DT5254 - Double Taxation Relief Manual: Guidance by country: Croatia: Notes
The treaty that entered into force in 2015 replaced the treaty with the former Yugoslavia, which took effect in 1982. Apart from a general updating to reflect changes in the OECD Model Tax Convention and the domestic laws of both states, notable changes include:
Associated Enterprises (Article 9)
A new OECD Model paragraph 2 has been added. It requires each state to make a corresponding adjustment in transfer pricing cases and so removes the risk of double taxation for taxpayers.
Dividends (Article 10)
- the withholding tax rate applying to portfolio investors has been reduced from 15% to 10%
- a zero withholding rate has been introduced where the beneficial owner of the dividend is a pension fund
Interest (Article 11)
The general withholding tax rate has been reduced from 10% to 5% with exemptions introduced for some categories of interest (see Treaty Summary).
Royalties (Article 12)
The withholding tax rate has been reduced from 10% to 5%. In addition, payments for the use of, or the right to use, industrial, commercial or scientific equipment are no longer royalties for the purposes of the treaty and therefore come within the business profits article of the new treaty.
Pensions (Article 17)
A new provision has been added which gives the UK sole taxing rights on lump sum payments paid to residents of Croatia.
Students (Article 19)
The article has been updated to the latest OECD version and so removes the limits placed on the amount of income qualifying for the exemption (£250) and the period of time it can be claimed (three years).
Anti-abuse
Anti-treaty shopping rules have been introduced in the dividend, interest, royalties and other income articles (Articles 10(7), 11(7), 12(6) and 21(4) respectively).