Category: Croatia

The words which probably best describe trends in the field of logistics and transportation are “information connectivity” and “automatization.” The aim of both is the same – to increase efficiency and to achieve effective control of time, costs, quality of services, etc.  In Croatia, as elsewhere, these concepts have resulted in some new legal challenges.

As customers, we all want packages to be delivered to us as soon as possible, and we often want to have control of the whole process, including the delivery status and the exact time and place of delivery. To improve the quality of their service, providers use various mobile applications and delivery tracking solutions. Furthermore, businesses use tracking devices such as GPS devices in their vehicle fleets to improve the planning and operation of deliveries. All of this requires processing significant amount of data – including personal data. Unsurprisingly, it is often challenging to ensure a proper balance between the need for data control and privacy and security restrictions.

What we see in Croatia is not only the increased use of various information and communication technology solutions (especially vehicle tracking devices), but also significant efforts by businesses to comply with applicable legal rules. Executing data processing and other agreements with services providers is not enough; it is important to make necessary legal assessments and ensure that basic principles (such as data minimization and purpose limitation) are respected. In most cases, a data protection impact assessment will be required, based on the list of processing operations which require such an assessment that is published by Croatian data protection authorities as mandated by the General Data Protection Regulation.  As the use of information and communication technologies often requires the processing of employee data (as when the location data of delivery drivers is provided, or their driving behavior), local employment rules must also be taken into consideration. In Croatia, these rules are quite strict, making efforts to balance the need for data control and privacy restrictions even more challenging. Compliance with Croatia’s employment rules includes strict application of data and purpose minimization, as well as the proper preparation of relevant employment documents and formal authorization of persons involved in the personal data processing.

However, the complexity of the new trends does not stop there. The use of artificial intelligence, for example, is an increasing factor in this field. The 2019 World Intellectual Property Organization report shows that the transportation industry is one of the leaders in exploring the commercial exploitation of AI. This seems logical, as the use of AI helps market players increase the scope of automated working processes, which is of significant value in transportation because of the sector’s heavy reliance on human workforce in business operations. This seems to be recognized by the producers and service providers offering new solutions in Croatia – e.g.,  the use of robots in warehouses, which increase labor productivity – as well. Certain Croatian start-ups offering such new solutions for businesses have been boosted with large investments in 2019. Such solutions seem to be used more and more by providers of logistic services, among others. The legal struggle starts when the “old” rules need to be applied to such new solutions (e.g.,  the question of liability for damage caused by AI-powered machines, and IP protection) and when businesses need to comply with the increasing number of regulations – with new and strict rules on data privacy and security representing just a few. From the business point of view, it is thus important to adapt existing contractual clauses to such new situations, as well as to keep track of new regulations and ensure that compliance measures are duly implemented in processes from the very beginning. This is necessary to ensure that the benefits achieved by new solutions are not diminished by the high fines and damage claims which could be triggered if the legal rules are not respected.

By Marija Zrno, Partner, CMS Zagreb

This Article was originally published in Issue 6.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The world is getting older by the minute, and this is a fact.

According to data from World Population Prospects 2019, by 2050, one in six people in the world (16%) will be over age 65. The number of persons aged 80 years or over is projected to triple, from 143 million in 2019 to 426 million in 2050. In the EU, the total cost of ageing (including public spending on pensions, health care, long-term care, education, and unemployment benefits) is expected to increase to 26.7% of GDP by 2070.

With advancements in medicine and healthier lifestyles, there are more people entering retirement age now than ever before. According to official reports across the board, the old-age dependency ratio has been on a rapid rise over the years, including in SEE. 

The aging population is poised to become one of the most significant forms of social transformation in the twenty-first century. The rapid rise of average life expectancy will necessitate improvements in nearly all sectors of society and specifically shape the investment climate for autonomous senior housing solutions. Residential alternatives, including retirement living, will be on the rise. According to the recent CMS Study on Urban Living, 92% of real estate professionals expect demand for retirement living to increase over the next five years, making it the most popular residential asset.

As a result, there is now real momentum behind the senior housing sector. Supply is low and demographic factors – as per above – point to increasing demand. Businesses will be targeting third-generation people more and more, developing projects that offer not only tailored housing to senior members of the society but comprehensive lifestyle support services.

From a legal point of view, it will be interesting to see how governments respond to this low supply/increased demand situation, especially as the SEE senior housing solutions market is still in early stages of development compared to similar markets in the United Kingdom and Holland, which are seen as pioneers in senior housing innovations.

Indeed, both the United Kingdom and Holland offer trailblazing solutions, recognizing that psychological and environmental factors significantly influence the quality of life of senior citizens.

Holland, for instance, has launched a number of pilot projects to address the psychology of aging. One such project allowed students to live rent free alongside elderly residents, in return for a commitment to spend a specified number of hours supporting their elderly neighbors. The project was intended to promote the relationship between the generations, while at the same time allowing the elderly to stay in the homes in which they have lived for years. 

The United Kingdom’s senior housing market is very diversified. Retirement villages have become popular, offering their residents a wide range of social and leisure facilities. Residents are able to live independently and maintain an active social life and access to additional learning in their golden years, while having assess to home and personal care services.  

