Private buyers and sellers
Let’s assume that you are private overseas buyer purchasing property in Croatia worth 100.000 € from the local seller. The seller will make no further cessions and wants to receive the price agreed in full, without bearing any transaction losses. This means that the contracted price will be “100.000 €, payable in Kuna as per selling exchange rate of the seller’s commercial bank on payment day”. In this example, the seller’s commercial bank has the following exchange rates applicable on the payment day: buying 7.52 Kn/€, middle 7.57 Kn/€; selling 7.62 Kn/€.
Option 1. Open non-residential personal Euro account in Croatian bank. Send the money from your personal Euro account from abroad to your personal Euro account in Croatia. Withdraw 100.000 € on payment day and hand them over to the seller. Most likely you will have to transfer the money in several stages due to limits in international wire transfer. Also, please read important tips, par. 4, at the end of article.
Keep in mind that you can’t make cross-account wire transfer in Euros within different Croatian banks with the purpose of buying property. It is only possible to arrange wire transfer if both buyer and seller have Euro accounts in the same bank. The bank will redeem the money from your account and make deposit on the seller’s account without the actual cash being exchanged.
Option 2. Sending the contracted amount from your personal Euro account from abroad to the seller’s Euro account in Croatia. As per Law, even if you send 100.000 € to the seller’s Euro account with the purpose of buying the property, the money will be automatically converted into Kuna using buying (lower) exchange rate. This will leave the seller with 752.000 Kuna, an amount insufficient to buy 100.000 € with his commercial bank (as he would need 762.000 Kuna) and you will have to compensate the exchange rate loss. In other words, if this would be your payment method, you would have to send 101.329,80 € (according to exchange rates given in the example above).
Alternatively, you could pay in Kuna from abroad on the seller’s Kuna account. Again, you will need to send 762.000 Kuna, allowing the seller to buy 100.000 € with his commercial bank in Croatia. This option could be interesting to the buyers who have good currency brokers abroad and may be able to get favorable rate because Kuna is internationally convertible.
If the seller is non-resident too, you could mutually agree that the contracted price is paid in preferred currency to the seller’s personal account abroad, avoiding exchange rate issues with Kuna. This may work well with Euro-zone residents, but some sellers may not accept it because of rigid tax control in their native countries.
Corporate buyers and sellers
If the seller is Croatian company, it must receive the payment on its Kuna giro account without an exception. In this case the exchange rate loss will inevitably occur and the buyer should respect the selling rate when sending the payment.
If the buyer wants to incorporate Croatian company (i.e. buyer of Russian citizenship in order to bypass legal restrictions), the company will need to make payments in Kuna. This will often put the buyer into “double loss” – firstly by applying buying rate when sending foreign currency to his company’s Kuna giro account, secondly by compensating the seller’s exchange rate loss by paying the contracted price according to selling exchange rate.
In rare occasions buyer and seller may mutually agree to tighten the contracted price in Euros to middle exchange rate of Croatian National Bank. The buyers will still face the same issues as described above, however the exchange rate difference will be equally bared by both parties. Most sellers will not agree to this exchange rate.
- Commercial buying and selling exchange rates are negotiable for amounts in excess of 400.000 Kuna (approximately 53.000 €). At your request, the bank teller will contact the bank’s currency broker to offer favorable rate (the higher the amount is, the better the rate is). In case of amounts larger than 300.000 € expect to reduce the spread by ca. 0,5%. The buy-out has to be arranged in advance (on specific day when you will send the money).
- There is a time gap between signing the contract and the actual payment day. Commercial exchange rates are not known in advance. Although it is impossible to tell beforehand the exact amount needed, a historical exchange rate list may give a good insight into currency exchange expectation in the near future as the fluctuations are minimal.
- Whichever option involving non-residential bank account the buyer chooses from, he may empower reliable third party (i.e. attorney at law) to have access to his funds in case he is prevented to personally close the deal until the payment is due. Breach of contractual deadlines often implies the loss of deposit and termination of contract.
- Croatian Anti Money Laundering Act requires in-depth questionnaire about the origin of the money to be filled in by any client (domestic or foreign) involving a transaction in excess of 105.000 Kuna (approx. 14.000 €). The same Act forbids cash payments above the stated amount.