US-Croatia double taxation agreement still awaits ratification

(Photo credit: Miki Bratanić)

In a bid to enhance business ties and spur investment, Croatia and the United States signed a Convention on the Avoidance of Double Taxation and Prevention of Tax Evasion nearly two and a half years ago.

However, the agreement is still awaiting ratification, leaving businesses on both sides eagerly anticipating its implementation.

As Lider.hr reports, at a recent tax conference hosted by the American Chamber of Commerce in Croatia (AmCham), experts and entrepreneurs gathered to discuss the treaty’s progress and Croatia’s broader tax landscape.

The convention, designed to ease cross-border business and eliminate double taxation on income, has been in negotiation since 2018.

Božidar Kutleša, Director of the Croatian Tax Administration, explained that talks progressed through the first Trump administration and continued under Biden, culminating in the treaty’s signing.

“Now, it’s just a matter of ratification,” Kutleša said, noting that no significant obstacles currently stand in the way. However, he refrained from predicting a timeline, as the process depends on both the US Congress and Croatia’s government and parliament adopting the necessary legislation.

Andrea Doko Jelušić, AmCham’s Executive Director, offered a more optimistic update, revealing that discussions on the treaty could resume as early as September.

“We’ll do everything possible to push for ratification,” she assured attendees, highlighting the treaty’s potential to simplify business operations and attract new investments.

Proposals for a Better Tax System

Beyond the treaty, AmCham presented recommendations to improve Croatia’s tax framework. Key proposals include raising the non-taxable income threshold to €970 and capping contributions for health insurance, similar to existing limits on pension contributions.

Doko Jelušić also advocated for a gradual reduction in income tax rates—from 30% to 20%, and eventually to 10%—to further stimulate economic growth.

She praised Croatia’s strong macroeconomic environment, citing its excellent credit rating and business-friendly climate. However, challenges remain, including labour shortages, high tax and contribution burdens on wages, and inflationary pressures.

“It’s the perfect time to invest more in research and development and attract new investments,” she said, urging policymakers to address these constraints.

Digitalisation and Tax Relief

Finance Minister Marko Primorac, also speaking at the conference, outlined the government’s focus on digitalising the tax system.

Three major projects are underway: a fully functional population register by June 2026, an expansion of the Fiskalizacija 1.0 system with Fiskalizacija 2.0, and a broader digital transformation of the Tax Administration.

These initiatives aim to streamline processes and enhance efficiency for businesses and citizens alike.

Primorac highlighted past tax relief measures, noting that since 2017, over €2.2 billion has remained in citizens’ pockets, with €460 million of that relief delivered last year alone.

He also touched on local elections, suggesting that greater autonomy for Croatia’s 556 local and regional government units could foster competition in the public sector, often perceived as slow and inefficient.

The conference, titled Sustainable Tax System: Policy, Practice, and Perspectives, also addressed Croatia’s economic trajectory. According to the European Commission’s latest forecast, Croatia’s GDP is expected to grow by 3.2% in 2025, following a robust 3.9% in 2024. Inflation, which stood at 4% last year, is projected to slow to 3.4% in 2025 and drop to 2% in 2026, driven by falling food and service prices.

Primorac described these figures as evidence of the government’s success in achieving economic growth three times higher than the EU and eurozone average.

“This contributes to improving citizens’ living standards and the business environment,” he said. On inflation, he was cautiously optimistic, stating that a 2% rate by 2026 aligns with the “natural” inflation target, effectively signalling victory over recent inflationary pressures.