Finally, both markets acknowledge the financial restrictions on affordable housing solutions. To address the issue, seniors are encouraged to make early retiring planning, while at the same time, steady pressure has been put on the government to increase spending to adjust for the rising aging population.

The demographic situation in Croatia is following the aging trend, as 19.72% of inhabitants are currently over the age of 65, and this percentage is increasing. At the same time, there are just over 160 nursing homes for a population of 4.1 million, and there is a substantial waiting list. Stay in nursing homes is still privately funded, with no subsidies available on a state level. The market is, however, slowly activating due to the increased demand for (alternative) housing solutions. We expect see an increasing number of options over the next decade that allow seniors to take care of themselves as independently as possible, to have a purpose, to live their lives as they want, capitalizing on the expected medical and technical advantages, while at the same time offering a range of options for pay-in participations and subsidies to lower the financial burden. Regardless of the path that this development takes, one thing is certain: the housing market needs to grow and develop now.

By Ana-Marija Skoko, Partner, CMS Zagreb

This Article was originally published in Issue 6.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Investment funds represent a rather small part of the financial market in Croatia, but they are undeniably growing in presence and importance. Investment funds are recognized as a significant economic driver for business growth, joining the already well-established banks, insurance companies, and pension funds.

According to information published by the Croatian Financial Services Supervisory Agency, there were 136 investment funds in Croatia at the end of August 2019, divided between alternative investment funds (36) and UCITS funds (100). The net asset value at the end of June 2019 amounted to a total of EUR 3.2 billion, with EUR 0.5 billion coming from alternative investment funds and EUR 2.7 billion from UCITS funds. These numbers reflect significant growth in the last five years, as in 2014 110 total funds accounted for a net asset value of only EUR 2.1 billion. Investment funds are growing in every way; as the investment funds industry develops in terms of variety of fund types and products it offers, its popularity is increasing. That results in a higher amount of assets available to investment funds for financing of business growth in Croatia. 

Special attention should be paid to the alternative investment funds, such as private equity and venture capital, which play a key role in economic growth and are becoming ever more active on the Croatian market. The development and deployment of significantly larger amounts of money and the involvement of reputable and proficient investors in Croatia is seen in the context of an overall-maturing venture capital market in Europe. 

Since 2014 the development of investment funds in Croatia has been happening within EU-funding frameworks. Financial support of economic development in a more general sense has been channeled through the European Structural and Investment Funds, jointly managed by the European Commission and the member EU countries. Another program aimed at mobilizing significant investments is the Investment Plan for Europe (the “Juncker Plan”). A financial pillar of the Juncker Plan is the European Fund for Strategic Investments (EFSI), which was initiated by the European Investment Bank, the European Investment Fund (EIF), and the European Commission to overcome the current investment gap in the EU by mobilizing private financing for strategic investments. Local support is provided by the Croatian Bank for Reconstruction and Development (HBOR). 

Several initiatives have been launched under this framework, and here we will name only some of the most prominent. The Croatian Venture Capital Initiative was established in June 2018 based on a funding agreement between the EIF and the Croatian Ministry of Regional Development and EU Funds in order to improve access to SMEs finance, under which the selected fund should invest EUR 42 million across the entrepreneurial spectrum ranging from the early stage to the growth stage of start-ups. This is supplemented by the Croatian Growth Investment Program – a EIF and HBOR joint EUR 70 million equity investment program launched in January 2019 to support Croatian SMEs and small midcaps and provide midcaps with access to growth and expansion equity capital and catalyzing additional private-sector investments into funds and companies.

Finally, a noteworthy initiative is the setting-up of Croatia’s first social impact investment fund, under which the EIF plans to contribute EUR 15 million (almost entirely covered by the EFSI) and which – together with the amounts raised by the social impact fund — will allow for a EUR 30 million investment into Croatian and Slovenian SMEs committed to having an environmental and social impact, in addition to generating profit. This fund is the first Croatian venture capital fund managed by a fully Croatian team. 

To conclude, under the EU umbrella more funding is coming to Croatia through proficient investors (such as the EIF) which signals the maturing of the Croatian investment funds market and the development of sophisticated Croatian fund managers, and which will in the end result in increased investor confidence and enhanced financial markets and overall business environment.

By Tena Tomek, and Tonka Gjoic Tomic, Partners, Marohnic, Tomek & Gjoic Law Firm

This Article was originally published in Issue 6.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Tus & Andrijanic advised JGL d.d. on its HRK 130 million issuance of corporate bonds in December, 2019. The agent for the issue was Privredna Banka Zagreb d.d.

The new bonds, which will mature in 2024, come with a fixed annual interest rate of 1.75%, which JGL describes as “significantly lower than the interest rate for existing bonds that mature in 2020, which is 5.8125%.”

According to JGL, “this is the lowest interest rate for corporate bonds outside the financial sector in the history of the Croatian capital market. Holders of the existing bonds were offered the option to replace them with the new issue. Most of them accepted and sold 63.32% of old bonds for a total of HRK 83.2 million.”

