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Introduction of the EURO – 1 January 2023

Newsletter – 01.07.2022

Deadlines for the introduction of the euro

 

Following today’s decision of the Council of the EU (hereinafter: the EU Council), the Act on the Introduction of the euro as Official Currency in the Republic of Croatia (hereinafter: the Act) as adopted in May 2022 has entered into force.

After the decision of the EU Council, the Government of the Republic of Croatia has ruled on the date of introduction of the euro, the fixed conversion rate, the start and end date of dual circulation, and the start and end date of dual price display.

 

General information about the introduction of the euro

 

It is worth mentioning that preparations for replacing the Kuna with the Euro in the Republic of Croatia consists of the following three periods:

  • preparatory period;
  • period of dual circulation; and
  • period after the end of dual circulation.

Preparatory period

The preparatory period begins with today’s announcement of the EU Council and lasts until 31 December 2022. In other words, the dual display obligation and frontloading, sub-frontloading as well as simplified sub-frontloading with euro cash begins.

Business entities can start with the dual display of prices and other monetary values on the day following the announcement of the EU Council decision on the adoption of the euro, assuming that all technical prerequisites have been met.

The obligation of dual display of prices and other monetary values serves as a key measure for the prevention of unjustified price increases or incorrect price conversion. It will also allow consumers to get used to prices and other monetary values expressed in euro more easily.

The obligation of dual display only applies to direct relations to consumer. In other words, the dual display of prices does not cover trade agreements, i.e. accounts between business entities (B2B), internal accounts within the same company and various records and reports that need to be submitted to public authorities.

The dual display must be unambiguous, easily visible and legible, and the full amount of the fixed conversion rate must always be used when recalculating.

Businesses are required to use the dual display when indicating prices for goods and services to the final consumer in quotations, advances and consumer contracts.

According to the principle of contract continuity, existing contracts with amounts in HRK are still valid after 1 January 2023. Statements of monetary values in the mentioned contracts are deemed to be monetary statements in euro at the time of its introduction as the official currency, using a fixed conversion rate and in accordance with the conversion and rounding rules.

There are also certain exceptions to the dual display obligation:

  • gas station price totems, fixed panels and other fixed poles with price indicators, as well as generators, and electric charger venues,
  • vending machines, and
  • some others prescribed by law.

The dual display obligation begins on the first Monday of September 2022 (i.e., 5 September 2022) and ends 12 months after the introduction of the euro (i.e., 31 December 2023).

For the conversion of kuna into euro, only the fixed conversion rate established by the EU Council is used, which is EUR 1 = kuna 7,53450.

When recalculating prices and other monetary values from kuna to euro, the fixed conversion rate must be used in the full numerical amount. Thus,  a reduction to two decimal places will not be permitted. After recalculation, at least two digits after the decimal point must be stated.

Period of dual circulation

The period of dual circulation begins on 1 January 2023 as the day of the introduction of the euro and lasts until 14 January 2023.

Dual circulation means the circulation, in which the kuna and the euro are used simultaneously as a legal tender in cash transaction. In other words, during this period, both the euro and the kuna will be in circulation at the same time.

Exceptionally, if the payment recipient is not objectively able to return the remainder of the amount in euro cash, he can return the remainder in kuna cash or kuna cash and euro cash.

Period after the end of dual circulation

In the period after the end of dual circulation, banks will exchange kuna cash for euro cash free of charge for 12 months from the date of euro introduction at a fixed conversion rate and in accordance with the conversion and rounding rules.

 

Adjustment of accounting, financial reporting and other public duties

 

Accounting documents (invoices, deposit slips, payment slips, current account statements, dispatch notes, delivery notes, order forms, receipts, etc.), on basis of which business transactions are entered in business books must be shown in the official currency. In the period up to 31 December 2022, accounting documents are shown in kuna and in the period from 1 January 2023 in euro.

Thus, after the introduction of the euro accounting documents must be issued in the official currency regardless of the date of the business event. Business events that relate to the period after the day of the introduction of the euro must be reported in euro, and if necessary, in another foreign currency, while business events that relate to the period before the introduction of the euro must be reported in kuna, until the end of the accounting year.

Calculation of salary and other income

During the dual display period, the employer is obliged to double-display the total amount paid to the employee on the receipt for the payment of salary and other income paid to the employee on the basis of the employment contract.

In accordance with the principle of contract continuity, there is no need to amend employment contracts just because of the introduction of the euro as the official currency. Amounts in the Work Regulations, contract annexes, etc., which will be changed due to necessity after the introduction of the euro, must be expressed in euro.

During the dual display period travel orders do not have to be double displayed.

Recalculation of balances in business books

Balances in kuna transferred from the business books for the year preceding the year of euro introduction will be converted into euro with the application of a fixed conversion rate and in accordance with the rules for conversion and rounding. Business events related to the period after the date of introduction of the euro will be recorded in the business books in euro.

Preparation and submission of annual financial statements

Business entities that are required to submit annual financial statements in accordance with the provisions of the Accounting Act and whose business year corresponds to the calendar year, prepare and submit annual financial statements in accordance with the deadlines in 2023 for 2022 in kuna.

Business entities that are required 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 day of the introduction of the euro, state the data for the previous business year in the financial statements in euros.

For entrepreneurs who prepare annual financial statements in accordance with the Croatian Financial Reporting Standards (HSFI), where the data are first presented in euro, comparative data from previous reporting periods in kuna are recalculated and presented in euro with the application of a fixed conversion rate and in accordance with the rules for recalculation and rounding, for better comparability of the data. Entrepreneurs who are obliged to apply IFRS as a financial reporting framework, present comparative data in accordance with the provisions of IFRS.

Reporting of taxes and other public duties

Tax returns for 2022 and earlier years must be filed in kuna and for 2023 and the following years, in euro. Corrections to tax returns are made in the currency in which the former were originally filed.

The VAT form for December 2022 is submitted, in accordance with the legal deadlines, in January 2023 in kuna, because the business events stated in the form for December 2022 refer to the accounting period of 2022.

The profit tax return as well as the income tax return for 2022, filed in 2023, are reported in kuna.

Profit taxpayers whose tax period begins before the introduction of the euro and ends after the introduction of the euro submit their profit tax return for this tax period in euros.

The JOPPD form, which has the report code 22xxx, is submitted in kuna, and the JOPPD form, which has the report code 23xxx, is submitted in euro. Corrections and additions to JOPPD Forms are submitted in the currency in which the original form was submitted.

authors

Pavo Djedović
Auditor | Tax Advisor | Partner | Shareholder

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