Current Economic Situation in Croatia
Croatia is one of the largest economies in Southeast Europe in terms of nominal gross domestic product (GDP). This is due to its accommodative foreign policy, which is highly dependent on European international trade.
The country's financial center, Zagreb, reflects the strongest growth points in Central Croatia. It shows an impressive level of high human development, high quality of life, and low level of income inequality.
Source: Moorings.com
Over the years the labour market has been inefficient. This is due to ineffective tax policies and inconsistent business standards. However, Croatia is considered a high-income country.
It is also notable that Croatia is an emerging force in the power sector, as it is making huge and strategic investments in Liquefied Natural Gas (LNG), geothermal power, and electric vehicles.
Croatia is a remarkable tourist destination in Europe, with about 20.3 million arrivals in 2023. The Tourism sector accounts for close to 20% of its GDP. The tertiary sector (service sector) accounts for a whopping 70% of the country’s GDP.
However, tourism investments are not the only selling point of Croatia, as the country is an open market to many opportunities for investors and entrepreneurs.
To further improve its economy, the World Bank suggests that:
If Croatia implements measures to increase its population’s human capital and economic participation, it could greatly boost its long-term growth. If Croatia can achieve substantial increases in labor participation and human capital, it will greatly enhance its ability to seize the opportunities and mitigate the risks
Crypto Law in Croatia
Source: Adeleke University
Cryptocurrencies are legal and remain mostly unregulated in Croatia. However, due to money laundering and terrorism concerns, the government regulates it through its anti-laundering laws.
Sound contradictory? Let’s break it down. While Croatia doesn’t have specific regulations for virtual assets or cryptocurrencies, they’re still subject to anti-laundering laws. By the way, virtual assets (or virtual currencies) refer to cryptocurrencies.
The Croatian government’s definition goes:
Virtual currency is a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency, and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically.
This definition is according to the Anti-Money Laundering and Counter-Terrorist Financing Act in Croatia. Despite providing this definition, the Croatian government’s restrictive regulations reflect scepticism towards this new technology.
Just like most European Union member states, they believe cryptocurrencies lack the legal criteria to qualify as a legal tender. However, from a tax perspective – cryptocurrency trading would qualify as a financial transaction.
In confirmation, the Financial Stability Council in Croatia has notified the public that Croatian regulators are not responsible for overseeing virtual currency transactions.
AML and HANFA: The Regulation and Enforcer
The journey of regulating cryptocurrencies due to money laundering concerns in Croatia started in 2020 when the Croatian government implemented the European Union’s 5th directive.
As part of the implementation process, it amended the Law on Combating Money Laundering and the Financing of Terrorism (Zakon o sprječavanju pranja novca i financiranja terorizma), popularly referred to as AML.
Source: Radical Compliance
Specifically, the AML regulation focuses on two types of crypto enterprises, which are exchange services and wallet providers. The providers of exchange services are businesses that convert virtual currencies, in this sense, cryptocurrencies to fiat currencies and vice versa. Other crypto enterprises such as mining operators are not regulated by the AML.
The Croatian Financial Services Supervisory Agency, popularly referred to as HANFA is responsible for enforcing the AML, and as such, is the regulatory authority of crypto service providers in Croatia.
HANFA oversees virtual currency exchangers and custodian wallet providers due to money laundering and terrorism concerns. However, HANFA does not issue licences to these operators but must be notified of their presence in Croatia.
For more context, any business that offers crypto exchanges or wallet services must notify HANFA of its existence within 30 days of formation. Failure to do so will result in a fine.
The Role of HANFA in Crypto Regulation in Croatia
Let us be clear, HANFA does not actually regulate cryptocurrencies in itself, rather they prevent money laundering that may occur in the cryptocurrency space.
To further reiterate this in the words of HANFA:
We perform our public role by regulating and supervising, in a consistent and transparent manner, business operations of financial services providers in accordance with best practices and international regulatory standards.
How does HANFA achieve this? They achieve this by regulating cryptocurrency exchanges through:
- Conducting a thorough analysis of customers
- Conducting a risk assessment, and
- Monitoring clients’ actions
Tax on Cryptocurrencies
Furthermore, crypto investors and users should be aware of the possible tax consequences that arise from cryptocurrency transactions.
Source: Offshore-Freedom.com
The Croatia’s Financial Stability Council gave the following warnings:
- Investors in cryptocurrency must be aware that trading it is considered a “financial transaction” in Croatia.
- Income generated from cryptocurrency sales is subject to a personal income tax based on capital gains. A tax rate of 12% for Croatia residents and 18% for Zagreb residents.
- Cryptocurrency holders are obligated to document their transactions using the FIFO (first in, first out) methodology.
Current State of Crypto Adoption in Croatia
In Croatia, crypto adoption has been on steady growth, with a revenue market share of about US $6.1 million in 2024 from US $3.3 million in 2023.
