On December 7, 2022, the Treasury Department announced that the U.S. and Croatia signed a new income tax treaty.
The treaty is the first double tax treaty between the countries and the first comprehensive tax treaty signed by the U.S. in over a decade. To become law, both countries will need to ratify the agreement. In the U.S., this requires a two-thirds vote of the Senate.
Dividends are entitled to a 5% rate of withholding if the dividend recipient has been a resident company of a Contracting State for the 12-month period immediately preceding the declaration of the dividend. Moreover, the recipient of such dividends must own at least 10% of the stock of the company paying the dividends for the same length of time in order to qualify for the reduced 5% rate of withholding. In all other cases, where these conditions are not met, the rate of withholding is 15%.
Interest arising in one country that is beneficially owned by a resident of the other country is generally subject to tax only in the recipient’s country. This means, subject to certain exceptions, interest is entitled to a 0% rate of withholding in the payor’s country.
Royalties arising in one country and paid to a resident of the other country are, generally, afforded a 5% rate of withholding by the country in which the royalties arise. However, such royalties may also be taxed in the recipient’s country according to domestic law.
The limitation on benefits (LOB) article leaves ample room for various business structures to qualify for entitlement to treaty benefits. However, these matters can be complex and fact-intensive. Consultation with a trusted professional at FORVIS is highly recommended before engaging in any cross-border investment strategies.
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