Restrictions on Financial Assistance for Share Acquisitions in Croatia

Croatia has certain restrictions on the ability of companies to guarantee and/or provide security to support borrowings incurred to finance or refinance the direct or indirect acquisition of shares. In this article, we’ll explore these restrictions and other relevant provisions that international lenders should be aware of.

Financial Assistance for Share Acquisitions

According to Croatian law, an agreement under which a company grants financial assistance to third parties in the form of advance payment, security, or loan for the acquisition of its own shares is invalid. This provision applies to all companies, except credit and financial institutions, as well as employees who acquire shares.

• Limited liability companies (LLCs) are not subject to specific provisions regarding financial assistance for share acquisitions.
• Foreign lenders may face withholding tax on interest paid to them in Croatia, but a bilateral treaty can reduce or exempt the withholding tax.
• There are no special provisions for domestic lenders.

Recognition of Foreign Law and Enforcement of Foreign Judgments

Croatian courts recognize foreign law and enforce contracts with foreign governing laws. Parties have the freedom to designate the law of any jurisdiction in a contract, as long as it does not contradict public policy rules or rules of immediate application.

• Croatian courts will recognize and enforce judgments given against a company in other jurisdictions without re-examination of the merits.
• This is based on the principles of mutual recognition and enforcement of judicial decisions under international treaties and conventions.

Other Relevant Provisions

In general, borrowers should not face adverse consequences if some or all of the lenders are organized under the laws of a foreign jurisdiction. Additionally:

• There are no specific taxes or incentives provided preferentially to foreign lenders in Croatia.
• Certain fees may apply for registration purposes, and borrowers should be aware of these costs when considering lending arrangements.

Conclusion

While there may be some restrictions on financial assistance for share acquisitions in Croatia, the country’s courts recognize foreign law and enforce contracts with foreign governing laws. This makes Croatia a relatively attractive jurisdiction for international lending and borrowing transactions. International lenders should be aware of these provisions to ensure compliance and minimize risks when conducting business in Croatia.