Romania

Domestic dividend tax

The tax rate for the dividend distribution between Romanian legal entities is 8%. The dividend tax is eliminated if there is a shareholding percentage of a minimum of 10% for an uninterrupted period of at least one year.

WHT for non-residents

All income obtained by non-residents from Romanian taxpayers for the provision of services rendered in Romania or for management and consultancy services (irrespective of the rendering place) are subject to 16% WHT in Romania.

Non-resident companies not operating through a PE are subject to a 16% WHT on revenue sourced in Romania, such as interest, royalties, revenue from services (as mentioned above), commissions, and revenue derived from liquidation of a Romanian legal entity.

The tax rate for dividend revenues derived by non-residents from Romania is 8%.

Certain specific provisions and exceptions apply to non-resident WHT, as follows:

• A 50% WHT applies to payments made by Romanian residents (e.g. interest, royalties, commissions, services) to non-residents in countries that do not have an exchange of information agreement concluded with Romania. This WHT is applicable only to the extent such payments result from artificial transactions.
• As Romania is an EU member state, the provisions of the Parent-Subsidiary Directive apply. Consequently, dividends paid by Romanian companies to companies resident in one of the EU member states are exempt from WHT if the dividend beneficiary has held, at the time of distribution, a minimum of 10% of the shares of the Romanian company for an uninterrupted period of at least one year. This rule is applicable also to EEA state members (Iceland, Liechtenstein, and Norway).
• Dividend and interest income obtained from Romania by EU/EEA-registered pension funds is exempt from WHT if the EU Parent-Subsidiary Directive conditions are met.
• Romania has implemented the Interest and Royalties Directive. Payments of interest and royalties made by a Romanian company to another company resident in an EU member state are tax exempt from WHT if the non-resident company held, for an uninterrupted period of at least two years, at least 25% of the share capital of the Romanian company prior to the time of payment.

In order to apply EU legislation, non-resident recipients of the income are required to present a certificate of tax residence and a declaration attesting the compliance with the necessary requirements provided by the European Directives.

The Romanian Fiscal Code incorporates the amendments to the European Parent-Subsidiary Directive no. 2011/96/EU. The legislation introduces the anti-abuse rule for preventing unlawful tax practices used to obtain tax benefits contrary to the Directive’s principles. Also, dividends received by a Romanian legal entity from a foreign legal entity under certain conditions will not be taxed as long as those dividends are not treated as deductible expenses by the paying subsidiary.

The following categories of income derived by non-residents from Romania are exempt from WHT:

• Interest income and income derived from the sale of debt instruments issued by the Romanian authorities (e.g. government bonds).
• Revenue from international transportation and accessory services.
• Prizes obtained by individual non-residents from artistic, cultural, or sport festivals/competitions paid from public funds.
• Income obtained from a partnership constituted in Romania by a non-resident company (the related profits are subject to CIT).

Legal entities/individuals resident in member states of the European Union or the Economic European Area deriving interest revenues and/or revenues from freelancing activities in Romania may opt for the regularisation of the WHT by way of declaring and paying in Romania the CIT/PIT related to the revenues obtained.

The tax withheld and paid is deemed as an advance payment in connection with the CIT/PIT.

The possibility for regularisation of the WHT is only applied in the case of revenues derived from Romania by residents of member states of the European Union or the European Economic Area, provided that a Convention for the Avoidance of Double Taxation or a legal instrument for the exchange of information is concluded between Romania and those states.

