(January 18, 2015) 

On January 16, 2015 the HM Revenue & Customs issued a press release announcing that on January 15, 2015 the United Kingdom of Great Britain and Northern Ireland and the Republic of Croatia signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (Hereafter: DTA). Although the DTA has been signed, it has not yet entered into force. The DTA will enter into force after both countries have finalized their respective ratification processes. When entering into force the DTA will replace the UK/Yugoslavia Double Taxation Convention, signed on November 6, 1981 and which continued to apply to Croatia.

Based on Article 2 of the DTA, the existing taxes to which this Agreement shall apply are in particular:

(a)  in the case of the United Kingdom:

(i)            the income tax;

(ii)           the corporation tax; and

(iii)          the capital gains tax;

(b)  in the case of the Republic of Croatia:

(i)             the profit tax;

(ii)            the income tax; and

(iii)           the local income tax and any other surcharge levied on one of these taxes;

With respect to permanent establishments the DTA a.o. determines that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months. 

Paragraph 2 of Article 10 maximizes dividend withholdings to:

(a)  5 per cent of the gross amount of the dividend if the beneficial owner is a company which is a resident of the other Contracting State and controls, directly or indirectly, at least 25 per cent of the capital of the company paying the dividends (other than where the dividends are paid by an investment vehicle as mentioned in subparagraph (b));

(b)  15 per cent of the gross amount of the dividends where those dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax;

(c)  10 per cent of the gross amount of the dividends in all other cases. 

Article 11 of the DTA (Interest) a.o. determines the following:

(1)  Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

(2)  However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 5 per cent of the gross amount of the interest.

(3)  Notwithstanding the provisions of paragraph (2), any such interest as is mentioned in paragraph (1) shall be taxable only in the Contracting State of which the recipient is a resident if the beneficial owner of the interest is a resident of that State and if such interest is paid:

(a)    in connection with the sale on credit of any industrial, commercial or scientific equipment,

(b)    in connection with the sale on credit of any merchandise by one enterprise to another enterprise, or

(c)    on any loan of whatever kind granted by a bank.

Under Article 12 of the DTA Royalty withholding taxes are maximized at 5 per cent of the gross amount of the royalties received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for information (know-how) concerning industrial, commercial or scientific experience.

For more information click here to be forwarded to the full text of the DTA as published on the website of the UK Government.

If you are interested in efficiently locating texts of more DTAs then click here to be forwarded to our section DTAs where you can link to numerous governmental websites on which you can find links to the texts of DTAs as concluded by that State.

Copyright – internationaltaxplaza.info

Stay informed: Subscribe to International Tax Plaza’s Newsletter!