LAWS TO WATCH: Croatia-UK Double Taxation and Tax Avoidance Act

Boris Lalovac, ministar financijaLPJ Issue 131, 4 April 2015

The legislation confirms the agreement between Croatia and the U.K., signed on 15 January 2015 in Zagreb. The agreement regulates the avoidance of double taxation on income and profits for Croatian and U.K. citizens.

For example, Croatian construction companies and other companies that are realising projects in the U.K. will be exempt from income tax payments in the U.K., if these works last less than 12 months. Business profit taxes are generally under the purview of the state of residence of the business, except in cases where the company has a permanent presence (e.g. registered branch office) in the other non-residence state. The legislation also allows Croatian operators engaged in the international transport of goods between Croatia and the U.K. to pay their profit taxes solely in Croatia.

The agreement decreases rates for passive income, compared to current rates under national laws. Interest and royalties on intellectual copyright services will be taxed 5% by the state of residence of the individual. Regarding dividend taxation, a 5% withholding tax is determined, if it is determined that the owner is a company with residency in another contracting state and controls at least 25% of the capital of the company paying the dividend.

The rate of 15% is taxable when the dividends are paid out of income, including profits arising directly or indirectly from real estate transactions, since these transactions are tax exempt. The rate is 10% in all other cases.

Proposed by: Ministry of Finance

Note: The legislation was sent to the Sabor urgent procedure

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