INTRODUCTION OF EURO AND ITS IMPACT ON CROATIAN COMPANIES

On January 1, 2023, the Republic of Croatia became a member of the European Monetary Union. Such integration was not unexpected – in fact, the adoption of the euro as an official means of payment came as a logical continuation of currency substitution and permanent euroization of the domestic balance. Specifically, even before the official circulation, the euro had already established itself as a reference price unit, primarily in the field of credit transactions and real estate markets. However, the corresponding exchange rate policy often could not effectively withstand the challenges of economic instability. On the other hand, the introduction of the euro as the national currency made it possible to prevent exchange rate fluctuations and accompanying transactional risks. This is best seen in the example of the currency clause, the previous contracting of which to eliminate devaluation risks is no longer necessary in light of the new circumstances.

Such and other general benefits, such as increased economic stability and credit rating, financial market cohesion, and greater investment flow, have also affected entrepreneurship. Specifically, easier price comparison facilitates market competition and creates conditions for the development of positive competition. The most important benefit is the expansion of the market resulting from easier trade and reduced risks associated with imports, exports, and cross-border transactions. In addition, it should be noted that citizens of other eurozone countries are more likely to decide to buy goods and services in the unified currency system. In summary, it is undeniable that the introduction of the euro creates conditions for increasing the liquidity of domestic companies.

Along with the evident stimulative benefits of introducing the euro, it is necessary to pay special attention to specific legal instruments and their individual provisions that

regulate various aspects of domestic business. Namely, the Law on the Introduction of the Euro as the Official Currency in the Republic of Croatia (NN 57/22, 88/22) introduced numerous novelties. Primarily, the obligation to convert using a fixed conversion rate has been explicitly prescribed, whereby the resulting amount is rounded to two decimal places based on the third decimal place. This model of a fixed exchange rate relationship between the kuna and the euro makes the exchange rate resistant to market oscillations and undoubtedly facilitates business transactions.

Additionally, business entities are required to display dual prices in a clear, readable, and easily noticeable manner in a period of twelve months from the date of the introduction of the euro. This obligation can be related directly to consumers if some of the expressly regulated cases under the Law are taken into account, such as the requirement for dual pricing at sales points in business premises, offers or contracts stored on a permanent medium, as well as in advertising that aims to offer goods or services. The obligation of dual pricing is explicitly prescribed for entities in the financial sector, and cases requiring its fulfillment are exhaustively regulated. Some of them, such as statements of value in the balance and transaction report on the transaction account, fee schedules, insurance contracts, as well as financial and operational leases, provide the possibility of preliminary profiling of remaining obligations. Note that the addressees of these provisions are obliged to comply with them when issuing invoices or fiscal receipts with a fixed conversion rate.

Speaking of legal instruments, the law establishes the principle of their continuity with the application of the principle of dispositive law (lat. ius dispositivum) Specifically, if the parties have not agreed otherwise, the introduction of the euro does not give either of them the right to unilateral termination, cancellation, or modification of a particular provision. Specifically, all previously concluded contracts in which the currency expressed was the kuna, retain their validity without the need for annexes.

In addition, legal provisions prescribe the obligation of companies to adjust their share capital. In this regard, both joint-stock companies and limited liability companies are required to convert the existing amount of share capital and its parts that correspond to shares or business shares by applying a fixed conversion rate, rounded to the nearest cent. Furthermore, the amendment to the Companies Act envisages a situation of increasing share capital and nominal value of shares in the alignment process. In this case, legal reserves, capital reserves, statutory reserves, reserves provided for in the articles of association, other reserves from profits, retained earnings, and undistributed profits for the business year may be used for this purpose, with reserves and retained earnings being available without any restrictions. The registration court carries out the registration of alignment in an expedited procedure, with the deadline for submitting such a request to the court being up to one year from the day of introducing the euro for joint-stock companies, and up to three years from that day for limited liability companies. It is also important to mention debt securities and money market instruments whose nominal value remains unchanged after the introduction of the euro, and all matured and unmatured monetary obligations expressed in kuna arising from them but not fulfilled by January 1, 2023, shall be fulfilled in euros. Regarding the obligation to submit financial reports, the distinguishing factor is whether the financial year is the same as the calendar year or not. In the first case, when preparing financial reports for the year before the euro was introduced, entrepreneurs report data expressed in kuna. On the other hand, if the last day of the financial year occurs after the day of the euro introduction, data for the previous financial year is reported in euros. Furthermore, business events related to the period after January 1, 2023, are recorded in euros in the business books, and balances expressed in kuna transferred from the business books for the year preceding the current year are converted using a fixed conversion rate and in accordance with the previously described legal rules for conversion and rounding. In conclusion, it can be said that joining the eurozone has directly led to an increase in business confidence and diversification in investments, positioning Croatia as a desirable regional business

destination for the allocation of foreign capital. However, despite the resulting increase in the creditworthiness of domestic companies, it is necessary to pay attention to the specifics introduced by the legal regulations. Therefore, all business entities are advised to conduct consultations as soon as possible and align their legal aspects of business with the newly established legislative changes.