Introduction#
On Tuesday, U.S. Ambassador to Croatia Nicole McGraw and Croatia’s Minister of Finance Ćorić signed a protocol that amends the existing income tax treaty between the United States and Croatia. This event took place during the Three Seas Initiative Summit in Dubrovnik.
Background of the Treaty#
The original income tax treaty was signed on December 7, 2022, marking the first such agreement between the two nations. This treaty aims to clarify tax obligations and prevent double taxation for individuals and businesses operating in both countries.
Key Amendments#
The newly signed protocol introduces three significant changes to the treaty: 1. Definition of Active Business Conduct: It adopts a specific definition of "active conduct of a trade or business" for Article 22, which outlines how businesses are taxed. 2. Double Taxation Relief: It revises Article 23, which details the U.S. obligations to provide relief from double taxation, ensuring that taxpayers are not taxed twice on the same income. 3. Coordination with New Legislation: Article 24 is amended to align with rules from the One Big Beautiful Bill Act of 2025, ensuring consistency with current U.S. tax policies.
Next Steps#
After the protocol is signed, it will be sent to the U.S. Senate for approval. The protocol will take effect once both the U.S. and Croatia confirm they have completed their necessary domestic procedures. This amendment is expected to enhance tax cooperation between the two countries.