Companies opened for HRK 10 cannot be closed for fewer than 35,000

People who wanted to close their companies after New Year were unpleasantly surprised. Closing a company in Croatia became significantly more expensive this year due to last year's changes to the Pension Insurance Act, which obligate liquidators of companies - generally owners or directors - to pay contributions.

Even without considering the usual costs of closing companies, which are not small, calculations of experts show that closing companies can cost owners some HRK 30,000 annually in contributions alone! This is assuming that the liquidation process takes one year on average, while processes can take much longer in practice.

Additional costs

If "normal" costs of closing companies are added to the calculation, which stand between HRK 1,500 and 2,000 for simple companies according to calculations of accountants, and between 3,000 and 3,500 for limited liability companies. Including costs of notaries public as well as court fees for starting the liquidation process and removal from court register, total cost of closing a company can reach HRK 35,000. This is assuming that the process takes "just" one year. Of course, if the process drags out, costs increase.

It comes as no surprise that many entrepreneurs who decided to close their companies on the first day of the year found themselves in a paradoxical situation - they are generally closing companies because they cannot afford to continue operating, while the State charges them fees they cannot pay. That is how closing a company in Croatia became a Sisyphean task for many people.

-We are in an absurd situation where one can easily open a company in Croatia, but encounters many problems trying to close it. The liquidation process is lengthy and just became more expensive - warned Vesna Kunovac, owner of S. B. Uplata accountancy from Zagreb.

Looking for a way out

Testimonies of our readers confirm this, who have been contacting us over the last ten days and complaining about the more difficult and more expensive process of closing companies. Some are leaving Croatia, which is why they decided to close their companies. However, instead of a relatively quick and cheap process, they are in an administrative maze and finding a way out costs a lot.

Our reader Sanja, who did not want us to release her full name, is one of the entrepreneurs who decided to close their companies and faced unexpected problems in the process. Sanja opened her company in 2015, which operated until end 2016, just under two years.

- I could not continue running the company due to personal reasons and I started the liquidation process in 2017. However, the process has not been wrapped up as the Commercial Court has not ruled on the matter. In the meantime, new regulations were adopted, including regulations on obligations of liquidators, which affect people who are waiting for rulings on liquidation of their companies which stopped operating some two years ago and have no assets or employees - warned Sanja.

In other words, the liquidation process in the case of our embittered reader is taking longer than the company operated. She complains that end of the process is not in sight, while new and unexpected costs keep piling up.

Our reader from Zagreb, a 72-year-old retiree, was unpleasantly surprised as well. He opened a company for designing electrical systems some 13 years ago, pointing out that opening the company cost him about HRK 5,600. The company did not have any employees, with him as owner and director designing electrical systems for clients and paying obligations towards the State in timely manner. However, as work was becoming scarcer and keeping the company opened cost approximately EUR 1,500 annually, our reader decided to close the company. He started the liquidation process in 2017.

- I started the liquidation process at end December 2017, I submitted the documents to the Commercial Court and announced the closing in the National Gazette. The liquidation process was officially started in March last year and should be wrapped up in March this year considering that these processes take one year on average. Cost of closing the company should have stood at some HRK 2,000, but I was in for an unpleasant surprise! They told me that, according to new regulations, I have to employ a liquidator and pay wage as well as contributions, which I was not obligated to do according to old regulations - the reader warned.

Financial experts explained that nothing changed with regard to the process or direct costs of closing companies this year. However, they reminded that the Pension Insurance Act was amended, which requires liquidators to be insured if they do not have insurance through other means. According to the Tax Authority, liquidators have to pay contributions calculated from base of HRK 8,448 for independent insurance. If they have insurance through other means, then the base for calculating contributions cannot be lower than HRK 5,491.20, commented financial experts on new regulations. In case liquidators are secured through other means with base lower than the minimum, Tax Authority charges the difference, said our interlocutors.

Other solutions

-Calculations show they will have to pay up to HRK 2,500 each month just for contributions, which costs approximately 30,000 annually - said Kunovac.

-Liquidation of a company has always been a large and demanding task, it cannot be done quickly. Even if the company does not have any debts, it does not stop operating automatically. However, the decision that owner must be employed at the company and pay contributions makes things more complicated - said financial adviser Vlado Brkanić.

Experts suspect that the new obligation for owners to be employed at their companies and pay contributions coupled with continuation of emigration will cause an explosion of liquidation of companies. However, the process of liquidation has become more expensive as contributions for liquidators must be paid.

Experts came forward with several possible solutions for lowering costs of closing companies for entrepreneurs. For instance, one suggestion is to appoint as liquidator someone they trust who is already employed. Another suggestion is to sell rather than close the company, for a symbolic price if needed - financial experts noted.

We should add that we have asked the Tax Authority to comment on new costs of liquidation of companies, but did not get a reply.