2022 Croatia-U.S. Income Tax Treaty Available

2022 Croatia-U.S. Income Tax Treaty Available

Tax Analysts has obtained the English text of the Croatia-United States income tax treaty signed December 7, 2022, in Washington. Under the treaty, dividends are taxable at a maximum rate of 15 percent generally. A 5 percent rate applies if, for the twelve-month period ending on the date on which the entitlement to the dividends is determined: <ul> <li>the beneficial owner has been a company that was a resident of the other contracting state or of a qualifying third state; </li> <li>at least 10 percent of the aggregate vote and value of the shares of the payer company was owned directly by the beneficial owner or a qualifying predecessor owner.</li> </ul> An exemption applies if the beneficial owner is a pension fund that is a resident of the other contracting state and the dividends aren't derived from a trade or business of the pension fund or through a connected person. Also, dividends paid by a company resident in the United States will not be taxed by the U.S. if: <ul> <li>the beneficial owner of the dividends is a Croatian resident that is a voluntary pension insurance scheme based on individual capitalized savings established under the “Act on Voluntary Pension Funds” as such law existed on the date of signature of the treaty; and </li> <li>those dividends are not derived from the carrying on of a trade or business by such resident or through a person connected with the resident.</li> </ul> Dividends paid by a U.S. Regulated Investment Company (RIC) are taxable at a top rate of 15 percent. For dividends paid by a U.S. Real Estate Investment Trust (REIT), a 15 percent rate applies only if:  <ul> <li>the beneficial owner of the dividends is an individual or pension fund, in either case holding an interest of not more than 10 percent in the REIT;</li> <li>the dividends are paid with respect to a class of shares that is publicly traded and the beneficial owner of the dividends is a person holding an interest of not more than 5 percent of any class of the REIT' s shares; or</li> <li>the beneficial owner of the dividends is a person holding an interest of not more than 10 percent in the REIT and the REIT is diversified.</li> </ul> Interest is taxable only in the beneficial owner's state of residence. However: <ul> <li>Interest arising in Croatia that is determined with reference to receipts, sales, income, profits or other cash flow of the debtor or a connected person with respect to the debtor, to any change in the value of any property of the debtor or a connected person with respect to the debtor or to any dividend, partnership distribution or similar payment made by the debtor or a connected person with respect to the debtor may be taxed in Croatia, and according to the laws of Croatia, but if the beneficial owner is a U.S. resident, the interest may be taxed at a maximum rate of 15 percent;</li> <li>Interest arising in the United States that is contingent interest of a type that does not qualify as portfolio interest under U.S. law may be taxed by the United States, but if the beneficial owner is a Croatian resident the interest may be taxed at a maximum rate of 15 percent;</li> <li>Interest arising in a contracting state and beneficially owned by a resident of the other state that is a connected person with respect to the payer of the interest may be taxed in the first-mentioned state in accordance with domestic law if such resident benefits from a special tax regime with respect to the interest in its state of residence;</li> <li>In the case of the United States, interest paid by an expatriated entity, as defined in Section 7874(a)(2)(A) of the Internal Revenue Code on the date of signature of the treaty and in the regulations that are or may be promulgated under Section 7874 with respect to that definition, and beneficially owned by a company resident in Croatia that is a connected person with respect to such expatriated entity may be taxed in accordance with U.S. law for a period of ten years beginning on the date on which the acquisition of the domestic entity is completed.