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On Monday, Crodiaspora and COK (Center for the renewal of Culture) held their second webinar which tackles issues pertaining to Croats abroad.
The webinar informed the Croatian diaspora about the Croatian legal system and sought to answer many of the common legal questions Croats abroad have about doing business and their property rights in Croatia. Don Markušić and Monika Maretić, two Croatian lawyers, thoroughly answered questions and explained the common legal misconceptions people have when they do business in the country.
„Crodiaspora apologizes for the technical difficulties towards the beginning of the webinar and the unfortunate reality that we could not get to everyone’s questions. We will have part two of this webinar towards the end of June. We also received many questions pertaining to taxes in Croatia. Unfortunately, Croatian lawyers are not allowed to answer legal questions pertaining to taxes, but in light of this, we have decided to make our next webinar about Double taxation between the United States and Croatia. PwC Croatia will answer all of your tax-related questions on June 1st at 6:30 P.M.“
Below, Crodiaspora has put together a summation of the webinar:
Common-Law and Civil law, and what makes Croatia’s Judicial system peculiar
When Don moved to Croatia from Australia, he encountered many differences between the Common law and Civil law systems. Much of what he faced in Croatia was with the Croatian Bar association recognizing his law degree from Australia and how it could not be recognized because of the differences between the civil and common law systems.
“In Croatia I was the first common law lawyer, and the Croatian Bar association did not know what to do with me. It took them many years for them to work it out but after I got my law degree recognized, I established the precedent between common law and civil law”.
One of the questions answered later in the webinar was about the concept of a ‘trust’. This is an example of a concept that is not recognized in Civil law. On the other hand, Don also said that, “there are some common law principles that are being used more and more… For example, Financial instruments, the standardization and internationalization of finance has seen this concept also be implemented in Croatia. Another example is EU laws and many concepts [in Croatian law] came from there. Croatia has many good laws or else we would not be able to get into the EU. The actual problem is the implementation [of these laws].”
Don continued by addressing corruption in the judicial system as well as an equally troubling problem: incompetence. “Another problem is that there are concepts that are the same in common law and in civil law but some judges do not know how to apply them. In corruption surveys, Croatia is right up there in terms of the legal system. But sometimes I do not know what is worse, corruption or incompetence.”
Don further explained that he had an Australian client who desperately needed an injunction from a Croatian judge to protect his investment. Because the judge did not know what this was, Don’s client incurred financial damages. “There was a particular case, where there was two million dollars transferred from Australia to Croatia. The other lawyer in the case wanted to renege on the deal. So we sought an injunction on the bank account so that we can secure the money whilst the court case was going on, and [the defendants] didn’t care that we are suing them because they knew it was going to take a couple of years and by the time the court case finished they would have spent the money anyway. The judge took his sweet time in terms of rendering an injunction. So, I explained to them, the injunction is something urgent, we are preventing them from doing something. And he said no, I have to listen to all the clients, all the cases and other parties and it took a long time. So, what did we do about that? In this case, we didn’t get the injunction on time, and of course, this did a lot of damage to our client. So, what did we do? We sued the government of Croatia. ‘Your judge has cost our client 2 million dollars because your judge did not know what an injunction was.’”
He also discussed an additional difference between common law and Civil law. The concept of ‘being convicted’ differs in the two systems. “In the Common law system, once you are convicted: that’s it! You are convicted at first instance. If you want to appeal, you can appeal but until they appeal and the appeal is upheld and the conviction is quashed, then you still have the conviction. But here [In Croatia] it seems like things go on for years and years and you have these cases where these corrupt politicians are convicted. [When convicted] they say, ‘no, no, I’m not convicted’ so they appeal and the case goes back to court.”
Despite his criticisms of the Croatian judiciary, Don also expressed that there are some positive things about the Croatian judiciary. “But we are not saying that one system is better than another, like for example in Croatia they do not have a jury system. And I practiced Australian and British Law before coming to Croatia and when a case reached the High Court in Australia we always said, the case got here because ‘the Jury got it wrong’.”
Can you do a check on potential lawyers?
