The purpose of these Guidelines is to provide information to business entities on the activities and adjustments that await them in the process of replacing the Croatian kuna with the euro. The goal of timely preparation is the smooth and fast exchange of official currencies, with minimal impact on business and maximum efficiency. For specific questions of individual entities and possible ambiguities encountered by general government entities, it is possible to contact the e-mail address euro2023@mfin.hr at any time.

Replacement of the kuna by the euro will require adjustment of the business entity's accounting as well as adjustment in the preparation of financial statements and tax returns and other public benefits. Regular monitoring of a pre-defined business plan of the business entity is crucial for detecting possible problems and risks at an early stage of adjustment, which would enable timely changes and solutions.

 

Accounting adjustment

 

• Accounting processes generally rely on an appropriate information system that is the source of important quantitative and qualitative information for the business entity. Therefore, the timely adjustment of the information system is the basis for the adjustment of all other elements of the accounting and financial operations of the business entity.

 

• The accounting document on the basis of which business events are entered in the accounting records must be stated in the official currency. In the period until 31 December 2022 the accounting document is stated in kuna, and in the period from 1 January 2023 it is stated in euros. Also, all invoices from 1 January 2023 are paid in euros, while only in the period of double circulation, i.e. the first 14 days from the day of the introduction of the euro, cash in kuna can be used as a legal tender when paying in cash. The period of mandatory double disclosure will last from September 5, 2022 to December 31, 2023. In the period of mandatory double disclosure, it is sufficient to display in HRK and EUR only the total amount of the invoice with a fixed conversion rate. Invoices issued to business entities and public authorities, including invoices issued in accordance with EU standards according to the prescribed HTML scheme (eg. eInvoice) are exempt from double disclosure.

 

• In the period of double disclosure, the travel order does not need to be presented twice. On the travel order submitted for calculation by 31 December 2022 calculation of costs, the amount for payment or refund according to the calculation of the travel order is stated in kuna, and from 1 January 2023 in euros.

 

• In the period of double disclosure, the employer is obliged to double state the total amount paid to the employee on the document on the payment of salary and other benefits paid to the employee on the basis of the employment contract.

 

• Calculation and payment of salary and other benefits during 2022, including the salary for November 2022, which is paid in December 2022, is calculated in HRK. Salary and other benefits for December 2022 that are paid, from 1 January 2023 are paid in euros.

 

• At the end of the business year 2022, the salary liability for December 2022 is transferred to the initial balance in 2023 and is converted into euros using the fixed conversion rate and in accordance with the rules for conversion and rounding. After the payment of the salary in euros in January 2023, the transferred liabilities from 2022 are closed.

 

• The period of mandatory double disclosure is planned to begin on September 5, 2022. The employer is obliged to state the total amount in kuna and euros on the document on payment of salary and other benefits for August 2022, if he pays the salary after September 5, 2022. The liability for calculated salary for December 2022 is recorded in the business books in kuna. In accordance with the principle of continuity of contracts, existing contracts with amounts in HRK after 1 January 2023 are still valid. The same applies to employment contracts, which will not need to be changed just because of the introduction of the euro as the official currency.

 

• The JOPPD form which regulates income taxation according to special regulations, and has the report code 22xxx is submitted in kuna, and the JOPPD form which has the report code 23xxx is submitted in euros. The same will apply to all other forms submitted in 2023, and refer to the period of the previous year (PO-SD, PO-SD-Z, DOH, GFI POD, ZPP-DOH, PD, PD-IPO, etc).

 

• The Act on the Introduction of the Euro as the Official Currency in the Republic of Croatia prescribes the middle exchange rate of the Croatian National Bank for the kuna against the euro on 31 December 2022, which will be equal to the fixed conversion rate. The decision on the fixed conversion rate at the EU level is expected in July 2022. In case the business entity receives the invoice after the closing of the business year for the previous period, it will be recorded in euro, applying a fixed conversion rate and in accordance with the rules for conversion and rounding.

 

• Examples of handling accounting documents when issuing and entering in business books:
  • accounting documents with the date of the business event and the date of issue before and on 31 December 2022 - are issued and entered in the business books for 2022 in kuna
  • accounting documents with the date of the business event before and on 31 December 2022 issued in the period after 01 January 2023 - are issued in euros and entered in the business books for 2022 in kuna until the business books are closed
  • accounting documents with the date of the business event and the date of issue from 01 January 2023 and further - they are issued and entered in the business books for 2023 in euros

Regarding the application of the exchange rate, we distinguish two situations:

• accounting document with the date of the business event before and on 31 December 2022, issued in the period after 1 January 2023, in case the contractual relationship includes foreign currency - the agreed exchange rate is applied, i.e. the exchange rate on the day of the business event,
• accounting document with the date of the business event before and on 31 December 2022, issued in the period after 1 January 2023; in case the contractual relationship does not include foreign currency, a fixed conversion rate is applied.

 

Preparation of annual financial statements

 

• Business books are opened at the beginning of the business year on the basis of the closing balance sheet compiled at the end of the previous business year or on the basis of the inventory of assets and liabilities of newly established entrepreneurs or on the basis of an accounting document. Business entities whose business year is equal to the calendar year, convert the balance as of 31 December 2022 into euros using a fixed exchange rate and in accordance with the rules for conversion and rounding. For those business entities whose business year is different from the calendar year, it is advised to compile a technical balance sheet as of 31 December 2022.

