement ever since the Companies Act was enacted in 1993. Even though the procurators don’t have such authority and much less liability as, e.g., directors, it is still not optimal for any vital company function to be registered without any evidence of the actual will to accept such appointment.

A new provision of Art. 45 Par. 2 of ZTD sets the obligation to deliver the written statement of acceptance of the appointed procurator to remove any doubt in mutual interest for appointment and acceptance of the procurator role.

3. Additional reasons for the ban on directorship appointment and introduction of the register of persons banned from being company directors

Rules and conditions regulating when a person cannot be a company director have always been in force. However, they always focused on local, i.e., the reasons for the ban had to have occurred in the Republic of Croatia. If e.g., a person had a white-collar crime verdict in Austria, it didn’t affect their right to be an appointed director in Croatia. Considering the general globalization of business and especially Croatia’s EU membership (freedom of establishment), the directorship ban rules are being widened to cases when they exist in other countries.

Additionally, even though the conditions defining the (in)ability to be a company director were clear, it was almost impossible to check the truthfulness of the newly appointed director’s statement on the inexistence of potential exclusion reasons in practice. The only way to determine if the law was breached by the appointment of a director who did not satisfy the conditions for the appointment was by someone filing a report based on personal findings of facts.

From now on, the Croatian Ministry of Justice and Administration will, in cooperation with the court registry, form and manage a register of persons banned from directorship appointments. It will be possible to use that register at the moment of the person’s appointment or the moment of registration at the latest. Therefore, if you have been banned from being a director in Croatia or some other country, consider the possibility that your name will flash on the screen of the public notary or the registrar, and your dreams of being a Croatian entrepreneur will be shattered.

4. Where do we archive the books and records of dissolved businesses, vol. 455

After many years in which it was expected from the courts to be warehouses and to archive books and records of companies that ceased to exist (and where the courts justifiably rejected to fulfill the said obligation as they had no physical capacity to store such amounts of documents), and then the unsuccessful attempt to give that task to the Croatian Chamber of Commerce (which never came to life), the new „guardians of the archive“ should become „persons providing services of archiving business books and records.“ That implies the archiving is being moved from the public into the private sector. Moreover, it is now explicitly mentioned that the archive can be kept digitally, as that is the most prevalent way of archiving historical documents in this day and age. It appears we finally found a solution, doesn’t it? It does – until we arrive at the payment issues of the service. As it goes, the costs should be borne by the entity being dissolved. So, what happens if that entity has no funds to cover the fee? We honestly doubt that private service providers will be willing to archive books and records of a company that doesn’t have the money to pay, nor will it ever have. As there is no real penalty for dissolved companies not archiving in accordance with the law, we believe this saga will have its tom No. four hundred fifty-six published in the near future.

Conclusion

The current (and yet another in the sequence) mini-reform of the company law is merely a cosmetic at this moment. At the same time, the fundamental changes are expected to happen when the remaining amendments enter into force in August 2023. Those amendments will enable the remote formation of limited liability companies through a digital platform and via proxy. Also, the notaries will be able to form companies via video link. Still, a lot of time will pass until then, and that period will show us how effective will the changes coming into force this June be.

By Marko Porobija, Managing Partner, Porobija & Spoljaric

This year, the Croatian Companies Act (Act) was amended again (amendments enter into force on 1 June 2020 and on 1 August 2023).

The reasoning behind new amendments is, among other things, implementation of digital transformation in the process of company incorporation with the aim of easier and more time and cost-efficient start of economic activity.

Let us look at the main changes to the Act.

The newly amended Act introduces changes into the remote company incorporation by allowing for the incorporation documents (Articles of Association and Statement of Incorporation) to be filed electronically.

Furthermore, a branch office can now be incorporated remotely (i.e. electronically). Additionally, notary public conduct in the event of remote company incorporation is amended in the following manner: physical presence of company founder is not necessary before the notary public, whereas communication with shareholders, their representatives and members of company bodies can be via electronic communication (e.g. video connection).

A useful change envisages availability of the forms from the Act in the English language.

Finally, the new change deletes provision based on which the court registry system can be accessed only in person. Thus, the proxies will also be permitted to access the system.