</li> <li>Interest arising in a contracting state and beneficially owned by a resident of the other state that is a connected person with respect to the payer of the interest may be taxed in the first-mentioned state in accordance with domestic law if such resident benefits, at any time during the tax year in which the interest is paid, from notional deductions with respect to amounts that the contracting state of which the beneficial owner is a resident treats as equity;</li> <li>Interest arising in a contracting state and beneficially owned by a resident of the other state that is entitled to the benefits of Article 11 (Interest) only by reason of paragraph 5 of Article 22 (Limitation on Benefits) may be taxed in the first-mentioned state, but the tax so charged may not exceed 10 percent; and</li> <li>Interest that is an excess inclusion with respect to a residual interest in a real estate mortgage investment conduit may be taxed by each contracting state in accordance with its domestic law.</li> </ul> Specific provisions apply to companies seeking to satisfy the requirements of paragraph 4 of Article 22 (Limitation on Benefits) regarding a payment of interest. Royalties are taxable at a maximum rate of 5 percent. However: <ul> <li>A royalty arising in a contracting state and beneficially owned by a resident of the other state that is a connected person with respect to the payer of the royalty may be taxed in the first-mentioned state in accordance with domestic law if such resident benefits from a special tax regime with respect to the royalty in its state of residence; and</li> <li>In the case of the United States, royalties paid by an expatriated entity, as defined in Section 7874(a)(2)(A) of the Internal Revenue Code on the date of signature of the treaty and in the regulations that are or may be promulgated under Section 7874 with respect to that definition, and beneficially owned by a company resident in Croatia that is a connected person with respect to such expatriated entity may be taxed in accordance with the law of the United States for a period of ten years beginning on the date on which the acquisition of the domestic entity is completed.</li> </ul> Specific provisions apply to a company seeking to satisfy the requirements of paragraph 4 of Article 22 (Limitation on Benefits) regarding a royalty. Both countries generally apply the credit method to eliminate double taxation. This is the first income tax treaty between Croatia and the United States. It will enter into force once ratification instruments are exchanged and its withholding tax provisions will apply from the first day of the second month following the date of entry into force, and its other tax provisions will apply from January 1 of the year following entry into force. Paragraphs 6 through 10 of Article 25 (Mutual Agreement Procedure) will apply to: <ul> <li>cases that are under consideration by the competent authorities as of the date of entry into force. For such cases, the commencement date will be the date on which the treaty enters into force; and</li> <li>cases that come under consideration after the date on which the treaty enters into force.</li> </ul> The provisions of Article 26 (Exchange of Information and Administrative Assistance) will apply from the date of entry into force without regard to the tax year to which the matter relates.

