Although the application of the euro as the official currency begins on January 1, 2023, legal entities will have some obligations prescribed by the Law on the Introduction of the Euro starting from September 5, 2022. Below is a simple overview for entrepreneurs of the most important news brought by the Law on the Introduction of the Euro, with a special focus on the obligations that will be mandatory from September 5, 2022, and advice on how to align their business with the provisions of the Law on the Introduction of the Euro.

Replacement of Kuna with Euro

The basic rule regarding the conversion of kuna to euros is that it will be carried out using a fixed conversion rate (1 euro = 7.53450 kuna) and rounding to two decimal places. The use of any other conversion rate different from the official fixed rate will not be allowed. All kuna deposits in commercial banks on the day of the introduction of the euro will automatically be converted to euros at the fixed conversion rate and without any costs for bank clients. The same will happen with loans, and in cases of kuna loans with a currency clause in another currency that is not the euro, such as dollars, a re-indexation process from the kuna-dollar parity to the euro-dollar parity will have to occur. Regarding interest rates, for loans with a fixed interest rate, it will remain the same, while in the case of loans with a variable interest rate, possible changes will depend on the parameter used to determine the interest rate. However, loan users must not be placed in a less favorable position than they would have been if the euro had not been introduced, meaning that the interest rate will either remain the same as before or decrease. In loan agreements with a variable interest rate that will be concluded after the Republic of Croatia enters the eurozone, the interest rate can only be linked to Euribor.

No later than three months before the date of the introduction of the euro, banks will be obliged to send their clients a general notice that will contain an announcement of the recalculation of loans and deposits, as well as the expected effect of the introduction of the euro on their products and services, and no later than two weeks after the introduction of the euro, all entrepreneurs with loans and deposits in kuna will receive a notice with specific information about amounts, recalculation, modifications of parameters, margins, and interest rates. Entrepreneurs are advised to verify the conversion and interest rate after receiving the aforementioned notice from the bank to determine whether they have been correctly and legally implemented, i.e., calculated.

All of the above for banks and loan agreements also applies to leasing-companies and leasing agreements. In the case of entities that have both a kuna account and a euro account in the same bank, at their own request within 60 days from the date of the introduction of the euro, they will be able to close one of those two accounts without charge and costs, since after January 1, 2023, the kuna account will also become a euro account.

The replacement and supply of cash from kuna to euros in the first twelve months after the introduction of the euro will be carried out by banks, branches of the Financial Agency, and Croatian Post using the fixed conversion rate and without charge. It should be noted that banks, Fina, and Croatian Post have the option to charge a fee for the amount exceeding the limit if more than 100 banknotes and 100 coins of kuna are exchanged per transaction. After twelve months from the date of the introduction of the euro, the Croatian National Bank will carry out the exchange of kuna without charge, for banknotes without a time limit, and for coins until the expiration of three years from the date of the introduction of the euro.

When Can Someone Obtain Cash

During the first two weeks after the introduction of the euro, both kuna and euro will be in circulation, and citizens will be able to pay in both currencies, with the recipient of the payment being obliged to return the change in euros. Only in the case of objective impossibility to return the change in euros, for example, because there is no cash in euros or no necessary denominations, will it be possible to return the change in kuna.

Therefore, considering that there will be significant pressure on stores and entrepreneurs, especially those who conduct a large number of cash transactions daily, it is advised that they timely secure a sufficient amount of cash in euros so that they can smoothly conduct cash transactions in the new currency from the date of the introduction of the euro.

Entrepreneurs will be able to obtain euro banknotes from banks, based on a concluded contract for indirect supply, no earlier than four months before its introduction, or three months for coins. For micro-business entities, which have fewer than ten employees and an annual income and/or total assets of less than 15 million kuna, banks will carry out simplified indirect supply of cash in euros up to 10,000 euros no earlier than five days before the date of the introduction of the euro, provided that the entrepreneur has signed a declaration for simplified indirect supply. Based on such a declaration, the bank will disable the disposal of cash funds in the entrepreneur’s account in the nominal value of cash in euros, and on the day of the introduction of the euro, it will be settled from those funds.

Price Display

From September 5, 2022, the application of the dual price display rule will begin, which all traders, caterers, and other entrepreneurs must adhere to in their business. Compliance with this obligation will necessarily require the adjustment of existing price lists (both in physical and electronic form), offers, flyers, brochures, and other promotional materials, contract forms, advertisements, etc., in which the monetary amount in kuna is stated, as well as software adjustments to cash registers so that amounts on issued invoices are displayed in both currencies. Since entrepreneurs bear all costs of IT and other adjustments to the obligation of dual price display independently, it is advisable to timely secure the necessary financial, technical, and other resources needed to comply with this legal obligation.

Although a significant number of entrepreneurs, especially caterers, have already introduced dual price display, as well as issuing invoices with dual prices, attention is drawn to the fact that after the determination of the fixed conversion rate, all entities are obliged to align the displayed prices with the official conversion rate, as the use of any other rate will be prohibited. On the other hand, business entities that sell goods or provide services through vending machines, stalls, kiosks, family farms, private renters providing hospitality services in households, etc., are exempt from the obligation to display dual prices, as well as in situations where dual price display would cause disproportionate costs, such as taxi meters, totems and panels at gas stations, gambling, state stamps, airline ticket prices, products on which the price is already printed in kuna, etc. However, even in those situations, the amount for payment on the sales receipt for goods or services must be indicated in both currencies.

During the period of dual price display, which ends twelve months from the date of the introduction of the euro, in addition to displaying prices in kuna and euros, business entities are also obliged to clearly, legibly, visibly, and easily display the fixed conversion rate. Therefore, all documents with dual currencies must prominently feature the fixed conversion rate, so it is advisable for all entrepreneurs to start aligning their business with the prescribed obligations in a timely manner, so that they can fulfill them by September 5, 2022.

