Croatia soon to become 20th state to adopt the euro

Croatia

Croatia is planning to introduce the euro as its official currency from 1 January 2023. The Proposal of the Act on the Introduction of the Euro as the Official Currency in Croatia is currently passing through parliament. The purpose of the Act is to ensure legal certainty and to create the necessary conditions for uninterrupted and efficient functioning of the economy.

The Act should establish rules for the conversion of monetary value statements, the supply and exchange of kuna for euro cash, dual circulation, dual disclosure, the application of the principle of continuity of legal instruments, budgets, financial plans, business books, financial reports and taxes in the process of introducing euro.

The introduction of euro includes three key periods:

  • the preparatory period of approximately 6 months before the introduction of the euro,

  • the dual circulation period of two weeks after the euro is introduced, in which the euro and the kuna may be used simultaneously in cash transactions, and

  • the period after the end of the dual circulation.

A key measure for consumer protection in this process is the dual reporting of prices in both kuna and euro from 5 September 2022 until 31 December 2023 (assuming that Croatia adopts the euro as its official currency on 1 January 2023). In that period, businesses will be obliged to state their prices in a clear, legible and easily visible way in both euros and kuna using the fixed conversion rate. During this period, payslips will also need to show amounts in both currencies, Tax Administration will have to disclose all financial data on acts determining the tax liability in both currencies etc.

Businesses will need to acquire euro banknotes and coins on time in order to be able to perform cash transactions in the new currency. This is most important in the retail sector, which carries out a large number of cash transactions. The Croatian National Bank will start supplying banks with euro banknotes and coins three to four months before the euro is introduced and banks will supply clients with the banknotes and coins they need.

Businesses will also need to convert their registered share capital. Joint stock companies and limited liability companies are obligated to convert their existing share capital and its parts that fall into shares by applying a fixed exchange rate between kuna and euro and rounding it to the nearest cent. Joint stock companies are obligated to submit a request to register a change to the registration court within a maximum of one year from the date the euro is introduced, and limited liability companies need to do this within three years. In addition, the market value of shares in HRK quoted or traded at trading venues on the day the euro is introduced will be converted and expressed in euros by the market operator, i,e., by the manager of the multilateral trading platform (Zagreb Stock Exchange).

The replacement of the kuna with the euro will inevitably affect the accounting systems and consequently the information systems that support financial and accounting processes. All financial and tax reports for the years prior to the currency changeover must be submitted in kuna, and reports from 2023 on, in euros.

There will be no need to change or adjust existing employment and other agreements; however, salaries determined in employment agreements and other acts determining the amount of salary in kuna should be converted into euros using the fixed conversion rate. Salaries paid in 2023, although they might relate to the period before the euro is introduced, should still be paid and reported in euros.

Delayed identification of problems and risks in adjustment might lead to difficulties or delays in the implementation of the necessary adjustments, and thus to the inadequacy or inability to carry out business after the euro is introduced. Therefore, we highly recommend businesses familiarize themselves with the changes resulting from the new official currency.