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Tax Analysts has obtained the English text of the Croatia-United States income tax treaty signed December 7, 2022, in Washington.

Tax Analysts has obtained the English text of the Croatia-United States income tax treaty signed December 7, 2022, in Washington. Under the treaty, dividends are taxable at a maximum rate of 15 percent generally. A 5 percent rate applies if, for the twelve-month period ending on the date on which the entitlement to the dividends is determined: the beneficial owner has been a company that was a resident of the other contracting state or of a qualifying third state;  at least 10 percent of the aggregate vote and value of the shares of the payer company was owned directly by the beneficial owner or a qualifying predecessor owner. An exemption applies if the beneficial owner is a pension fund that is a resident of the other contracting state and the dividends aren't derived from a trade or business of the pension fund or through a connected person. Also, dividends paid by a company resident in the United States will not be taxed by the U.S. if: the beneficial owner of the dividends is a Croatian resident that is a voluntary pension insurance scheme based on individual capitalized savings established under the “Act on Voluntary Pension Funds” as such law existed on the date of signature of the treaty; and  those dividends are not derived from the carrying on of a trade or business by such resident or through a person connected with the resident. Dividends paid by a U.S. Regulated Investment Company (RIC) are taxable at a top rate of 15 percent. For dividends paid by a U.S. Real Estate Investment Trust (REIT), a 15 percent rate applies only if:  the beneficial owner of the dividends is an individual or pension fund, in either case holding an interest of not more than 10 percent in the REIT; the dividends are paid with respect to a class of shares that is publicly traded and the beneficial owner of the dividends is a person holding an interest of not more than 5 percent of any class of the REIT' s shares; or the beneficial owner of the dividends is a person holding an interest of not more than 10 percent in the REIT and the REIT is diversified. Interest is taxable only in the beneficial owner's state of residence. However: Interest arising in Croatia that is determined with reference to receipts, sales, income, profits or other cash flow of the debtor or a connected person with respect to the debtor, to any change in the value of any property of the debtor or a connected person with respect to the debtor or to any dividend, partnership distribution or similar payment made by the debtor or a connected person with respect to the debtor may be taxed in Croatia, and according to the laws of Croatia, but if the beneficial owner is a U.S. resident, the interest may be taxed at a maximum rate of 15 percent; Interest arising in the United States that is contingent interest of a type that does not qualify as portfolio interest under U.S. law may be taxed by the United States, but if the beneficial owner is a Croatian resident the interest may be taxed at a maximum rate of 15 percent; Interest arising in a contracting state and beneficially owned by a resident of the other state that is a connected person with respect to the payer of the interest may be taxed in the first-mentioned state in accordance with domestic law if such resident benefits from a special tax regime with respect to the interest in its state of residence; In the case of the United States, interest paid by an expatriated entity, as defined in Section 7874(a)(2)(A) of the Internal Revenue Code on the date of signature of the treaty and in the regulations that are or may be promulgated under Section 7874 with respect to that definition, and beneficially owned by a company resident in Croatia that is a connected person with respect to such expatriated entity may be taxed in accordance with U.S. law for a period of ten years beginning on the date on which the acquisition of the domestic entity is completed. Interest arising in a contracting state and beneficially owned by a resident of the other state that is a connected person with respect to the payer of the interest may be taxed in the first-mentioned state in accordance with domestic law if such resident benefits, at any time during the tax year in which the interest is paid, from notional deductions with respect to amounts that the contracting state of which the beneficial owner is a resident treats as equity; Interest arising in a contracting state and beneficially owned by a resident of the other state that is entitled to the benefits of Article 11 (Interest) only by reason of paragraph 5 of Article 22 (Limitation on Benefits) may be taxed in the first-mentioned state, but the tax so charged may not exceed 10 percent; and Interest that is an excess inclusion with respect to a residual interest in a real estate mortgage investment conduit may be taxed by each contracting state in accordance with its domestic law. Specific provisions apply to companies seeking to satisfy the requirements of paragraph 4 of Article 22 (Limitation on Benefits) regarding a payment of interest. Royalties are taxable at a maximum rate of 5 percent. However: A royalty arising in a contracting state and beneficially owned by a resident of the other state that is a connected person with respect to the payer of the royalty may be taxed in the first-mentioned state in accordance with domestic law if such resident benefits from a special tax regime with respect to the royalty in its state of residence; and In the case of the United States, royalties paid by an expatriated entity, as defined in Section 7874(a)(2)(A) of the Internal Revenue Code on the date of signature of the treaty and in the regulations that are or may be promulgated under Section 7874 with respect to that definition, and beneficially owned by a company resident in Croatia that is a connected person with respect to such expatriated entity may be taxed in accordance with the law of the United States for a period of ten years beginning on the date on which the acquisition of the domestic entity is completed. Specific provisions apply to a company seeking to satisfy the requirements of paragraph 4 of Article 22 (Limitation on Benefits) regarding a royalty. Both countries generally apply the credit method to eliminate double taxation. This is the first income tax treaty between Croatia and the United States. It will enter into force once ratification instruments are exchanged and its withholding tax provisions will apply from the first day of the second month following the date of entry into force, and its other tax provisions will apply from January 1 of the year following entry into force. Paragraphs 6 through 10 of Article 25 (Mutual Agreement Procedure) will apply to: cases that are under consideration by the competent authorities as of the date of entry into force. For such cases, the commencement date will be the date on which the treaty enters into force; and cases that come under consideration after the date on which the treaty enters into force. The provisions of Article 26 (Exchange of Information and Administrative Assistance) will apply from the date of entry into force without regard to the tax year to which the matter relates.

Croatia - United States: 2022 Income Tax Convention and Final Protocol

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2022 Croatia-U.S. Income Tax Treaty Available