The interest of foreign citizens for acquiring properties in Croatia, as a modality of investment of capital, increased over the last 10 years or so.
Besides the main reason – spending part of the year in an attractive Mediterranean zone – not less important is the economical use of a property through rentals to other guests.
Until February 1st 2009, when the Stabilization and Association Agreement entered into force, each sales contract entered by a foreign buyer had to be submitted to the Ministry of Justice to obtain its consent for acquiring properties. Their decision making was endless. Therefore, numerous foreign citizens decided to take the „easier way out“: setting up a limited liability company (a Croatian legal entity).
This new established company would become the full owner of a property with the aim of performing economical activities through rental of their property to guests.
The first condition one must fulfil is registering the activity of “accommodation services” at the Commercial court’s registry.
The second condition, which caused substantial displeasure for many founders of companies that own properties, is the problem of CATEGORISATION of a facility – apartment or holiday house.
Namely, in Croatia, the property rental activity, provided whether to domestic or foreign guests, is considered an activity of hospitality.
In order to be able to perform the activity of hospitality, a natural person or legal entity must be registered at the proper registry and have a proper decision for it.
Besides the aforesaid Commercial court registration, the conditions to obtain the named decision are: providing proof that the interested legal entity has the right to use the facility, that the facility where the activity is going to be performed fulfils the required minimal technical conditions prescribed for a certain category and that the building itself fulfils the conditions provided by a special regulation.
In such case the special regulation requires that the authorisation of occupancy for the building must be issued in accordance with the intended purpose – performance of economical activities.
If the economical purpose isn’t mentioned in the authorisation of occupancy (but only, for example, the residential purpose), The Tourism Office, as the body authorised to issue the decision of minimal technical conditions, is obligated to reject the application for categorisation.
The problem arises from the fact that most of the properties have a regular authorisation of occupancy – with residential purpose.
In case hospitality services are provided without the aforementioned registration and approval, during the inspection an authorised inspector may ban any further services until the determined faults are eliminated (the categorisation is obtained), for a minimum of 30 days. This is done by “sealing” all entrances into the house or apartment.
Even if there are guests staying at the facility. Guests are than forced to leave the premises, regardless the stage of their holiday at the moment they are found there. The next step is “sealing” the premises, by which the ban of activities actually starts to apply.
This is followed by a fine in the amount of 10.000,00 to 150.000,00 kuna for a legal entity, plus 5.000,00 to 15.000,00 kuna for the responsible person within the legal entity (that is, the management member of the company).
At the end, we would like to point out another important fact: although after February 1st 2009 as far as the purchase of properties is concerned, the same conditions apply to citizens of European Union members and Croatian citizens, but direct rental by foreign owners still isn’t possible until the entrance of Croatia into the European Union as a full member.
Thus, the only solution for undisturbed performance of property rental activities, where the properties have the authorisation of occupancy with residential purpose, is reallocation of the facility and obtainment of categorisation as a precondition to rent in accordance with the law.