It should be emphasized that the Law on the Introduction of the Euro prohibits business entities from unjustifiably increasing the prices of goods or services upon the introduction of the euro. In this regard, it is foreseen that the names of entrepreneurs found to have unjustifiably increased or incorrectly recalculated prices in the new currency will be published on a so-called blacklist available on the portal www.euro.hr and through other information channels, thus aiming to sanction primarily dishonest business entities that seek to illegally profit from the introduction of the euro as the official currency of payment.

Continuity of Legal Instruments

What is certainly important for entrepreneurs is that the introduction of the euro will not affect the validity of existing legal instruments in which kuna is expressed as the currency. Thus, all previously adopted or concluded legal instruments remain in force and do not need to be changed or new ones adopted. This rule applies to legal provisions, administrative acts, court decisions, contracts, payment instruments such as checks and promissory notes, bank guarantees, promissory notes, etc. (except, of course, cash) in which kuna is expressed as the currency. Monetary expressions that are stated in kuna in the aforementioned legal instruments will be considered monetary expressions in euros from the date of the introduction of the euro as the official currency, with the appropriate application of legal rules for recalculation and the fixed conversion rate. Specifically regarding contractual relationships, the fact of the introduction of the euro will not give any contracting party the right to unilaterally terminate or cancel the contract, or to change any contractual provision, unless the contracting parties have agreed otherwise or it is prescribed.

Entrepreneurs are certainly advised to include a contractual provision in all contracts and annexes to contracts they conclude with partners outside the eurozone before the official date of the introduction of the euro, stating that after the official date of the introduction of the euro, the valid currency will be the euro, in order to avoid any potential ambiguities after the currency change.

Employment Relationships

The principle of continuity of legal instruments also applies to employment contracts, so employers will not have to conclude new contracts with employees, or annexes to existing employment contracts just to express the salary amount in euros. However, all employment contracts, annexes to contracts, work regulations, etc., that will be concluded, adopted, or changed after the introduction of the euro will, of course, have to express monetary amounts in euros. Starting from the salary for August 2022, which is paid in September 2022, employers are obliged to display the net salary of employees in both kuna and euros on the payslip, indicating the fixed conversion rate. Although this obligation of dual display of amounts for payment only applies to the total amount to be paid to the employee’s account, it seems reasonable for the sake of adjustment and complete integration of the euro to display all amounts in dual form.

Salaries and other compensations from employment for December 2022, which are paid in January 2023, must be paid in euros, so from then on, the complete payroll calculation will also need to be done in euros.

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The obligation of dual display also applies to salary compensations, severance pay, and other amounts paid to the employee based on valid regulations, collective agreements, work regulations, or employment contracts, such as transportation allowances and meal allowances, vacation pay, Christmas bonuses, etc. Exceptionally, only travel orders are exempt from the obligation of dual display.

The Law on the Introduction of the Euro also prescribes the obligation of the client in contracts for work and copyright contracts to display the total amount of compensation to be paid to the executor in dual form, clearly indicating the fixed conversion rate. Although I believe that the client’s failure to comply with the aforementioned obligations would not affect the validity of the concluded contracts, a misdemeanor liability and monetary fine are prescribed for non-compliance with this obligation.

Business Books and Share Capital

Data on business changes and transactions that occur after January 1, 2023, must be expressed in euros in the entrepreneurs’ business books. Accordingly, all accounting documents, such as incoming and outgoing invoices, received for booking until December 31, 2022, are entered into the business books for 2022 in kuna, while accounting documents with the date of issuance and receipt from January 1, 2023, onwards are entered into the business books for 2023 in euros. It is recommended that entrepreneurs, in the last quarter of 2022, when issuing invoices and sending open items, highlight a note that in the case of settling debts after December 31, 2022, it must be settled in euros. In that case, their debtors will be obliged to recalculate the amount of the debt into euros using the recalculation rules, if the creditor has not already done so for them, and to make the payment in euros. It is also important to note that all entrepreneurs whose financial year is equal to the calendar year in the financial statements they submit for 2022 express all amounts in kuna.

Finally, all commercial companies in the Republic of Croatia are obliged, within the prescribed period from the date of the introduction of the euro, to recalculate the amount of share capital and the nominal value of shares or business interests, in accordance with the recalculation rules, and to submit a request to the court register for the registration of these changes. The prescribed period for joint-stock companies is one year, and for limited liability companies, three years from the date of the introduction of the euro, and such changes will be carried out in an expedited procedure and without charge. However, considering that the minimum amount of share capital and the smallest nominal amount of shares or business interests, as well as the multiple of the number in which their amount must be indicated, is prescribed by the Companies Act, it can be expected that the legislator will determine the minimum amounts of share capital in euros as well as the minimum nominal amount of shares or business interests in euros, and the multiple of the number in which their amount must be determined to facilitate recalculation and alignment due to the introduction of the euro.

What If…

Although timely and comprehensive alignment of business operations with the provisions of the Law on the Introduction of the Euro is an obligation of all entrepreneurs that they must fulfill, this does not mean that they must fear high fines in September or October in case they fail to fulfill any of the prescribed obligations. Namely, if a state inspector or another official person determines during the inspection that an entrepreneur has not acted in accordance with any of the obligations prescribed by the Law on the Introduction of the Euro, and it is their first offense regarding this law, they will instruct the entrepreneur to rectify the irregularities and deficiencies, as well as any consequences that have arisen as a result, and in that case, no misdemeanor proceedings will be initiated against them, nor will a monetary fine be imposed. 

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