Croatia and the US have inked a deal on the application of the Foreign Account Tax Compliance Act (FATCA) concerning accounts in foreign financial institutions.

The two parties aim to boost transparency on taxes with the agreement, according to a statement from the Croatian Finance Ministry signed by Finance Minister Boris Lalovac and US Ambassador Kenneth Merten.

"The signing of this agreement is an important step in cooperation between the US and Croatia in preventing tax fraud and tax evasion. Failure by taxpayers to meet their tax obligations leads to an uneven distribution of the tax burden to the detriment of those that duly pay their taxes. FATCA is an important part of cooperation between the governments of the US and Croatia in dealing with this issue," the statement said.

Croatia will implement the OECD standard for the automatic exchange of information on financial accounts. This will also allow automatic exchange of information with EU member states as well as with third countries.

Under FATCA, foreign financial institutions are required to report to the US Internal Revenue Service (IRS) once a year on data on assets held by US citizens in accounts abroad. The reporting should be done directly or indirectly through competent authorities.

The latest deal requires financial institutions in Croatia to submit information on accounts held by US nationals in Croatia to the Croatian Tax Authority which will send the data to the IRS.

At the same time, IRS is required to inform the Croatian Tax Authority about Croatian owners of accounts in the US.