Additional important change relates to the adjustment with the provisions of the Bankruptcy Act: the new amendments envisage that, after bankruptcy proceedings are opened, only the bankruptcy trustee may initiate proceedings to determine the liability of a shareholder who is not personally liable for the company’s obligations.

Furthermore, the consequence of the companies’ merger is now also regulated by the Act, in the situations where a proposal for opening the bankruptcy procedure was submitted against the merged company. Namely, if the proposal for opening the bankruptcy procedure is submitted for the merged company, and the merger is still not registered in the court registry of the acquiring company, the decision on the proposal to open bankruptcy proceedings will be made in relation to the acquiring company. If the pre-bankruptcy proceeding is initiated on the merged company before the merger is registered in the court registry, then this proceeding is continued over the acquiring company.

Finally, one of the most significant changes is certainly the one related to the process of division of the company capital. According to the current Act, all companies that participate in the division are liable as joint and several debtors for the liabilities of the company being divided that arose before the registration of the division in the court registry (limited to the value of the assets transferred to each of the company in accordance with the division plan and reduced by the liabilities assigned to each company). Pursuant to the new Act, the liability of these companies is no longer limited.

The new, yet to be introduced, Companies Act should definitely take Croatia a bit away from bureaucratization and a bit closer to modernization.

By Marijana Soldo Kubat, Senior Associate, Ostermann & Partners

Former Schoenherr Attorney-at-Law Ozren Kobsa has joined Krehic & Partners in cooperation with Deloitte Legal as Partner and Head of the Banking & Finance team.

Specializing in banking and finance, Kobsa previously spent over six years at Schoenherr as Attorney-at-Law. Earlier, he worked at Divjak, Topic & Bahtijarevic as a Senior Associate from 2010 to 2015. Between 2006 and 2010, Kobsa was a Junior Research Assistant at the National Competitiveness Council.

“I am very excited to be taking over a Banking & Finance and Capital Market team in Croatia,” Kobsa commented. “It is a real privilege to join such a great Deloitte Legal Network where I see so much potential in transforming the legal industry by providing multidisciplinary services.”

Non-resident owners of property in Croatia who have plans to rent it out should consider domestic and double tax treaty rules on taxation of permanent establishments.

While most double tax treaties concluded by Croatia state that it may tax income derived from real estate (including rent) situated in Croatia, for years Croatia has not specifically regulated this possibility in relation to non-resident companies. Aside from the general rule on taxation of permanent establishments’ (PE) profit, there has been no specific rule on taxing such income. On the other hand, Croatia regularly taxes income from property derived by non-resident individuals. After making certain steps towards taxing non-resident companies’ real estate income back in 2019, the practical effect remained unclear.

The domestic PE provision was supplemented with a rule saying that “irrespective of other conditions and deadlines relating to a permanent establishment, profit or income derived by a non-resident company from real estate situated in Croatia may be taxed.” No specific rule or further explanations have been provided about the type of relevant tax or the taxation procedure.

Does any non-resident company’s income from real estate automatically create a taxable PE in Croatia? Or would such income be subject to withholding tax? In the latter case, it seemed odd that the new provision is added to the PE rule.

One could argue that the intention of the lawmaker was to tax a non-resident company as if it owned a PE in Croatia. But this would jeopardize the general definition of a PE, which Croatia applies in its domestic legislation and in all double tax treaties it has signed: a PE is created when a fixed place of business where a company wholly or partly carries out its business. This assumes the existence of a place of business, which must be fixed (i.e., established at a distinct place with a certain degree of permanence), and that the company’s business must be carried out at this fixed place of business (usually by personnel who, in one way or another, are dependent on the enterprise).

Without personnel carrying out business in Croatia, a non-resident company should have no taxable presence in the form of a PE in Croatia. 

The matter has been addressed in an official opinion of the tax authority, which referred to the OECD commentary about the PE rule, pointing out, rather interestingly, that business carried out through a fixed place of business commonly assumes dependent personnel performing business activities in the state where the PE is located.

