In the Republic of Croatia, there is a growing need to take care of people who cannot longer live independently, either due to old age or other illnesses, such as mental disabilities. The Croatian population is getting older, young people are moving to other cities or countries, and due to their active lifestyle, they cannot provide care for an old or sick family member at home. In the Republic of Croatia, mental disorders are one of the most common disorders and such persons need to be provided with adequate care, which can be provided in social welfare homes for adults. To improve the care system for such persons, a deinstitutionalization process has been launched. The goal of deinstitutionalization is to move people from the institutional form of accommodation in institutions to the non-institutional form of accommodation, ie to community care and to prevent institutionalization. The first beginnings of deinstitutionalization in Europe appeared in the 19th century and since then deinstitutionalization has changed, in accordance with new scientific knowledge. The European Union has adopted a policy framework for the transition from institutional to community-based care, thus providing guidance to Member States on the adoption of these guidelines in their own legal framework. In this way, they could begin the transition from an institutional form of care to a non-institutional form of care. Also, the European Union encourages member states through funds and finances the deinstitutionalization process, making it a world leader in the transformation of the social welfare system. The process of deinstitutionalization in the Republic of Croatia began in the 1990s and is still ongoing. It is a long process in which in addition to relocating social care users to noninstitutional accommodation, additional services and content must be provided to meet all needs and sensitize the public to involve such persons in the life of the local community. The implementation of the deinstitutionalisation process also requires financial resources that can be provided through European Union funds, given that the resources from the state budget that finance the social welfare system are limited. The aim of this paper is to analyse the social welfare system in the Republic of Croatia and the impact of European Union funds on the development and improvement of social care homes and analyse the needs for non-institutional form of accommodation for people with mental disabilities in the Republic of Croatia.