The number of active users of cryptocurrencies in Croatia is projected to reach 170,100 by 2025. An average Croatian contributes about US $36.1 to the cryptocurrency market as of 2024.
Despite no specific regulations on cryptocurrencies, Croatia has seen a high influx of users and adopters of this emerging technology.
Many businesses such as hotels, restaurants, museums, gas stations, humanitarian associations, and even local government institutions are now accepting crypto as a means of payment. An increasing number of people are also exploring investment opportunities in cryptocurrencies.
Alt text: A table showing the number of cryptocurrency holders in Croatia
Source: Resp Conference
Croatia ranks 13th on the list of most crypto-accepting countries by CryptoHead in 2024. CryptoHead ranks countries with several key factors, such as the number of cryptocurrency ATMs and their availability, the governments’ attitudes towards this technology, legal regulations and frameworks, and the people’s interest through their search history.
Source: Crypto Head
It is quite laudable that Croatia is just behind countries such as the United States, United Kingdom, Germany, Canada, and a few others.
This speaks volumes to the increasing interest of Croatians towards this new technology, despite the regulatory oversight from the government and its regulatory bodies.
Some Use Cases of Crypto in Croatia
Postal Services
Croatian Post has integrated “Crypto stamps” into postal services. In collaboration with the Croatian blockchain community, this crypto stamp is a package that consists of a physical stamp and a digital token that enables people to stamp their digital wallets.
Source: Kripto.posta.hr/
The physical stamp, worth EUR 6,64 can be used to send mail items, basically like any other stamp, while the digital token is kept as a virtual collection in wallets.
This token consists of five different motifs, each with a different degree of uniqueness: drone (1,000 copies), airplane (4,000 copies), ship (10,000 copies), train (25,000 copies), and van (60,000 copies).
Tourism
Many Hotels and Museums in Croatia accept cryptocurrencies as payments. Hotels such as Marvie Hotels, My Boutique Hotel, and a host of others have made it seamless for Tourists and guests to book rooms and make other payments using cryptocurrencies swiftly.
Source: Marvie Hotel
Museums such as the Zagreb 80’s Museum also accept cryptos as payments.
Retail
Payment platforms such as Paycek are building tailored solutions that allow business owners to accept various forms of payments including cryptocurrencies. This arises due to the increasing demand for alternative sources of payment by locals and most especially tourists.
It is worthy of note that Paycek is a service from a Croatian fintech startup called Electroncoin. Businesses such as gas stations, online stores, shops, etc. are actively embracing these virtual currencies. In 2021, all of Tifon Gas Stations in Croatia started accepting cryptocurrencies. Paycek processes the payments.
Source: Bitcoin.com
This goes to show how evident crypto is encroaching on all sectors of the economy.
Humanitarian Associations
Orphanages, charity organizations, NGOs, and other humanitarian associations in Croatia are adopting cryptocurrencies for donations and go-fund-me purposes. This alternative payment option has made it easier for seamless international transactions at lower costs.
Factors Driving Adoption
Tourism is one of the major drivers of the Croatian economy with over 7.2 million arrivals in 2024 already. According to a report by Croatian Week, in the last six months, the top arrivals are from Germany, Slovenia, Austria, Poland, and the United Kingdom.
Wait a minute! Going back to the earlier data by CryptoHead, aside from Austria and Poland, these countries are among the top ten most accepting countries of cryptocurrencies. Now, let us connect the dots.
Millions of tourists annually in Croatia come from countries with high usage and adoption rates of digital currencies. This is an undeniable reason for the increasing use of cryptocurrencies as payment instruments.
This explains why crypto is widely used for transactional purposes at Restaurants, Hotels, gas stations, Museums, and other essential services patronized by these tourists.
The adult literacy rate in Croatia is as high as 99.45% in 2021. This rate grew from as far back as 1991, when it was 96.70%.
Source: Macro Trends
This data reflects how easily Croatians can understand the technical terminologies that come with the crypto space. Furthermore, it explains their open-minded nature towards digital currencies.
The Potential for Cryptocurrency in Croatia
Cryptocurrencies have the potential to maintain Croatia's spot as a global leader in the Tourism sector. With over 560 million crypto users globally, and an average ownership rate of 6.8%, the future is digital currencies. The fact that its top tourists are from countries with high adoption rates is an incentive for more adoption.
Croatia already has a relatively well-developed banking system, but like most countries, increased interest in alternative financial solutions could fill the gaps in cross-border transactions and remittances.
The government’s stance toward digital currencies has been cautious but not outright negative. These policies will shape and play a crucial role in future adoption.
Conclusion
Croatia has a growing market for cryptocurrencies due to its tourism sector, which also happens to be its key economic driver. This creates an opportunity to capture the lion's share considering its competitors.
The government’s indirect approach to regulation raises concerns and has affected the widespread adoption of cryptocurrencies. However, the winds of change, piloted by tourists are reshaping the trajectory, one transaction at a time.