The opinion further quoted the OECD commentary saying that determining the existence of a PE belonging to an enterprise must be made independently from the determination about which Double Tax Treaty provision applies to the profits derived by that enterprise. It is clear that the rule on taxation of particular income (e.g. income from real estate) should not be linked to the question of the existence of a PE.

Finally, the opinion pointed out that commencing any activity, including renting out a property in Croatia, must be reported to the tax authorities within the prescribed deadline of 8 days. The report should enable the authorities to determine the potential existence of a PE and related tax liabilities.

It follows that real estate taxes would be based on the existence and activity of a PE and in no circumstance be separated from conditions and deadlines related to the PE (as implied in a 2019 supplement to the PE rule). It is also important to emphasize that in the case of non-residents from double tax treaty-covered jurisdictions, the Croatian Tax Authority would not be able to ignore the PE rule set in the international tax treaty. The Model Double Tax Treaty is clear: rented tangible property will not, as such, constitute a PE if there is no fixed place of business maintained for such a letting activity.

It may be concluded that the purpose of the domestic rule on taxation of real estate income has been to enable the tax authority to review non-resident companies’ activities (including the renting of properties) in Croatia for PE purposes. The wording of the respective rule, however, has been somewhat clumsy and left the practice unclear.

Non-resident companies renting a property in Croatia should remember, though, that they have a reporting liability towards the Croatian Tax Authority shortly after commencing the renting activity.

By Tamara Jelic Kazic, Partner and Coordinator of Tax Group, CMS CEE

This article was written before the advent of the war in Ukraine and was originally published in Issue 9.2 of the CEE Legal Matters Magazine on March 1, 2022. More current articles on developments in Ukraine can be found in our #StandWithUkraine section. If you would like to receive a hard copy of the magazine, you can subscribe here.

Porobija & Spoljaric has advised Croatian tourism company Mon Perin on listing its shares on the Zagreb Stock Exchange.

Mon Perin, based in the Istrian town of Bale, has been operating since 2005. According to Porobija & Spoljaric, Mon Perin “was founded by more than 700 people – residents of Bale and friends of Bale, or those who wanted to participate in the project. The company expects to launch a new, demanding, and dynamic development phase in the coming period, which includes an investment cycle of HRK 300 million from 2022 to 2026, with the first phase worth HRK 56 million starting this winter.”

The listing agreement was signed by President of the Management Board of the Zagreb Stock Exchange Ivana Gazic and the President of the Management Board of Mon Perin Massimo Piutti, who, according to Porobija & Spoljaric, “pointed out that the total share capital of the company amounted to HRK 106.7 million, divided into 10,67 million shares of HRK 10 nominal value each.”

The Porobija & Spoljaric team was led by Managing Partner Marko Porobija and included Partner Suzana Cesarec Noethig and Associate Marko Djuric.

Divjak Topic Bahtijarevic & Krka has provided legal support to the organizing committee of the WRC Croatia Rally 2022, including regarding the necessary agreements, permits, and the implementation of international sporting regulations.

“The World Rally Championship, owned and governed by the FIA, represents the highest level of global competition in the motorsport discipline of rallying,” DTB informed. “On April 21-24, Zagreb hosted the world’s top sporting event bringing together spectators and fans from all over the world … a great opportunity for Croatia to represent itself to millions of viewers worldwide as a prime tourist and sports destination.”

The DTB team was led by Attorney at Law Sandra Budimir.

One of developments in the artificial intelligence sphere which raised most concerns about potential human rights violations is definitely facial recognition.

Facial recognition is widely used in the private sector for advertisement, marketing, recruitment, through internet and social media, etc. On the other hand, the possibilities of facial recognition are also recognized by the public sector, such as law enforcement and border management. For example, facial recognition can help identify criminal activities and related individuals, find missing children, etc.

However, the rapid evolution of facial recognition and its widespread use in public spaces raised many discussions and fears arising from its lack of accuracy and the potential impact on fundamental human rights. A very controversial practice is the increasing use of ‘real-time’ remote biometric identification systems (i.e., live facial recognition) in publicly accessible places, since they are more likely to result in false matches as compared to facial images taken in a controlled environment as well as due to the weak position of the individuals whose facial images are captured and then checked without their knowledge.