 

• Business entities, obliged to submit annual financial statements, in accordance with the provisions of the Accounting Act whose business year is equal to the calendar year, prepare and submit annual financial statements in accordance with the deadlines in 2023 for 2022 in kuna. Entrepreneurs preparing annual financial statements in accordance with Croatian Financial Reporting Standards, where data are presented in euros for the first time, comparative data from previous reporting periods in kuna are converted and presented in euros using a fixed conversion rate.

 

• Business entities obliged to submit annual financial statements, in accordance with the provisions of the Accounting Act, whose business year is different from the calendar year, and whose last day of the financial year occurs after the introduction of the euro, state data for the previous business year in their financial statements in euro.

 

Tax returns and other public benefits

 

• Public authorities that issue administrative, judicial and other individual acts in the period of double disclosure have the obligation of dual disclosure. Tax returns for 2022 and earlier years are submitted in kuna, and for 2023 and further in euros.

 

• Books of outgoing and incoming invoices, for the accounting period 2022 and earlier, are stated in kuna, and for the accounting period from 2023 in euros. The balance of books of unpaid outgoing and incoming invoices as at 31 December 2022, with the payer of VAT after collection, needs to be transferred to 2023 in euros. The income tax return, as well as the income tax return for 2022, which is submitted in 2023, is expressed in kuna. Income taxpayers whose tax period begins before the introduction of the euro and ends after the day of the introduction of the euro, submit the income tax return for that tax period in euros.

 

Cash management

 

• Ensuring the smooth replacement of the kuna by the euro is one of the most important steps in the preparations, especially for businesses with a high cash turnover. In addition to the banking sector, the retail sector plays a key role in collecting and withdrawing kuna banknotes and coins during the dual circulation period. Businesses will need to be supplied with euro banknotes and coins on time in order to be able to conduct cash transactions in the new currency from the day of the introduction of the euro. This primarily applies to the retail sector, which performs a large volume of cash transactions. One month before the official changeover to the euro, banks and their authorized representatives will supply initial packages of euro coins to businesses and consumers.

 

• It is particularly important to raise the awareness of workers about the introduction of the euro, especially workers who will be in direct contact with consumers. The methods of resolving consumer complaints must primarily be in accordance with the prescribed provisions of the Consumer Protection Act and the Act on the Introduction of the Euro as the Official Currency in the Republic of Croatia. The CNB's e-education on euro cash will begin in late June or early July 2022, as soon as the relevant application is completed.

 

Attitude towards consumers

 

• Any business entity that operates directly with consumers will be invited to join the initiative with the aim of correctly recalculating and reporting prices and other monetary statements of value, without unjustified increase in retail prices. The obligation to disclose prices and other monetary statements of value is a key measure to prevent unjustified price increases and incorrect price recalculations. The competent authorities will closely monitor compliance with these obligations. Only the fixed exchange rate set by the Council of the EU, which in most cases consists of six digits, is used to convert the kuna into euros. In the case of the Republic of Croatia, this means that the fixed conversion rate will consist of an integer followed by five decimal places.

 

• The business entity must double disclose the total amount of goods and services to the final consumer in the offer, in advance and consumer contracts. A fixed conversion rate will have to be displayed in a visible place in the sales area and in the place of providing services. It is necessary to point out the fixed conversion rate on the website and on self-paying devices in a clear, legible, visible and easily noticeable way, and it should be clearly communicated through telephone sales.

 

Legal aspects of contracts concluded before the introduction of the euro

 

• The introduction of the euro does not give any party the right to a valid unilateral termination or cancellation of a legal instrument, change of its individual provision, unless otherwise expressly agreed between the parties or unless otherwise provided by law or special regulation.

 

• Limited liability companies are obliged to convert the existing amount of share capital and its parts that fall into business shares by applying a fixed exchange rate from kuna to euro, rounded to the nearest cent, in accordance with the rules for conversion and rounding from the Act. The limited liability companies are obliged to harmonize the amount thus obtained with the requirements and in the manner regulated by the regulation governing the establishment of companies.

 

• Limited liability companies are obliged to submit a request for registration of a change to the registration court within a maximum of three years from the day of the introduction of the euro, whereby the request can be submitted at the earliest on the day of the introduction of the euro,

 

• Joint stock companies are obliged to convert the existing amount of share capital and its parts attributable to shares by applying a fixed exchange rate from kuna to euro, rounded to the nearest cent, in accordance with the rules for conversion and rounding from the Act. At the same time, they are obliged to harmonize the amount with the requirements and in the manner regulated by the regulation governing the establishment of companies.

 

Joint stock companies are obliged to submit a request for registration of a change to the registration court within a maximum of one year from the day of the introduction of the euro, whereby the request can be submitted at the earliest on the day of the introduction of the euro.

Exceptions to the dual pricing disclosure obligation, as well as other information related to this topic, can be found at the link. At the same time, for more help in this process, contact our experts.

 

Data source: COORDINATION COMMITTEE FOR ECONOMIC ADJUSTMENT AND CONSUMER PROTECTION