Hong Kong: Comprehensive double taxation agreement with Croatia signed

Hong Kong and Croatia signed a comprehensive double taxation agreement

Hong Kong and Croatia signed a comprehensive double taxation agreement

The Hong Kong SAR (Hong Kong) on 24 January 2024 signed a comprehensive double taxation agreement (CDTA) with Croatia.

Benefits under the CDTA for Hong Kong residents include reduced withholding tax rates for dividends, interest and royalties and a better protection from creating a permanent establishment (PE) in Croatia.

Key features of the CDTA

  • Persons covered (Article 1)
  • Tax residency (Article 4)
  • Permanent establishment (Article 5)
  • Profits from international shipping and air transport (Article 8)
  • Dividends, interest, and royalties (Article 10, 11 and 12)
  • Capital gains (Article 13)
  • Elimination of double taxation (Article 22)
  • Entitlement to benefits (Article 27)

KPMG observation

Under the CDTA, Hong Kong resident companies may benefit from:

  • The reduced withholding tax rates on dividends, interest and royalties derived from Croatia
  • A better PE protection in Croatia (e.g., the threshold period for creating a construction site / installation project PE in Croatia is extended from more than six months under the domestic law to more than 12 months under the CDTA).

On the other hand, Croatia resident companies may benefit from a tax exemption on their business profits in Hong Kong in the absence of a PE in Hong Kong. 

The CDTA will enter into force after completion of the ratification procedures in both Hong Kong and Croatia. The earliest possible effective dates of the CDTA will be from tax year beginning on or after 1 January 2025 in Croatia and from the year of assessment 2025-2026 (which begins on 1 April 2025) in Hong Kong.

For more information, contact a KPMG tax professional:

David Ling | davidxling@kpmg.com


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