Global Daily Tax News, Hong Kong, Croatia Sign Comprehensive DTA, (Jan 25, 2024)

Hong Kong and Croatia have signed a new double tax agreement.

Under the new treaty, double tax relief will be provided through the credit method, with tax paid in the other state creditable against tax liability in the taxpayer's home state.

Further, the treaty caps the withholding tax rate that may be charged on dividends, interest, and royalties income at five percent.

Profits from international shipping transport earned by Hong Kong residents arising in Croatia will not be taxed in Croatia.

The treaty will become effective after the deal is ratified by both states.

The agreement includes a preamble that states that the DTA is not intended to create opportunities for non-taxation or reduced taxation through tax evasion or avoidance, or treaty shopping, and attempts to abuse it will be counteracted by the treaty's provisions, including through the principal purpose test (PPT).

Further, the agreement includes provisions to counter treaty abuse, prevent the artificial avoidance of permanent establishment status, neutralize the effects of hybrid mismatch arrangements, and improve dispute resolution mechanisms.