Two-thirds of Croatian companies do not plan to increase investments in research and development

As a new EU member, Croatia participated in this year’s Deloitte survey on private companies’ investments in research and development, revealing that Croatian companies invest less in this area than the average for Central European countries, with the main reasons being a lack of financial support and regulatory uncertainty.

The survey, conducted in the first half of 2013, involved 233 companies from the Czech Republic, Slovakia, Poland, Hungary, and Croatia, of which 31 companies were from our country. The survey pertained to investments made in 2012. About 90 percent of the surveyed companies invest in research and development, while 66 percent of Croatian companies stated that they do not plan to increase investments in this area in the upcoming period unless there are significant changes in the regulatory system.

 - As a reason for the lack of investment, 43 percent of respondents in Croatia indicated uncertainty regarding how the Tax Administration will treat research and development costs, which makes them reluctant to utilize such forms of tax incentives, a sentiment shared by a quarter of respondents from Central Europe, commented Sonja Ifković, director at Deloitte responsible for research and development. The survey results also show that more companies in Croatia would consider such investments if there were more financial supports.

Deloitte’s report indicates that in 2012, Croatian companies most frequently invested between one and three percent, while only 4 percent invested more than 10 percent. In comparison, in Slovakia, as many as 47 percent of companies invested more than 10 percent of their revenue in research and development. Interestingly, 30 percent of the surveyed Croatian companies do not know the exact percentage of revenue they invested in research and development in 2012.

About ten percent of companies in the region say they will reduce investments in the upcoming period, while in Hungary, the percentage of such companies is as high as 20 percent, and Poland is the only country in the region where no company plans to reduce investments in research and development.

At the EU level, an average of two percent of GDP is invested in research and development, and in the upcoming seven-year period from 2014 to 2020, these investments are planned to increase to three percent. In Croatia, this average is 0.7 percent of GDP, and by 2020, an increase to 1.4 percent is expected. Domestic companies have primarily utilized state subsidies in research, but these are mostly large companies that have achieved a reduction in corporate tax through this. Such a model stimulates larger, profitable companies more than startups and smaller and medium-sized enterprises. Given Croatia’s entry into the EU, companies have access to structural fund resources, but obtaining them requires key cooperation between the private sector and universities. Deloitte’s research has shown that companies in Croatia do not attach great importance to collaboration with the academic sector.

 - It is interesting to note that, despite the availability of labor being ranked third in importance, access to universities, research institutes, and collaboration with them are rated as the least significant factor in increasing investments. This result could be interpreted as an anomaly of the research considering that universities are a traditional source of qualified and economically favorable resources for research and development activities, emphasizes Ivan Andrišek, senior advisor in Deloitte’s Tax Consulting Department.