On January 11, 2016 the Luxembourg tax authorities issued a newsletter announcing that on January 13, 2016 the Agreement between the Grand Duchy of Luxembourg and the Republic of Croatia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (Hereafter: the DTA) will enter into force.
Based on Article 28 of the new DTA (“ENTRY INTO FORCE”) the fact that the DTA will enter into force on January 13, 2016 means that the provisions of the DTA shall have effect:
a) in respect of taxes withheld at source, to income derived on or after January 1, 2017;
b) in respect of other taxes on income, and taxes on capital, to taxes chargeable for any taxable year beginning on or after January 1, 2017.
Below we will discuss some of the provisions of the DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the DTA (“TAXES COVERED”), The existing taxes to which this Agreement shall apply are in particular:
a) in Croatia:
(i) the profit tax;
(ii) the income tax;
(iii) the local income tax and any other surcharge levied on one of these taxes;
b) in Luxembourg:
(i) the income tax on individuals (l'impôt sur le revenu des personnes physiques);
(ii) the corporation tax (l'impôt sur le revenu des collectivités);
(iii) the capital tax (l'impôt sur la fortune); and
(iv) the communal trade tax (l'impôt commercial communal).
Article 2, Paragraph 4 of the DTA subsequently arranges that the DTA shall shall apply also to any identical or substantially similar taxes which are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes.
Permanent establishment
Article 5, Paragraph 3 of the DTA (“PERMANENT ESTABLISHMENT”) arranges that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than 12 months.
Immovable property
Article 6, Paragraph 1 of the DTA (“INCOME FROM IMMOVABLE PROPERTY”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the DTA (“CAPITAL GAINS”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 4 of the DTA subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 4 of the DTA shall not apply to gains derived from the alienation of shares of companies that are listed on an approved stock exchange of one of the States, to gains derived from the alienation of shares in the course of a corporate reorganisation or where the immovable property from which the shares derive their value is immovable property (such as a mine or a hotel) in which a business is carried on.
Associated enterprises
Article 9, Paragraph 2 of the DTA (“ASSOCIATED ENTERPRISES”) contains a so-called appropriate adjustment clause.
Dividends
Article 10, Paragraph 2 of the DTA (“DIVIDENDS”) maximizes the withholding tax a Source State is allowed to withhold over dividend distributions to :
a) 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends;
b) 15% of the gross amount of the dividends in all other cases.
Interest
Article 11, Paragraph 2 of the DTA (“INTEREST”) maximizes the withholding tax that a Source State is a allowed to withhold over interest payments to 10% of the gross amount of the interest. if the beneficial owner of the interest is a resident of the other Contracting State.
Article 11, Paragraph 3 of the DTA subsequently arranges that notwithstanding the provisions of Article 11, Paragraph 2, interest referred to in Article 11, 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:
a) is that State or the central bank or a local authority thereof;
b) if the interest is paid by the State in which the interest arises or by a local authority or statutory body thereof;
c) if the interest is paid in respect of loan, debt-claim or credit that is owed to, or made, provided, guaranteed or insured by, that State or a local authority or export financing agency thereof;
d) is a financial institution or a collective investment vehicle.
Royalties
Article 12, Paragraph 2 of the DTA (“ROYALTIES”) maximizes the withholding tax that a Source State is a allowed to withhold over royalties to 5% of the gross amount of the royalties if the beneficial owner of the royalties is a resident of the other Contracting State.
Other
Furthermore the new DTA contains provisions regarding a Mutual Agreement Procedure (Article 25) and regarding the Exchange of Information (Article 26).
Click on the language of your choice to be forwarded to the text of the DTA as available on the website of the Luxembourg tax authorities, which will open in a new window (English or French).
Are you looking for an other DTA? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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