On 1 January 2023, the Republic of Croatia will enter the eurozone and replace the Croatian kuna (HRK), the existing national currency, with the euro. Although the change has been welcomed by most stakeholders, it also leads to increased demands for regulatory compliance and additional expenses.
The process leading to the introduction of the euro in Croatia has been ongoing for a long time. The national strategy was enacted in 2017. It presented a review of the costs and benefits of switching to the euro and its conclusion was that the currency change should be implemented as soon as possible.
In July 2020, Croatia became a member of ERM II – the EU’s Exchange Rate Mechanism. In June 2022, the European Commission concluded that Croatia had fulfilled the four convergence criteria set out in Article 140 of the Treaty on the Functioning of the European Union, as well as the economic and legal requirements.
Following the Commission’s assessment, in July 2022, the Council of the European Union passed the Decision (EU) 2022/1211 confirming that Croatia fulfills the necessary conditions for adopting the euro and that the derogation in Article 5 of the 2021 Act of Accession is abrogated effective January 1, 2023.
The final set conversion rate shall be HRK 7.53450 for EUR 1.
In May 2022, Croatia enacted the Law on the Introduction of the Euro as the Official Currency in the Republic of Croatia (Official Gazette no. 57/2022), which introduced a set of rules and obligations for currency conversion.
A dual display of prices in HRK and euro was implemented in September 2022, mostly as a measure of consumer protection, especially in the circumstances of an elevated inflation rate. The dual display of prices shall continue to be in force until December 31, 2023, and shall apply respectively for government institutions, the state budget, and the tax authority decisions.
Further preparations for the conversion will include supplying commercial banks, government institutions, and enterprises with euro banknotes and coins.
On January 1, 2023, a number of changes will be implemented simultaneously. All bank deposits and loans denominated in HRK will be automatically converted to euros. The Croatian HRK payment systems (HSVP and NKS) will cease to operate and will be replaced by TARGET2-HR, EuroNKS, and NKSInst, in accordance with SEPA standards. All ATMs will issue only euro banknotes.
The first two weeks in 2023 will be the period of dual circulation, when both HRK and EUR will be accepted as legal tender. From January 15, 2023, all payments shall be made only in EUR, and the exchange of HRK banknotes and coins will be possible in banks and some other institutions until December 31, 2023.
Tax forms and filings due in 2023 that refer to the period prior to the introduction of the euro will be calculated and filed in HRK. If a tax or accounting document comprises both periods prior to and after January 1, 2023, all currency references shall be in euros. Salaries for December 2022, payable in January 2023, shall be paid in euros but shall contain a dual denomination.
The contracts in force shall remain valid without the need for amendment. Any amounts defined in HRK shall be considered converted to EUR as of January 1, 2023, at the final conversion rate.
Croatian joint stock companies, limited liability companies, and simplified limited liability companies shall have the obligation to adjust the amount of their registered share capital and the nominal amount of all shares to the euro. The minimum amount of share capital for joint stock companies shall be EUR 25,000 and the minimum nominal amount of shares shall be EUR 1. For limited liability companies, these shall be EUR 2,500 and EUR 10 respectively. Simplified limited liability companies shall have both minimum amounts set at EUR 1. The amendment and registration of the new denominations have a one or three-year implementation period, depending on the company type.
The Croatian National Bank and commercial banks in Croatia have been among the entities who bear the highest regulatory burden to prepare and adapt for the conversion, including the intensive activities to prepare for the physical conversion of the currency, adapting their internal software databases and ATMs, as well as notification obligations.
By Tin Tezak, Partner, Hanzekovic & Partners