AmCham for the signing of the agreement on the avoidance of double taxation between Croatia and the USA

The American Chamber of Commerce in Croatia (AmCham) presented its position “Arguments in favor of signing the agreement on the avoidance of double taxation between Croatia and the USA” on Monday in Washington and requested support in advocating for the initiation of the negotiation process for concluding this agreement, AmCham announced.

According to the statement, AmCham’s position was presented by Marjorie Chorlins, Vice President for European Affairs of AmCham’s parent organization, the U.S. Chamber of Commerce in Washington.

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“AmCham has also requested support in advocating for the initiation of the negotiation process for concluding the agreement on the avoidance of double taxation between Croatia and the United States,” AmCham emphasizes.

They remind that agreements on the avoidance of double taxation are international agreements made between countries, and their main purpose is to reduce or eliminate double taxation of income earned by residents of each of those countries in the other country.

These agreements primarily aim to prevent tax evasion or avoidance, but their actual impact, as emphasized by AmCham, goes beyond that purpose, as they also help promote and encourage the strengthening of economic cooperation by helping to remove potential barriers to trade and investment caused by overlapping tax jurisdictions.

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“Despite numerous previous attempts to initiate the negotiation process for signing the agreement on the avoidance of double taxation with the USA, such an agreement has not been concluded to date. The absence of such an agreement, among other things, reduces transparency in business, imposes significant tax and administrative burdens on companies from Croatia wishing to operate in the USA and vice versa, and complicates and thereby diminishes the scope of knowledge transfer between the two countries. Furthermore, the lack of such an agreement places Croatia directly at a disadvantage compared to all other EU member states that have such agreements,” the statement emphasizes.

Therefore, AmCham calls for the opening of the negotiation process for the conclusion of the agreement on the avoidance of double taxation between Croatia and the USA in its position, the statement concludes.

In its positions, AmCham states that the IRS website has a list of agreements on the avoidance of double taxation with 66 countries.

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The document also explains the arguments in favor of the agreement on the avoidance of double taxation – encouraging investment from Croatia to the USA; the USA’s standard in relations with friendly countries; equal treatment of all EU members; business transparency; administrative and financial relief; effective knowledge transfer; promoting trade and investment ties; and treatment of individuals.

AmCham also presents an example of the effect of the agreement on the avoidance of double taxation for a Croatian company wholly owned by an American company. They state that such a company in Croatia pays a profit tax at a rate of 18% (for simplicity, parafiscal contributions and any other applicable taxes are not considered), and interest payments and royalties, as well as dividends, in the case of the absence of an agreement on the avoidance of double taxation, are subject to withholding tax (interest and royalties at a rate of 15%, and dividends at a rate of 12%) and only the net amount after taxation can be paid to the parent company in the USA.

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In all three of these cases, in the best scenario, the agreement on the avoidance of double taxation would eliminate the withholding tax on interest, royalties, and dividends, allowing the full amount to be paid to the American parent company, which would make a significant difference in the inflow of funds to the parent company in the USA, AmCham emphasizes, whose informative calculation shows that such a subsidiary of an American company could halve the total amount of tax it currently pays in Croatia.