On 25 January 2019, the Croatian parliament approved the law for the ratification of the pending income tax treaty with Vietnam. The treaty, signed 27 July 2018, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Croatian profit tax, income tax, local income tax, and any surcharges. It covers Vietnamese personal income tax and business income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel within a Contracting State for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

• Dividends – 10%
• Interest – 10%
• Royalties – 10%
• Technical fees for any services of a technical, managerial or consultancy nature – 10%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State;
• Gains from the alienation of shares of the capital stock of a company the property of which consists directly or indirectly principally of immovable property situated in the other State; and
• Gains from the direct or indirect alienation of shares, other than those mentioned above, representing a participation of at least 10% in a company that is a resident of the other State, with the rate limited to 15% of the gross amount of such gains.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.