Providing GDAL with right encoding

I am using osgeo4w shell to execute gdal_translate command for creating geospatial pdf. My command is:
"gdal_translate -of PDF -tr 0.0001 0.0001 -a_srs EPSG:3765 Granice.tif Sisacko_moslavacka_zupanija.pdf -co OGR_DATASOURCE=Extent.vrt".

The problem I am facing is in encoding. In my Extent.vrt file I have provided connection to MSSQL, and I want to show labels of Counties names. Layer in my vrt file that shows labels:

Names in my db look fine, but written in my pdf they look something like this "Vorkapić", etc.

Where can I define GDAL encoding on how will it read and write my shapefiles from vrt? I have tried adding
–config SHAPE_ENCODING "UTF-8" in my gdal_translate command but it doesn’t solve it.