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Withholding Tax  

According to Romanian tax code, certain categories of income derived by non-residents from Romania would be subject to withholding tax in Romania.

However, you should be aware that payments made according to contracts concluded with non-resident entities should be analysed from different standpoints for a correct evaluation of the related tax risks for both Romanian company and as well for the foreign entity. The analyse should include:

  • deductibility of the payments made abroad from profit tax perspective for the Romanian company;
  • Permanent Establishment risk in Romania for the non-resident entity (depending of the provisions in the contract concluded between Romanian company and the non-resident entity);
  • arm’s lengths price of the transaction;
  • withholding tax implications;
  • tax impact for individuals coming to Romania based on the provisions in the contract.

Because of the complex tax implications for such services contracts we strongly recommend you to discuss/consult with us:

  • any DRAFT services contract concluded by a non-resident entity with a Romanian entity;
  • any DRAFT assignment contract for an expatriate individual assigned to work in Romania,

prior to enforcement of such contracts.

Such a discussion would:

    • make you aware of particular tax implications from Romanian perspective for your transaction (consequently determine a correct estimate of the tax costs for the business plan of the transaction, and help you avoid unnecessary problems with Romanian tax authorities in the future) and,
    • depending of the circumstances, could help for optimisation of the tax structure of the transaction.

The following categories of gross incomes would be subject to withholding tax as follows:

  • 10% for interest on deposits, deposit certificates, and other saving instruments offered by credit institutions;

Interest on deposits (and similar) held by non-residents in banks located in Romania, would be subject to a 10% withholding tax (instead of previously 5%).

However, withholding tax liablities would be determined on a “pro rata temporis” basis, using applicable tax rates (before and after 1st May 2005).
  • 20% for gambling income;
  • 15% for other income (dividends, royalties, commissions, management, and consultancy services, prizes, etc).

The withholding tax should be paid to the State Budget until the 25th of the month following month in which the income was paid.

Withholding tax exemptions would be available for the following types of income derived by non-residents from Romania:

  • interests on current accounts;

    For qualifying as non-taxable “current account interest”, the rate should not exceed the average banking interest (BUBID) for one month.

  • interest on loans and similar, issued/guaranteed by Romanian Authorities;
  • interest on debentures issued by a Romanian legal entity if they are subject to transactions on a recognised securities market, and interest is paid to an entity which is not affiliated to the issuer of the debenture;
  • prizes obtained by a non-resident individual, following participation in artistic, cultural, or sportive festivals financed from public funds;
  • income from consultancy, technical and other similar services rendered according to contracts financed by loans or other similar arrangements between Romanian Government/Romanian legal entities, and financial institutions. Among other possible qualifying criteria (depending of circumstances) we would mention that loans should be guaranteed by Romanian Government and/or interest should not exceed 3% per year;
  • income derived by foreign legal entities for consulting activities rendered according to free financing agreements concluded between Romanian Government and other Governments or other international institutions (governmental or non-governmental);
  • after Romanian EU membership, no dividend tax would be due for EU shareholders holding at least 25% in Romanian companies, for more then 2 years.

Provisions in a DTT should override domestic provisions, but such provisions would be applicable only based on tax resident certificate provided by the non-resident. Please note that a tax resident certificate should be available on a yearly basis. You can check our |Tax Treaties| link to see if your country has a double tax treaty in force with Romania.

Please note that in case provisions in a DTT would be applicable (based on a tax resident certificate available on a yearly basis), the above mentioned withholding tax rates could decrease (e.g. 5% in case of dividends paid to individuals, 1% in case of interest paid to individuals, etc).

Based on the tax resident certificate issued by the tax authorities in their home country, the non-resident entity would be entitled to request Romanian tax authorities issuance of a certificate proving the taxes withheld at source in Romania according to provisions in the applicable Double Tax Treaty.

The certificate issued by Romanian tax authorities should be used by the non-resident entity, for receiving a tax credit in their home country from the competent tax authorities.

Also note that specific provisions would apply in case of non-residents carrying out transactions with more Romanian entities or in case of transactions with a Romanian entity that have more branches or working points in Romania.

In general any payments made from/in Romania should be based on a contract. Consequently, a contract should be concluded between the non-resident and the Romanian entity. Moreover, according to the Romanian law, contracts between non-residents and Romanian companies should be registered with the Romanian tax authorities (depending of the nature of the services provided).

In case of a contract for services, a clear substantiation (reports, time-sheets, marketing reports, etc.) should be available for the services provided.

 

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Information contained in this site is not a tax advice and consequently can not be used as such. Issuance of a tax opinion for a certain case, can be made only following a complete analysis from a tax, economic and accounting perspective, using all relevant information available for that specific case. Global Tax Services SRL is not responsible in any way for any use of information contained in this site by third parties.