WHT rates for companies, and rates under some DTTs

Notes

1. The lower rate applies to a participation of at least 25%.
2. The lower rate applies to a participation of at least 10% where the dividends are paid out of profits that have been subject to a normal rate of company tax.
3. The lower interest rate applies if one of the following requirements is fulfilled:
   • The payer or the recipient of the interest is the government of a contracting state itself, a local authority or an administrative-territorial unit thereof, or the Central Bank of a contracting state.
   • The interest is paid in respect of a loan granted, approved, guaranteed, of insured by the government of a contracting state, the Central Bank of a contracting state, or any financial institution owned or controlled by the government of a contracting state.
   • The interest is paid in respect of a loan granted by a bank or any other financial institution (including an insurance company).
   • The interest is paid on a loan made for a period of more than two years.
   • The interest is paid in connection with the sale on credit of any industrial, commercial, or scientific equipment.
4. The lower rate applies to a participation of at least 10%.
5. According to Article 7, 'Business profits' of the DTT, a payment made to a broker, a general commission agent, or to any other person assimilated to such a broker or agent by the taxation law of the contracting state in which such payment arises may be taxed in that state, but the tax shall not exceed 6% of the gross amount of the commission. However, this is not applicable if the beneficial owner of the commission, being a resident of the other contracting state, has in the first-mentioned state a PE with which the activity giving rise to the commission is effectively connected.
6. The zero rate applies to interest paid by public bodies.
7. The lower rate applies to copyright royalties (excluding films), computer software, patents, and know-how.
8. The 15% withheld at source in Romania on the commission paid to an Egyptian resident shall be given as a credit to be deducted from the income tax charged in Egypt.
9. The lower rate applies to royalties for computer software and industrial, commercial, or scientific equipment.
10. The lower rate applies if and as long as Germany, under its domestic law, does not levy WHT on interest paid to a resident of Romania.
11. The higher rate applies to industrial royalties.
12. The lower rate applies to a participation of at least 40%.
13. The lower rate applies if the beneficial owner is a company (other than a partnership) that directly holds at least 25% of the capital of the company paying the dividends.
14. The lower rate applies if the recipient is a company that directly owns at least 25% of the capital of the company paying the dividends.
15. The lower rate applies for royalties that consist of payments of any kind received as a consideration for the use of, or the right to use, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial, or scientific experience, or for the use of, or the right to use, industrial, commercial, or scientific equipment, cinematograph films, or tapes for television or broadcasting. The higher rate applies if the royalties consist of payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic, or scientific work.
16. The lower rate applies if such recipient is the beneficial owner and if such interest is paid:
    • in connection with the sale on credit of any industrial, commercial, or scientific equipment
    • on any loan of whatever kind granted by a bank or other financial institution (including an insurance company)
    • on any loan of whatever kind made for a period of more than two years, or
    • on any debt-claim of whatever kind guaranteed, insured, or directly or indirectly financed by or on behalf of the government of either contracting state.
17. The lower interest rate applies if the royalties are beneficially owned by a resident of a contracting state and refer to the right to use any copyright of literary, artistic, or scientific work, including motion pictures or films, recordings on tape or other media used for radio or television broadcasting, or other means of reproduction or transmission.
18. The lower rate applies to interest paid in connection with the sale on credit of any industrial or scientific equipment, of any merchandise by one enterprise to another enterprise, or on a loan granted by banks.
19. The lower rate applies to interest paid by public bodies.
20. The lower rate applies for cultural royalties; the higher rate applies for industrial royalties.
21. The lower rate applies for interest arising in a contracting state and derived by the government of the other contracting state, including local authorities thereof and administrative-territorial units thereof, the Central Bank of that other contracting state or any financial institution performing functions of a governmental nature, or by any resident of the other Contracting State with respect to debt claims guaranteed or indirectly financed by the government of that other contracting state, including local authorities thereof and administrative-territorial units thereof, the Central Bank of that other contracting state or any financial institution performing functions of a governmental nature.
22. The lower rate applies for royalties related to the right to use any patent, trademark, design or model plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial, or scientific experience.
23. The lower rate applies if the beneficial owner of the dividends is the government of Kuwait or a company in whose capital the government directly or indirectly owns at least 51% and the remaining capital of such company is owned by residents of Kuwait.
24. The lower rate applies if the beneficial owner of the interest is a company, including a bank or a financial institution, that is a resident of Kuwait and in whose capital the government directly or indirectly owns at least 25% and the remaining capital of such company is owned by residents of Kuwait.
25. Interest shall not be taxed in the state where it arises if the indebtedness on which such interest is paid, guaranteed, insured, or financed by the other state or by a financial institution that is a resident of that other state.
26. The lower rate applies for interest to which a resident of Romania is beneficially entitled if the loan or other indebtedness in respect of which the interest is paid is an approved loan or a long-term loan.
27. The lower rate applies for royalties for the use of, or the right to use, any copyright, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, information concerning industrial, commercial, or scientific experience.
28. 0% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) that directly holds at least 25% of the capital of the company paying the dividends; 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) that directly holds at least 10% of the capital of the company paying the dividends; 15% of the gross amount of the dividends in all other cases.
29. The lower rate applies if, and as long as, the Netherlands does not levy a WHT on interest/royalties paid to a resident of Romania. Interest paid to a bank or financial institution (including an insurance company) and interest paid on a loan made for a period of more than two years are exempt.
30. The lower rate applies if, and as long as, the Netherlands does not levy a WHT on interest/royalties paid to a resident of Romania.
