After a 27 year long use of Croatian kuna (HRK) as the official currency, Croatia is set to make a currency switch which means, starting from 1 January 2023, euro becomes the new currency in use. Having met all of the monetary and fiscal criteria, on 6 July the EU Council has adopted the final legal acts regarding the currency switch and allowing the Croatia to introduce EU’s common currency and enter into the euro area (eurozone) amongst the other 19 EU member countries. The fixed exchange rate for EUR/HRK was confirmed at 7.53450 HRK for 1 EUR.
As Croatia is setting the stage for the currency switch, the Parliament has voted the Act on the introduction of the euro as official currency in Croatia which provides a clear set of rules to ensure the smooth currency transition for the economy, while aiming to protect the consumers.
Basic principles of the currency switch
The Act rests on five basic principles as a legal frame for process of implementing and using euro as official currency:
- Principle of consumer protection: The consumer must not be in a financially less favourable position than he would have been if the euro had not been introduced.
- Principle of prohibition of unjustified price increase: When introducing the euro, it is forbidden for to increase the price of goods or services to consumers without a justified reason.
- Principle of continuity of legal instruments: The introduction of the euro must not affect the validity of already existing contracts and other legal instruments in which the national currency is specified.
- Principle of efficiency: All activities related to the introduction of the euro are carried out in such a way as to ensure that the procedure is as simple as possible with as few costs as possible.
- Principle of transparency and information: Information about the introduction of the euro should be clear, comprehensible, accessible, legible and visible.
When it comes to business entities, the most important implications of the currency switch concern primarily showing of prices, invoicing, recording of business events, preparation of financial statements and tax returns, especially in the transition period.
Conversion of HKR to EUR
The conversion of the values from Croatian kuna to euro is carried out using the fixed conversion rate 7.53450 HRK for 1 EUR, as confirmed by the decision of the EU Council.
After the calculation, the result is rounded to two decimals, and based on the third decimal.
Dual price showing
Dual price showing assumes the presentation of prices using both HRK and EUR in relations with customers (e.g., in retail, on price lists, offers and invoices and other documents).
The dual price showing obligation only applies in relations with end customers (B2C sales/transactions) and does not apply in relations between business entities. Thus, invoices between business entities, price lists and similar documents used in transactions in which only business entities participate can remain denominated in HRK until the currency switch, which means until euro becomes the official currency.
Mandatory dual price showing will start from 5 September 2022 and will apply until 31 December 2023.
Mandatory dual price showing also applies to the employer-employee relationship. Namely, the employer is obliged to present the final net payment to the employee in both currencies.
Business events related to the period after the currency switch, i.e. the introduction of euro as official currency must be recorded into business books in EUR. Balances in HRK transferred from business books for 2022 must be converted into EUR using the set fixed exchange rate.
Tax returns and financial statements
The corporate income tax return, as well as the financial statements for 2022 shall be prepared and submitted in HRK since the relevant business events in 2022 occurred before euro became the official currency.
If you would like to know more about any details of the Croatian currency switch, please visit the homepage of Tax Advisory TUK Ltd., the exclusive representative of WTS Global in Croatia.