The order book was open for just under three days, during which time HRK 130 million was offered and issued. The bonds were listed on the Official market of the Zagrebacka Burza d.d. stock exchange.

The Tus & Andrijanic team was led by Partner Tomislav Tus.

Following the adoption of the Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC („GDPR“) on April 27, 2016, the Croatian GDPR Implementing Act („GDPR Act“) entered into force on May 25, 2018, simultaneously with the start of application of the GDPR.

Specific processing operations 

GDPR Act has made use of a number of GDPR’s opening clauses. Most notably, the GDPR Act has set out further conditions and limitations with regard to the processing of genetic and biometric data based upon Article 9(4) of the GDPR. In this regard, the GDPR Act has essentially introduced a prohibition on the processing of genetic data in the context of life insurance agreements or endowment clauses and has set out specific rules for the processing of biometric data, which apply differently depending on whether biometric data is processed by public or private sector entities. Furthermore, the GDPR Act has introduced specific conditions for the processing of biometric data in the context of employment. 

The GDPR Act also set out detailed conditions applicable to the processing of personal data by means of video surveillance, including rules governing specific types of surveillance, notably of residential buildings, working premises, and public areas. Following the start of the application of the GDPR and the GDPR Act, the Croatian Personal Data Protection Agency („DPA“) issued several opinions dealing with video surveillance. In these opinions, the DPA clarified the distinction between video surveillance and live streaming in public areas where the data does not constitute a part of the filing system as well as the transparency requirements related to video surveillance in residential buildings. 

Data Protection Impact Assessment (DPIA)

As required by Article 35(4) of the GDPR, in December 2018 DPA adopted a resolution on the list of processing operations kinds that are subject to the DPIA requirement from Article 35(1) of the GDPR. The list published by the DPA essentially follows the principles set out in the Article 29 Working Party Guidelines on Data Protection Impact Assessment by specifying 13 kinds of processing operations that require a DPIA (in addition to the activities that require a DPIA under the GDPR), including systematic and large-scale profiling, processing sensitive data, use of new technologies, processing data on criminal convictions and offenses, processing geolocation data, etc.

Enforcement activities of the DPA 

Based on the publicly available decisions of the DPA, no administrative fines for violations of either the GDPR or the GDPR Act have been imposed in Croatia by 31 December 2019. Instead, the DPA has exercised its other corrective powers from Article 58 of the GDPR in cases where the DPA established that processing operations concerned infringe the provision of the GDPR and GDPR Act. In addition, following the start of application of the GDPR and the GDPR Act, DPA has published a number of opinions dealing with specific processing operations in different sectors, including banking and anti-money laundering activities, debt collection activities, processing operations in an employment context and other areas.  

Brexit 

Based on the European Data Protection Board’s Information Note on data transfers under the GDPR in the event of a no-deal Brexit, the DPA has published a note on the post-Brexit data transfers from Croatia to the UK in the event of a no-deal Brexit. Considering that in the no-deal Brexit scenario, the UK would become a third country within the meaning of GDPR, any data transfers from Croatia to the UK would have to be based on either standard clauses, binding corporate rules, approved codes of conduct and certification mechanisms, or specific derogations which should be interpreted restrictively. 

By Marija Gregoric, Partner, and Lovro Klepac, Associate, Babic & Partners Law Firm

In late November 2019 the Croatian Parliament passed a series of laws amending Croatian tax legislation. The new laws, in the most part, came into effect on 1 January 2020. The changes form part of wider efforts of the Croatian Government to ease the tax burden on both citizens and businesses.

What changes for businesses? 

The corporate tax rate has decreased for some businesses. Businesses with a yearly revenue of up to HRK 7.5 million (approx. EUR 1 million, excluded) will now be taxed at a 12 % rate, whereas previously only businesses with a revenue of up to HRK 3 million (approx. EUR 405.000) were eligible. Businesses exceeding this threshold will be taxed at 18 %.

Moreover, the VAT rate for the preparation and sale of food in and outside of establishments has decreased to 13 %. The general VAT rate remains 25 %.

The new laws also widen the responsibility of businesses with regard to issuing invoices (which will take effect in part on 1 April 2020 and on 1 January 2021) and introduce changes to the taxation of coffee and non-alcoholic beverages.

Stricter rules for “hidden employment”

So-called “hidden employment” relationships in Croatia typically feature a natural person registering a craft and performing services exclusively for one company on a contractual basis. In reality, the contractor for all intents and purposes is an employee – working at the company’s premises, being integrated into the company structure etc. In the past such arrangements allowed cutting costs, as certain crafts enjoy tax benefits. While hidden employment was previously somewhat of a grey area, stricter rules are now being introduced to combat such arrangements. The employee in such situations will be liable for tax payments, while the employer will be jointly and severally liable as a guarantor. This measure is likely a reaction to the growing number of similar arrangements, e.g. in the Croatian IT sector.

The implementation of the described laws will conclude the latest round of tax reforms envisioned by the Croatian Government. Apart from this, Croatia is also working on making business more attractive through increased digitalisation and opening of the employment market.

By Ozren Kobsa, Attorney at Law, and Ana Marija Rupcic, Associate, Schoenherr