Croatia Converts VAT Thresholds to Euro Values

If you’re a VAT-registered business eligible to recover VAT on business costs from Croatia, it’s time to say goodbye to your kuna. As of 1 January 2023, Croatia became the 20th official country to adopt the European Union currency. The new currency replaces the kuna (HRK), which has been circulating since 1994.

Here’s how the new currency affects VAT in Croatia and what your business can expect during the initial transition period. 

Adopting the European Union currency for B2C transactions

On the implementation date, the kuna to the euro exchange rate stood at 7.53450 HRK and is now the agreed-upon fixed exchange rate. As businesses adapt to the new currency, all B2C transactions and retail must show both the euro and the HRK price. These prices should be reflected for all periods between September 2022 and December 2023. This is a mandatory request from authorities to prevent inflationary profiteering. Payslips must now also display both currencies to accustom consumers to the Euro. 

Changes to the VAT registration threshold

In addition to adopting the euro, Croatia has also announced fundamental changes to the 2023 VAT registration thresholds. These thresholds may still be slightly adapted but currently include the following: 

• Annual sales threshold for monthly VAT return reporting: €106k
• VAT registration threshold for resident companies: €40,000
• Intrastat arrivals: €400,000
• Intra-community acquisitions threshold €10,000
• EU OSS: €10,000
• Intrastat dispatches: €200,000
• The threshold for cash accounting: €2 million
• EU VAT refunds minimums: €50 annual; €400 quarterly

The impact on foreign exchange

Before the currency change from kuna to the euro, several foreign exchange differences could easily affect financial statements and the corporate profit tax base. As a result, many Croatian companies preferred to express their long-term cross-border claims and liabilities in euros. However, local VAT rules still required all transactions to be recorded in local HRK currency. Ultimately, this further complicated the financial result and tax base due to the frequent fluctuations in the euro-kuna exchange rate. By adopting the euro, the VAT return process and foreign exchange differences won’t significantly impact local and international financial results. 

How do these changes affect VAT compliance? 

Although there have been no official confirmed changes to how the currency change will impact Croatian VAT compliance, businesses can exercise healthy precautions to prepare for some potential reforms. Following the currency change to the  euro, we can expect updates regarding VAT returns, ESL, and Intrastat forms. Generally, as countries adopt new currencies, there is always a risk of non-compliance. This is why businesses need to carefully monitor VAT updates and how the change to the euro could impact their advanced payments, continuous supplies, or credit notes and whether or not they’re using the correct currency and exchange rate. Fortunately, VAT IT helps you stay in the loop with all critical changes to comply with the latest rules and legislation. 

Navigate change with ease with VAT IT

With the new year in full swing; these changes may have left businesses with very little time to implement these changes across their ERP systems. Moreover, rules on credit notes on invoices issued before the currency change may prove complicated in terms of VAT compliance. 

Adapt your business processes and expenditures accordingly with VAT experts in your corner. Need more information about VAT in Croatia? Every business needs a trusted partner who can expertly guide them through VAT legislation. Get in touch with our team, and we’ll guide you through the process of foreign VAT reclaim with ease and confidence.