31. The lower rate applies if the recipient is a company (excluding partnership) and during the part of the paying corporation’s taxable year that precedes the date of payment of the dividends and during the whole of its prior taxable year (if any) at least 25% of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation.
32. The lower rate applies if such interest is paid:
    • in connection with the sale on credit of any industrial, commercial, or scientific machine or equipment, or similar installation
    • on any loan of whatever kind granted by a bank, or
    • in respect of public issues of bonds, debentures, or similar obligations.
33. 10% of the gross amount of the royalties, where the royalties are paid by an enterprise registered with the Romanian Agency for Development, in the case of Romania and with the Board of Investments, in the case of the Philippines and engaged in preferred pioneer areas of activities; 15% of the gross amount of the royalties, in respect of cinematographic films and tapes for television or broadcasting; 25% of the gross amount of the royalties, in all other cases.
34. As long as Poland does not introduce in its domestic legislation the WHT of commissions paid to non-residents, the provisions of paragraph 2 of Article 13 are not applying and the commissions are taxable only in the residence country of the beneficial owner of the commission.
35. The lower rate applies if the beneficial owner of the dividends is a company that, for an uninterrupted period of two years prior to the payment of the dividends, directly owns at least 25% of the capital stock (capital social) of the company paying the dividends.
36. The lower rate applies to participation of at least 50%; the 5% rate applies to participation of at least 10%.
37. According to the treaty concluded between Romania and the former Yugoslavia (Federal Republic of). This is applicable in Serbia and Montenegro.
38. The lower rate applies to royalties for the use of, or the right to use, any patent, trademark, design or model, plan, secret formula or process, or industrial, commercial, or scientific equipment, or for information concerning, industrial, commercial, or scientific experience.
39. The lower rate applies if the beneficial owner is a company that directly holds at least 25% of the capital of the company paying the dividends.
40. The lower rate applies if the dividends are beneficially owned by a resident of the other contracting state that is:
    • a company (other than a partnership) that directly holds at least 25% of the capital of the company paying the dividends
    • a pension fund or other similar institution providing pension schemes, or
    • the government of that other state, a political subdivision, local authority, or administrative-territorial unit thereof, or the Central Bank of that other state.
41. The lower rate applies to the extent that such interest is paid:
    • in respect of a loan, debt-claim, or credit that is owed to, or made, provided, guaranteed, or insured by that state or a political subdivision, local authority, administrative-territorial unit, or export financing institution thereof, or
    • by a company to a company of the other contracting state where such company is affiliated with the company paying the interest by a direct minimum holding of 25% in the capital or where both companies are held by a third company that has directly a minimum holding of 25%, both in the capital of the first company and in the capital of the second company.
42. The lower rate applies as long as the Swiss Confederation, in accordance with its domestic legislation, does not levy a WHT on royalties paid to non-residents.
43. The lower rate applies if the company paying the dividends engages in an industrial undertaking and the recipient company, excluding partnership, directly holds at least 25% of the capital of the former company.
44. 10% of the gross amount of the interest if it is received by any financial institution (including an insurance company); 20% of the gross amount of the interest in the case of interest on credit sale; 25% of the gross amount of the interest in other cases.
45. Interest arising in Romania and paid to government of Turkey or to the Central Bank of Turkey shall be exempt from Romanian tax.
46. Interest arising in a contracting state shall be exempt from tax in that state if it is derived and beneficially owned by the government of the other contracting state, a local authority or an administrative-territorial unit thereof, or any agency or bank unit or institution of that government, a local authority or an administrative-territorial unit, or if the debt-claims of a resident of the other contracting state are warranted, insured, or directly or indirectly financed by a financial institution wholly owned by the government of the other contracting state.
47. The lower rate applies for use or lease of any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial, or scientific equipment.
48. 0% if the beneficial owner of the dividends is (i) the government of any contracting state or any governmental institutions or entity thereof or (ii) a company that is a resident of either contracting state and the capital of which is directly or indirectly owned (at least 25%) by the government or governmental institutions of either contracting states.
49. Interest arising in Romania and paid to the government of the United Arab Emirates or its financial institutions shall be exempted from Romanian taxes.
50. The lower rate applies for approved industrial royalties.
51. The lower rate applies if the beneficial owner is a company that directly or indirectly controls at least 25% of the voting power in the company paying the dividends.
52. The lower rate applies in the case of royalties received as consideration for the use of, or the right to use, any copyright of literary, dramatic, musical, artistic, or scientific work (including cinematograph films and films or tapes for radio or television broadcasting).
53. If certain conditions are met.
54. 5% of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) that directly holds at least 25% of the capital of the company paying the dividends; 10% of the gross amount of the dividends in all other cases.
55. The 0% rate applies for certain government institutions, the 3% rate applies for a participation of at least 15%, and the 5% rate applies to all other cases.
56. If and as long as the Hong Kong Special Administrative Region levies no WHT on interest, the percentage shall be reduced to zero. The competent authority of the Hong Kong Special Administrative Region shall inform the competent authority of Romania of any changes made in the internal legislation of the Hong Kong Special Administrative Region regarding the imposition of a WHT on interest.
57. The lower rate applies to interest arising from credit sale of equipment, merchandise, or services, to loans granted by financial institutions, to a political subdivision, local authority, or administrative-territorial unit, or to any entity wholly or mainly owned by the state; the 3% rate applies in other cases.

In order to apply the provisions of the relevant DTT, the non-resident recipient of the income should provide to the Romanian paying company a tax residency certificate attesting its tax residency for the purpose of the DTT.

If the tax rates prescribed by domestic legislation differ from those prescribed by the DTT, then the most favourable rate will apply. The tax rate applicable to income obtained by a resident of an EU member state in Romania is the most favourable rate provided under either domestic legislation, the EU Directives transposed into domestic legislation, or the DTT.