The double taxation agreement (DTA) between the UK and Croatia which was signed on 15 January 2015 entered into force on 19 November 2015. The agreement takes effect in the UK from 1 January 2016 for withholding tax; for corporation tax from 1 April 2016; and for income tax and capital gains tax from 6 April 2016. The agreement generally follows the provisions of the OECD Model.
Under the provisions of the agreement the maximum withholding tax on dividends is limited to 5% if the paying company owns at least 25% of the capital of the company paying the dividend; but is 15% where the dividends are paid out of income derived directly or indirectly from immovable property by an investment vehicle that distributes most of this income annually and where the income is exempt from tax. In other cases the maximum withholding tax on dividends is 10%.
The maximum withholding tax on interest is 5% but is reduced to zero if the interest relates to the sale on credit of industrial, commercial or scientific equipment; the sale of merchandise between enterprises; or a loan granted by a bank. The maximum withholding tax on royalties is limited to 5% under the agreement.
The protocol to the agreement contains a most favored nation (MFN) clause providing that if under any agreement between Croatia and an OECD member state entering into force at a later date Croatia exempts from tax interest or royalties (either generally or in relation to specific categories,) or provides for a lower rate than provided for in the UK-Croatia treaty, that exemption or lower rate is to automatically apply to interest and royalties under the UK-Croatia treaty.