In June 2016, the citizens of Great Britain voted to leave the European Union. In order to implement the referendum result and pursuant to the article 50 of the Lisbon Treaty, the UK government presented in March 2017 the Notification of Withdrawal. The exit process thus formally started, however, the use of the article 50 is unprecedented and over the course of the past year we witnessed how complex it may become.
UK has been an EU member state for more than four decades. During that period, a myriad of intertwined relationships, connections, rules and practices were built which now are rather difficult to change or break. Cross-border operations with the EU will face bureaucratic obstacles, trading will become troublesome, working permits will need to be reinstated, contracts reviewed and the deadline to resolve all of this is March 29, 2019. The UK wishes to establish a Free Trade Agreement with the EU, but the negotiations faced complications and time is running out fast. The UK government is thus preparing for a scenario of a so-called “no-deal exit” and has published numerous technical notices to prepare citizens and businesses. The most important ongoing issue seems to be the definition of borders with Ireland but in this article we focus on the impact of Brexit to Croatia, the EU’s youngest member state.
Croatia historically builds strong business relationship with its neighboring countries such as Italy, Slovenia, Bosnia & Hercegovina, Hungary and Austria. However, its strongest trading partner remains Germany. From such a point of view, the Brexit seemingly does not represent an immediate threat, but the UK is a strong player in EU and has contributed greatly to the EU budget. After Brexit, a gap in the budget will need to be filled and it is still uncertain how and to what extent will this impact Croatia and the rest of EU member states. This is one of the many considerations countries are pondering on while awaiting the result of the EU-UK negotiations. In its article dated December 11, 2017, the Financial Times published a “to-do” list for companies bringing to attention issues such as customs infrastructure, trade agreements, supply chains, VAT, patents, trademarks and work permits. All these problems must be tackled in advance. Documents, licenses and permits must be obtained in time and some of them require months. Insurance green cards, sanitary certifications for livestock, potential bottlenecks at the port of Dover… many warnings have been published in the UK media lately, some of them frightening entrepreneurs, farmers, and citizens and providing a backdrop of uncertainty.
All the above mentioned issues are very familiar to Croatia. The country joined the EU in 2013 and therefore the relationships with other EU member states are still developing. For example, only recently all EU countries, except Austria, lifted the restrictions on working permits, among which the UK itself. Investors are still rather careful, surveying the investment climate in Croatia, monitoring tax reforms and incentives schemes that are sometimes changing too often. The government mechanisms for EU funds were not well prepared, facing a risk of losing the available financing. The government in Croatia is making enormous efforts in removing obstacles and in finding the optimal tax solutions that at the same time will both attract investors and relieve citizens and entrepreneurs from tax burdens.
One potential obstacle in attracting UK companies seeking an alternative place for their business in the EU may be the less favorable tax scheme compared to other jurisdictions to which the UK is historically attracted, such as Malta or Cyprus. However, Croatia is a country with great potential that needs to be carefully considered.
Croatia’s geographic location gives access to many other markets. The long coastline makes it a perfect opportunity for maritime industry, tourism is booming and there are EU funds available to support businesses. Innovation incentives are increasing, as are those for research and development. There is a great potential in agriculture, alternative energy sources and the financial sector. It is important to note that Croatia and Great Britain have signed a Double Tax Treaty as well as the fact that the British Chamber of Commerce in Croatia is very active in connecting entrepreneurs from both countries. Both the Croatian President and the Prime Minister are confident that the relationship between UK and Croatia will continue to strengthen and develop after Brexit.
In an unprecedented situation such as Brexit, the EU is preparing for all sorts of scenarios and problems that may arise out of it. Before joining the EU, Croatia experienced heavy bureaucracy and obstacles that a non-EU member state faces while doing business with the EU. Croatia, as an EU member state, can greatly contribute to UK businesses with advice, guidance and efficient assistance.