“Here in Croatia, it is a pretty closed profession. There is no system of checks and it is mainly word of mouth.” Don continues by saying, “you can, of course, report a lawyer to the Croatian Bar Association for disciplinary action. Lawyers cannot advertise, so we are trying to be careful with even this webinar. I have discussed this situation with Marko Zoretić, who is President of the Croatian American Bar Association, to see how we can get the Croatian Bar to open up a bit more and reduce the restrictions on lawyers and for lawyers to be able to advertise.”
Don suggested caution when hiring a lawyer in a foreign country to accomplish legal work in Croatia. “For example, an Australian client hired lawyers in Australia in relation to some legal work on his property in Croatia. The lawyers in Croatia subcontracted to a Croatian lawyer. The lawyer In Croatia that was subcontracted didn’t do his job and the Australian client is unsure of who to sue: the Australian or the Croatian lawyer.”
Don concluded by saying that there are also many good lawyers in Croatia who want to get the job done, just, unfortunately, the actions of some lawyers ‘spoil the bunch’.
Double Taxation and how are you personally involved in the treaty?
“Double taxation is a big problem and it is an impediment for American investment.”
Don is the president of the Association of Croatian American Professionals (ACAP), and is leading a separate task force for the double tax treaty. ACAP, with their partners in Washington, has lobbyists in Washington who are negotiating with Treasury to move Croatia up on the list of countries with whom the United States need to ratify their double taxation treaty. Don also praised the American Ambassador for his actions. “I must say that the American ambassador, Ambassador Kohorst, he has done a lot of work in this area. He has been in Washington and has been talking to treasury a lot, and he put Croatia on the list for the double tax treaty to be signed. Now we are on the list but it is now a question of putting us higher on the list.”
Many participants are asking about property that is inherited between multiple parties. How is the property passed onto the children, in other words, what are some of the possible solutions?
“To give land to your children, probate proceedings must take place in Croatia usually after somebody dies, and in Croatia, they are commenced by filing an application to the court. Even though the application is filed with the court, the notary public is the one who does the procedure and what is important to know is that you need to have the death certificate of the deceased, a list of the estates [the deceased owned] and a description of the family tree.” Monika also added that this procedure should not take more than 3 months if there is no dispute between the heirs and in most cases one hearing was enough to resolve the inheritance.
You can watch the question being answered on the link here
Many have been wondering about their wills in other countries. What is the legal standing of wills from outside of Croatia and what is the process for those wanting to have those wills interpreted in Croatia?
Wills are considered legally binding contracts in Croatia. If the will is finalized and is legally binding in another country, all one has to do is have the will translated into Croatian and it is considered a legal document in Croatia. You would need to translate the will in Croatia at a court interpreter (Hr. sudski tumač)
You can watch the question being answered on the link here
Why is the land registry so important and what is the difference between the land registry and cadastre?
The Cadastre as the document that describes the physical features, essentially a map of the property, and the land registry is the paper that describes the legal rights to that property.
You can watch the question being answered on the link here
A viewer from New Zealand writes: is there a law in Croatia that pertains to the co-ownership of land and property in Croatia? What are the obligations of the co-owners?
Yes, there is a law pertaining to co-ownership. Monika further explains, “Many people from the diaspora think that they own property but they are just one of 10 owners. Before I describe the obligations of the co-owner, I would like to just point out that there is a difference between co-ownership and joint ownership. At first sight it seems like we are talking about the same thing but there is a big difference between these two ownerships. Because if you are a co-owner, then your part in that ownership is specified. Like for example, you know how much of the house, like 1/3 or 2/3 of the house, and you are allowed to transfer those parts to somebody else, which is not the case in joint ownership. So, if you are in joint ownership, you know that you own land with somebody else, but you do not know what piece of the land is yours, you don’t know if you have ½ or 2/3 of the land and you are not allowed to transfer that part to anybody else.”
You can watch the question being answered on the link here
An American viewer writes two questions: 1) I have land in Croatia that I have inherited and I am waiting for the government to assess its value so I know what my fees would be. I have been waiting years and they still have not evaluated the land. What’s a better way?
“So, Croatian lawyers are not supposed to advise on taxes. But if you are talking about the 3% transfer tax, this does not apply to property that is inherited. This is direct inheritance, like a husband, spouse, parents, children, that sort of thing. Otherwise, if you inherit property from somebody else, then you have to pay the 3% transfer tax.” He also stated that if the inheritance has not been resolved then technically one does not need to pay taxes and fees on that land since it is ambiguous who the taxpayer would be.
