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.

Bookkeeping 

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.

A Currency switch in Croatia bejegyzés először WTS Klient Ungarn | Steuerberatung | Buchhaltung | Lohnverrechnung | Advisory | HR Services | Digitale Lösung-én jelent meg.

Dividends from Belarusian companies

Belarus-sourced dividends are taxed there both for residents and non-residents. The good news is that no additional actions are normally required from individuals since Belarusian companies, as tax agents, withhold personal income tax from the dividend amount.

When Belarusian companies calculate personal income tax from dividends paid to individuals they tax them as of the date of actual receipt, i.e. when a corporate decision to distribute profits and pay out dividends is made according to Belarusian legislation.

The standard tax rate for dividends in Belarus is 13%. A special tax rate of 6% applies if shareholders who are Belarusian tax residents have not distributed profits for three years in a row, but have rather reinvested the profits. If Belarusian tax-resident shareholders have not distributed profits for five consecutive years, a 0% tax rate applies to dividends in Belarus. These reduced tax rates are not applicable for tax non-residents in Belarus.

Dividends in Belarus from foreign companies

Foreign dividends are only taxed in Belarus for Belarusian tax residents. An individual is generally recognised as a Belarusian tax resident if they stay in the territory of Belarus for more than 183 days in a given calendar year. This 183+ days term includes the time spent out of Belarus:

• on business trips formalised in accordance with Belarusian labour law;
• for medical treatment;
• on holiday, provided that the holiday did not exceed two months overall in a calendar year.

Since foreign dividends are foreign-sourced income, the residents must report them in their annual personal income tax return, which must be submitted no later than 31 March following the year of actually receiving the dividends.

Date and currency 

When an individual fills in the return, some questions may arise in practice.

One may concern the date of receipt of the dividends. This aspect differs from the mechanism established for Belarusian companies. Individuals must indicate the date of payment, i.e. the transfer of income to the bank accounts or electronic wallet of the individuals, as the date the foreign dividends are received.

Another practical question is what is the currency of income if a company transfers money in one currency, but the bank account of the recipient converts it into another currency.

This question is not directly regulated by national legislation, but we believe the income should be indicated in the currency in which the foreign company paid it to the individual. This situation may be relevant when dividends in Belarus are paid, for example, in euros, but settled to the individual’s bank account in US dollars. In such a situation a banking conversion takes place, i.e. the bank firstly exchanges euros for US dollars, and then settles the amount of money to the individual’s account.

The bank acts as an intermediary here, the dividends in Belarus are received by the bank in the currency that the foreign company decided to pay them in. Therefore, the income should be reflected in the tax return as it was received by the recipient bank directly from the foreign company. The conversion of funds is a term of an agreement between the recipient bank and the account owner. Therefore, in terms of taxation it should not affect the receipt of income in the form of a dividend. However, we always recommend being ready to confirm the amount and currency of the income with respective documents.

In terms of the currency, it is worth mentioning that as a final step the tax authorities recalculate the income received in the foreign currency to Belarusian rubles at the official rate of the National Bank for the date the income was actually received.

After submitting the annual return, an individual must pay 13% personal income tax no later than 1 June following the year the dividend was actually received.

Offsetting of tax paid abroad

Foreign jurisdictions normally oblige their resident companies to withhold personal income tax while paying out dividends, except for specific jurisdictions such as Cyprus. In such situations, according to Belarusian legislation an individual has the right to offset the amount of tax paid abroad. To do this, the individuals must confirm the income and paid taxes with an official document of the foreign tax authorities containing the respective information.

It is allowed to request offsetting when the personal income tax return is submitted with attached corporate documents, confirming the income and paid taxes. However, after this the individuals are still obliged to prove the facts with the documents issued by the tax authorities of the foreign country within one year of submitting the tax return. If the confirmation documents mentioned above are not provided on time, the tax authorities will recalculate the personal income tax and charge additional fines for not paying on time.

If you would like to know more about taxation of dividends in Belarus, please visit the homepage of Sorainen, the Baltic partner of WTS Global!

A Personal income tax on dividends in Belarus bejegyzés először WTS Klient Ungarn | Steuerberatung | Buchhaltung | Lohnverrechnung | Advisory | HR Services | Digitale Lösung-én jelent meg.