Some of the most affected fundamental human rights when using live facial recognition in the context of law enforcement are the right to human dignity, the right to respect for private life, the right to protection of personal data as well as the right to non-discrimination.

The latest EU response to the potential negative impact of AI systems (including facial recognition) on fundamental human rights is the EU Commission’s proposal for EU Artificial Intelligence Act (“AI Proposal”).

The AI Proposal is the first ever attempt to implement horizontal regulation of AI. One of the main objectives of the AI Proposal is to limit the use of biometric identification systems including facial recognition that could lead to ubiquitous surveillance. The AI Proposal differentiates the AI practices according to their ‘unacceptable’, ‘high’, ‘low’ or ‘minimal risk’ usage characteristics, depending on their impact on people’s safety or their fundamental rights. Thus, certain AI practices are simply prohibited due to the unacceptable risk associated with them.

In this respect, due to its severe interference with the rights and freedoms of the persons concerned, the EU Commission proposed to prohibit using live facial recognition of natural persons in publicly accessible spaces for the purpose of law enforcement, with three limited exceptions, in which the interference with fundamental human rights is justified for the purpose of protecting substantial public interest. It is left to the Member States to decide whether they want to implement these exceptions for using live facial recognition in their national laws or not.

It remains to be seen how EU will succeed in the first ever attempt to mitigate the (fundamental human rights) risks and problems linked with AI (and particularly facial recognition), without unduly constraining or hindering benefits of AI or discouraging the investment and innovation in AI on the EU market.

By Marija Elena Prskalo, Associate, Ostermann & Partners

The EU-imposed sanctions on Russia have generated significant movements throughout Europe, and Croatia has felt the ramifications as well – leading to a lot of work and some economic uncertainty, according to Ostermann & Partners Partner Vjekoslav Ivancic.

“The unavoidable topic these days are the EU-Russia sanctions and the consequent blowback on almost all sectors of the economy in Croatia,” Ivancic begins. “This has spurred M&A transactions on, with a lot of Russian nationals looking to divest their assets in Croatia.” Ivancic points to the example of the recent sale of Sberbank to the Croatian HPB bank. “This transaction took place immediately following the latest round of sanctions and was very, very quick,” he reports.

Furthermore, the sanctions have impacted the financial sector as well. “The banks are more cautious, which resulted in a number of financings slowing down due to constant check-ups and verifications – is everything in order from a sanctions perspective? – the rules not always being perfectly clear.” Ivancic also explains that the sanctions led to a number of “grey areas, especially with companies owned by Russian entities, when such companies do business exclusively in Croatia and the EU and with no additional Russian elements. We’ve had an example of such a company in Croatia – which has a superb operation in Croatia and the entire EU – and closing it would have had great ramifications on the people working there,” he reports. 

“There is also a marked increase of gas prices,” Ivancic continues. “There was a major problem with a Zagreb-based gas supplier that was impacted by the price hike while having to honor its commitments to corporate clients that had pre-arranged for a fixed gas price.” He explains that, while the company had to sell the gas to its clients at the pre-crisis price, it ended up being quite exposed for the price difference. “This, in turn, led to some spin-off dispute resolution work for the legal market,” he reports.

Additionally, Ivancic reports of major movements for Croatia on the foreign politics front. “There is a lot of talk about Croatia finally joining the OECD. Coupled with us joining the Eurozone and, hopefully, the Schengen area soon, this is a major move forward for the country,” he says. “Our politicians stress that these three key advances would also improve the investment climate, as well as aid with battling corruption and improving the corporate governance of state-owned companies,” he adds.

“In terms of legislative updates,” according to Ivancic, “there have been recent amendments to the Bankruptcy Act, implementing the EU’s Restructuring and Insolvency Directive 2019/1023 of June 20, 2019, as well as changes to the Companies Act, aimed at the further modernization of Croatian company law.”

Also, Ivancic reports that the country is exiting the COVID-19-related economic regime. “The end of COVID-19 schemes will likely lead to economic instability, after their being in place for two years. This, together with the war in Ukraine, makes it difficult to predict in which direction the economy will go,” he explains.

Finally, speaking of the key drivers of the economy, Ivancic points to construction and IT. “On the one hand, the IT sector has been very, very active in the past few months, riding the wave of a most successful 2021,” he reports. “On the other hand, the construction sector has also been doing great. There are talks about finally engaging in the reconstruction of earthquake-hit areas in Zagreb, following the 2020 quake, which would make it even more active,” Ivancic concludes.

On February 21, 2022, CEE Legal Matters reported that Savoric & Partners had advised Studenac on its acquisition of Pemo from founder Lovorko Milosevic. CEE In-House Matters spoke with Michal Senczuk, CEO of Studenac, to learn more about the acquisition.

CEEIHM: Let’s start with an introduction of Studenac and its operations.

Senczuk: Studenac is Croatia’s largest retailer by the number of stores – we have established our leading position with the acquisition of Pemo and now have almost 750 stores. We were founded in 1991 and acquired in 2018 by the regional private equity fund Enterprise Investors. We have made a series of acquisitions since then and expanded from our home region of the Dalmatian coast to Croatia’s capital, Zagreb. We have an international management team and we are building a world-class proximity chain, bringing innovative concepts from top global players to the local market. As Enterprise Investors said when we announced the Pemo deal, they have invested EUR 250 million in Croatian retail, and this acquisition isn’t our final word.

CEEIHM: What about Pemo – what made it particularly attractive for you as a target?

Senczuk: In addition to our nationwide expansion, we are continuing to work on expanding our presence in the southern part of Croatia. Pemo is a well-run business in the Dubrovnik area, operating in established locations. Over the years they have built up impressive customer loyalty, which is one of the things that made us want to acquire it.

CEEIHM: And what are the next steps, now, post-acquisition?

Senczuk: At the moment we are in the process of integrating the business and utilizing the potential of synergies while making sure we preserve everything that Pemo’s customers value in its stores. We are looking to keep all the unique offers that Pemo had on the market. That is what made Pemo a well-recognized brand, extremely successful with consumers in its home market of southern Croatia. At the same time, we are planning to roll out best practices from Studenac into Pemo stores, giving customers an even better shopping experience.

CEEIHM: How was the legal work split between your in-house legal team and that of your external advisors at Savoric & Partners?

Senczuk: Savoric & Partners supported us throughout most of the acquisitions mentioned earlier, including Istarski Supermarketi and Sonik, and also worked on Enterprise Investors’ acquisition of Studenac. Their support covered the entire acquisition process: from the term sheet through the closing. The key focus was on legal due diligence, SPA drafting and negotiations, work on the approval process at the Croatian Competition Agency, and successful signing and closing. Our in-house team provided oversight to make sure the work adhered to our corporate standards, and also provided insights into a number of examples from our experience with other acquisitions that could have an impact on the deal.  

CEEIHM: Why did you choose this firm, in particular, to assist on the deal?

Senczuk: Over the past few years we have developed a very good relationship with Savoric & Partners. They have supported us, as well as Enterprise Investors, on a number of deals, in addition to advising us on various complex corporate legal matters. The working relationship with them is very smooth and easy. Partner Nina Radic Kuzik was responsible for the Pemo project and was our key contact point. She and her colleagues identified a number of issues that needed to be carefully addressed, and also proposed solutions for several challenges that came up during the project. We value their responsiveness, fast-thinking analysis, and problem-solving, as well as their ability “to think outside the box.”

Originally reported by CEE In-House Matters.

In May of this year, the new Consumer Protection Act will enter into force, completely replacing the previous Act of the same name from 2014, which has undergone only two significant amendments. According to the Republic of Croatia Government, the main reason for adopting the new Consumer Protection Act is the implementation of Directive (EU) 2019/2161 from 27th November 2019. No less important, the reasoning for adopting the new Act also lies in the continuous development of digital tools, which is why it was necessary to include a digital segment of the conclusion of contracts in the legislation to a greater extent than was the case so far.

The new Consumer Protection Act was published in the Official Gazette no. 19/22 on 11th February 2022. It will enter into force on 28th May 2022, on the application date of the Directive mentioned above. This delay of entry into force will allow traders sufficient time to adapt their business activities to the new obligations prescribed by the new Act.