You can watch the question being answered on the link here
2) As a dual citizen, is it better for me to finance property with a US bank account or a Croatian Bank account?
“It is not a case of which one you should pay from. it doesn’t matter how you pay for the property. The main thing is as long as everyone gets their money, including the buyer and the government if it includes the 3% transfer tax.”
You can watch the question being answered on the link here
For members of the Croatian Diaspora in the USA who do not hold Croatian citizenship, but hold properties in Croatia, what estate planning activities do you recommend they perform in the Croatian legal system to ensure that these assets are properly protected from risk during our lifetime and then allocated to beneficiaries upon death?
“As Don already mentioned, we do not have trusts in Croatia but as long as you own the land in Croatia, you just make sure that your ownership is registered and you make sure that no one is using your land without permission. So, if you have a [trusted] neighbour, maybe he can check from time to time if there is somebody on your land. Otherwise, there is no way of knowing if somebody is on your land, because you would need to be in Croatia.”
You can watch the question being answered on the link here
What are some of the options in opening a business in Croatia, what are the legal benefits of each business type, and what are the costs of opening each kind of business?
There are many kinds of companies in Croatia such as a d.d. (public limited company), d.o.o. (a limited liability company), j.d.o.o. (simple limited company), j.t.d (general partnership), k.d. (limited partnership), and obrt (sole proprietorship), economic interest association and branch office (subsidiary). Depending on what your business plan is and the goals that you want to achieve in Croatia will affect the type of business that one will choose.
You can watch the question being answered on the link here
On February 4th, while giving a talk at the Croatian Bar Association (Hr. Hrvatska odvjetnička komora), American Ambassador Kohorst mentioned 3 things that could immediately be implemented to make the legal system more efficient in Croatia. Those were: That court processes should be filmed, next is to implement a system that has clearly defined deadlines and dates in which decisions have to be made and finally, testimonies and court cases should be done sequentially, day by day, instead of the court cases being so spread out over months. What is your take on what the ambassador said and what are some other things in the Croatian court system that might be reviewed in the future to attract international investment?
“I agree with it [the American Ambassador’s remarks]. These are really simple things and the lawyers that you talked about, they said that these 3 things cannot be implemented because you would have to change everything and that it would be too expensive. Well, I think that it would be too expensive to be missing out on US investment. The reason why the US ambassador made these suggestions is to make the judicial system more efficient so that we can get more American investment. The cost is not just an investor having a bad result in a court case but it is the loss of confidence by future investors.”
You can watch the question being answered on the link here
Conclusions
Overall, the Croatian legal system has its strengths and its weaknesses like any judicial system in the world. One thing in particular that Americans should remember when investing in Croatia is that they do not need to rely completely on the local legal system when faced with legal disputes pertaining to the government. “But there is another way, and that is not to rely on the Croatian legal system at all. And what I mean by that is, for example, if you are an American citizen you can rely on the bilateral investment protection treaty that the United States has signed with Croatia.”
“We have something in Croatia, what some would call them and are well known as local sheriffs. Local Mayors that are sometimes corrupt or they stifle investment just out of spite even if they do not benefit from it personally but the thing is that they exist and the Croatian Government, the national government, they can’t control the local sheriffs. But the thing is the national government is liable for the actions of these local sheriffs and local mayors. Even though they cannot control them, they are liable for their actions under the Bilateral investment protection treaty. So, for example, a current case, we are not going through the local courts but we invoke the bilateral investment protection treaty between the US and Croatia for our Croatian, and also American, investors. So, we have told the Croatian government, the national government, that the investor has suffered damage due to the actions of the local mayor and now it is the national government that will have to pay the damages.”
Don concluded with an important message and principle by which he lives his life. “The key to doing business or anything in Croatia is persistence. It might take longer, but once it happens it is a permanent change and it helps other people. My example of my law degree, I mean it took 10 years [For Croatia to recognize it], but now other people can benefit from this much more quickly.”
“You know Stepinac, he said that you should always fight even though it looks like it is impossible. There are good people here, there are good people everywhere. There are good judges, there are good lawyers and people in the public service in the bureaucracy. When we think that something is absurd, we shouldn’t just frown upon it, they might just need to have it explained.”
Full video below:
