The road to the West – Treaty on avoidance of double taxation with the USA, entry into the Schengen and the Euro introduction

In 2022, the Republic of Croatia faced numerous steps forward and changes in the financial and economic sense. Namely, in addition to the vital adjustment of the entire financial system with the Euro’s arrival, there was also a positive move towards entering Schengen and the signing of the Agreement with the United States of America on the avoidance of double taxation.

Following, CONFIDA Croatia presents an overview of the events mentioned, which are representing Croatia’s big step towards the West.

Treaty between Croatia and the United States of America on the avoidance of double taxation

On Wednesday, December 7, 2022the United States of America and the Republic of Croatia signed a comprehensive Treaty on the avoidance of double taxation. The complex and detailed Treaty ended the long-term process of reaching a final agreement. The Treaty is subject to the consultation and consent process for ratification in the US Senate and ratification in the Croatian Parliament.

The long-term and common goal of the countries is to avoid double taxation. The Treaty will simplify the operations of Croatian companies on the US market and vice versa. It will be easier for Croatian companies to enter the US market. The growing partnership will strengthen economic cooperation and innovation in the private sector.

The Treaty sets out the basic rules that regulate tax issues related to trade and investment between the USA and Croatia, which we summarize below:

  • Protection of American and Croatian taxpayers from double taxation through the distribution of taxation rights;
  • Preventing potential over-taxation by reducing the withholding tax imposed by the source country on taxable income – important information for individual taxpayers and companies;
  • Establishing an agreed minimum level of economic activity within the country by residents of another country, up to which the profit tax is not applied;
  • Croatian companies operating in the USA and vice versa enable to do business more simply while supporting jobs,
  • It will be easier for Croatian companies to enter the US market, which contributes to joint economic cooperation and the strengthening of the private sector;
  • The exchange of critical information between Tax Authorities and solid mechanisms for resolving disputes related to the application of the Agreement is enabled;
  • Regulation of the provision on harmonizing the rules of the American and Croatian pension and tax systems – important information for pensioners.

Croatia’s entry into the Schengen

On Thursday, December 8, 2022, a unanimous decision reaching in Brussels that Croatia would become the 27th member of the Schengen area. The decision on the complete application of the Schengen acquis in Croatia brings about joining the largest area in the world without internal border controls between countries.

From the beginning of 2023, border controls on land and sea with the countries of the Schengen area and Croatia will no longer exist – these are the borders with Slovenia and Hungary. From March 26, 2023, the same thing will happen with airlines.

The Schengen area has almost 420 million people and approximately two million daily commutes to work across the internal border. The absence of border controls brings savings but also facilitates trade.

Introduction of the Euro as the official currency

A topic we have introduced several times is the Euro introduction as the official currency in the Republic of CroatiaThe Law on the euro introduction as the official currency in the Republic of Croatia regulates:

The adaptation of the legislative framework of Croatia was necessary, thus ensuring legal certainty. From January 1, 2023, the Euro will become the official currency of the Republic of Croatia.

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