The Consumer Protection Act represents an umbrella law regulating consumer relations. It is supplemented by the secondary application of the Obligations Act, as a general law regulating contractual relations, and the Services Act and the Electronic Trade Act as special laws.

The main novelty is the extended scope of the new Consumer Protection Act to digital services. They are now defined as services enabling the consumer to create, process, store, or access data in digital form; or as a service that allows the sharing of or any other interaction with data in digital form uploaded or created by the consumer or other users of that service, such as video and audio sharing services and other file hosting services, cloud storage, e-mail, social media and cloud applications.

In addition, the new Act introduces the definition of the online marketplace as a service using software, including a website, part of a website, or an application, operated by or on behalf of a trader, which allows consumers to conclude distance contracts with other traders or consumers and definitions of functionality, interoperability, compatibility, and commercial guarantee.

These novelties are accompanied by recent amendments to the Obligations Act regarding the trader’s responsibility for material deficiencies and commercial guarantee, which provisions are primarily applied to the performance of contracts and liability for material deficiencies. For more information on this topic, see the Article by Nebojša Vitez, a lawyer and partner in the law firm Porobija & Špoljarić.

In the sphere of digital services, the scope of the new Act is extended to consumer contractual relations, including the contracts based on which the trader supplies or undertakes to supply digital content or digital service to the consumer. The consumer, on the other hand, does not pay the price but provides or undertakes to provide personal data to the trader, except where the trader exclusively processes the personal data provided by the consumer to supply the digital content or digital service or for allowing the trader to comply with legal requirements to which the trader is subject and the trader does not process those data for any other purpose.

Many novelties have been introduced concerning pre-contractual information and the conclusion of distance agreements. The obligation to provide pre-contractual information has also been extended to the internet market provider. 

Regarding the performance of the contract, the most significant novelty relates to the costs of expertise concerning the existence of a material deficiency at the moment of passing of risk. In contrast to the provisions of the former Act, according to which the trader bore the costs of expertise without exception, the new Act stipulates that the trader pays these costs in advance. Ultimately the cost is borne by the trader or consumer, depending on the result of the expertise if the lack occurred within the prescribed period, which differs depending on the type of contract. On the other hand, if the material deficiency or the non-compliance of the digital content or digital service with the contract occurs after the expiry of the prescribed period, but no later than two years from the date of the passing of risk to the consumer, the costs of expertise shall be paid in advance by the consumer and finally borne by the trader or consumer, depending on the result of the expertise. 

Finally, the new Consumer Protection Act also enacts more numerous and stricter penalties for traders for infringements of the provisions of the Act.

This novelty is the consequence of the transposition of the Directive mentioned above, which, according to the Republic of Croatia Government, provided for the imposition of effective, proportionate, and dissuasive fines for traders in cases of cross-border infringements involving a violation of the consumer rights of a large number of consumers when penalties will be imposed dependant upon the annual turnover of the trader in question.

 The new Act prescribes fines ranging from HRK 10.000,00 to HRK 200.000,00 instead of HRK 100.000,00 for infringements committed by a legal entity. Furthermore, the Act foresees a new category of offences that have caused damage to collective interests and rights of consumers in at least three Member States of the European Union, for which the prescribed fine may amount to up to 4% of the trader’s annual turnover. Should the damage manifest as caused to consumer collective interests and rights in at least 2/3 of Member States together comprising at least 2/3 of the Union population, the prescribed fine shall range from 2 to 5% of the trader’s annual turnover.

In conclusion, consumer protection is a complex, strictly regulated area. This is even more so, given the legal nature of provisions governing consumer contracts, since the consumer cannot waive or restrict his rights under the Consumer Protection Act or other laws that protect consumer rights and because the contractual provisions, which are less favourable for the consumer than those laid down by the applicable laws, are considered null and void. The new Consumer Protection Act extends its application and imposes new obligations for traders. At the same time, high and strict penalties are foreseen for violations of provisions or non-compliance with new obligations. 

Therefore, we recommend that traders thoroughly study the provisions of the new Act in the period until its entry into force, prepare themselves for its implementation, and harmonise their business activities in order to minimise potential responsibility for infringements.

By Dora Stazic, Junior Associate, Porobija & Spoljaric