Croatia will join the euro area in January 2023

Croatia will join the euro area in January 2023

By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, December 30, 2022

Having existed for 28 years (since May 1994), the Croatian kuna will soon be a thing of the past. As of 1st January 2023, Croatia shall adopt the euro as the official currency on its territory, at a rate of HRK 7.53450 per euro.

The changeover to the euro for this Western Balkan state, which will also enter the Schengen area on 1st January, is a logical step, because the euro zone’s single currency already accounts for half of bank deposits and 60% of all loans granted by Croatian banks. The advantage of the euro over the kuna is its stability and purchasing power for international trade, at least until 2022.

« This is a vote of confidence in the eurozone and Croatia will certainly benefit from the euro shield. European Central Bank President Christine Lagarde said in a statement.

The exchange period of paper banknotes (kuna for euros) is unlimited and the duration of exchange of coins is three years. Due to the negative environmental impact of the chemical safety elements and paints contained in banknotes, kuna banknotes withdrawn from circulation are no longer burned, but ground into fine pieces, and then used as insulation in the layout of public buildings.

To increase price transparency, shops in Croatia have been required since September 2022 to reflect the value of goods in kunas and euros until the end of 2023. Companies risk fines if they try to take advantage of the currency change to raise their prices. Many in Zagreb fear that the changeover to the euro will fuel already high inflation.

Banknotes with a face value of 100 kuna will be replaced by a proportional number of 10 and 20 euro banknotes. Kunas in the form of paper money and metal were put into circulation on 30 May 1994. At the end of August 1991, the Croatian State Monetary Commission decided that the krona and its hundredth part, the banica, should replace the Croatian dinar (which appeared in June 1991) as the permanent currency. However, in July 1993, the Croatian parliament decided that the country’s national currency would be called kuna. Part of the public opposed the kuna, pointing out that the money bearing this name was loaded with the negative historical legacy of Ante Pavelić’s pro-fascist independent state of Croatia.

However, the kuna became the new currency unit of Croatia in 1994.

Croatia joined the World Trade Organization in 2000, NATO in 2009 and became a member of the European Union on 1 July 2013. This republic will become a member of the Schengen Agreement from 1 January 2023, which will allow people legally residing in Croatia to move without hindrance within the borders of the European Union.

Croatia’s central bank holds $25.44 billion in foreign exchange reserves, according to official data. No data on Croatia’s gold stock has been published. Croatia would be one of the states with no official gold reserves.

Croatian GDP growth amounted to +13.1% in 2021, after a fall of 8.6% in 2020, according to World Bank data. In 2019, the Croatian economy grew by 3.4%. The unemployment rate was 8.7% of the active population in 2021.

According to data from the Ministry of Economy and Sustainable Development of Croatia, the average gross monthly salary per employee in August 2022 was €1,389 (approximately HRK 10,000).

Read also : How to resist inflation

The annual inflation rate in Croatia reached 13.5% in November 2022, a new record, compared to 13.2% the previous month.

The income tax rate for individuals residing in Croatia is progressive, and varies according to the annual income bracket: for incomes from 0 to 360,000 HRK the rate is 20%, for incomes above 360,000 HRK per year, the rate is 30%. The municipal tax varies from 0% to 18%.

For companies, the corporate tax rate is 18%. For taxpayers whose income during the tax period is less than HRK 7.5 million per year, a reduced rate of 10% applies to the tax result of the company.

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© Copyright 2022 – Swann Collins, investor, writer and consultant in international affairs.

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