Croatia to adopt the euro from 1 January 2023: Final transition in Q4 2022 

It’s official: Croatia is adopting the euro as its official currency from 1 January 2023.

The obligation to report prices in both kuna and euro begins in Q4 of 2022. Dual reporting using the fixed conversion rate of 7.53450 kuna for 1 euro will apply from 5 September 2022 and continue throughout the whole of 2023.

During this transitional period, other measures will also be introduced aimed at accustoming consumers to the euro – for example, payslips will display amounts in both currencies.

Existing employment agreements (and other agreements) will not need to be amended, but salaries given in kuna in such agreements and the like must be converted into euros using the fixed conversion rate. Salaries paid in 2023, irrespective of the period to which they relate, should be paid and reported in euros.

Currently, Croatia is also amending its tax legislation to comply with the adoption of the euro.

In terms of the euro, important VAT thresholds as currently proposed (but further rounding of amounts are expected) are:

• EUR 39,820 for obligatory VAT registration;
• EUR 2 million of annual revenues as the upper limit for eligibility to apply the cash accounting scheme;
• EUR 10,000 for the annual value of the intra-Community acquisition of goods below which such transactions are not taxable (relevant for taxable persons making only VAT exempt supplies and non-taxable legal persons)
• and
• EUR 10,000 as an annual limit on the (B2C) sale of goods and provision of telecom, broadcasting and electronic services at distance below which the supplier does not have to apply VAT in the customer’s Member State.

The reduced corporate profit tax rate of 10% applies to taxpayers with revenues of up to EUR 995,420. The general 18% rate applies to taxpayers exceeding this threshold.

For the calculation of personal income tax, the tax-free personal allowance will be EUR 530. A monthly income of up to EUR 3,982 monthly (EUR 47,780 annually) will be taxed at 20%, and above this at 30%.

The limit on tax free employee annual rewards, occasional payments and meal allowances is set at EUR 1,725 in total.

The minimum salary for 2022 is set at gross EUR 622 (net 498). The average salary, as published for June 2022, is gross EUR 1393 (net 1023).

Based on the average salary data, the prescribed 2022 pension insurance liability of a director (who is not covered by insurance on an employment or other basis) is EUR 253 and health insurance liability is EUR 209. These amounts will likely change in 2023, depending on average salary data for 2022.

Introduction of the euro will also affect the accounting and IT systems that support financial and accounting processes.

All financial statements and tax reports for the years prior to 2023 must be submitted in kuna, and for periods from 2023 on, in euros. Comparative figures (for 2022) in financial statements for 2023 will need to be stated in euros as well.

It's worth mentioning that the adoption of the euro will eliminate foreign exchange differences that used to commonly affect financial statements and the corporate profit tax base. This resulted from the majority of Croatian companies’ long-term cross-border claims and liabilities being expressed in euros, while local rules required transactions to be recorded in kuna. Fluctuations in the euro exchange rate thus affected the financial result and tax base of Croatian taxpayers.

For more details and support in adjusting your business to the euro currency, please contact our CMS team in Croatia.