Romania

Market overview

Romania has undergone a period of political upheaval in the past year and is, at the time of writing, without an elected government after the previous government resigned following a wave of anti-corruption demonstrations. The interim government has still managed to implement a series of reforms, including an almost complete re-wording of the country's tax code.

The aim of the amendments is to create a settled, OECD BEPS-compatible tax environment for the future.

The previous tax code was amended nearly one hundred times in its existence, the new tax code has likewise been amended several times since it was implemented in January 2016. This, according to Tudor Nedelea, tax partner at DLA Piper Romania has led to uncertainty for taxpayers.

"It's not a very good sign, if the target is stability – obviously from that point of view it is not good. We, and our clients, want to have a stable and predictable tax environment but we are still quite far from that," said Nedelea.

In June 2016 the country became an associate to the BEPS project, committing to implement the minimum BEPS standards against harmful tax practices and transparent exchange of information. This commitment will impact Romania in the upcoming years in a series of regulation updates.

One of the major challenges for taxpayers in Romania is working with the tax authorities who have a problematic reputation for having often unrealistic expectation of taxpayers. Advisers said the authorities in Romania are focused on having Romanian comparables when setting transfer prices, which presents difficulties when there are no adequate comparables within the jurisdiction.

While the comparable uncontrolled price (CUP) method for establishing the transfer price remains the Romanian authorities' preferred method, since the implementation of the tax code reform they have been accepting other OECD prescribed methods.


Tax authorities

The Ministry of Public Finance
Strada Apolodor nr. 17, sector 5, Bucharest 050741
Tel: +40 21 319 9759
Fax: +40 21 312 2509
Email: publicinfo@mfinante.gov.ro
Website: www.mfinante.ro


Tax rates at a glance

(As at September 4 2015 – ref. legislation applicable as of January 1 2016)

Corporate income tax 16%
Capital gains tax 0/16% (a)
Branch tax 16%
 
Withholding tax
Dividends 0/5% (b)
Interest 0/16% (c)
Royalties from patents and licences 0/16% (c)
Branch remittance tax n.a.
 
Net operating losses (years)
Carryback Not allowed
Carryforward 7 years (d)

  1. Capital gains obtained by corporate entities are included in their regular profits subject to corporate income tax at 16%; capital gains obtained by resident legal entities from disposal of Romanian entities or entities resident in a treaty-country are exempt from corporate income tax as long as two conditions are simultaneously observed: there is a minimum holding of at least 10% of the share capital of the investee, held for a minimum uninterrupted one-year period at the time of the disposal (Minimum Holding Requirements); capital gains obtained by individuals are taxed at 16% as investment income irrespective of the holding period and type of securities traded.
  2. The 0% rate applies for payments qualifying under the conditions of the EU Parent-Subsidiary Directive for EU tax resident legal entities (based on inter-alia the Minimum Holding Requirements mentioned above subject to specific documentation requirements); 0% also applies to dividends paid under the Agreement between the European Community and the Swiss Confederation to Swiss tax resident parent companies holding at least 25% of the share capital of the Romanian dividend payer for a minimum two-year period at the time of dividend payment; else, as of January 1 2016, a 5% rate applies to dividends paid to all other non-residents and resident legal entities (assuming the Minimum Holding Requirements are not met, otherwise 0% applies to resident legal entities) or individuals, unless a more beneficial rate applies under a double tax treaty or a specific domestic exemption (for example, dividends paid to EU/EEA pension funds are exempt from Romanian withholding tax).
  3. The 0% rate applies for payments qualifying under the EU Interest & Royalties Directive to beneficial owners being EU tax resident legal entities which are affiliated with the Romanian payer by a direct minimum holding of at least 25% maintained for two uninterrupted years at the time of payment (the exemption applies also in case both the Romanian payer and the EU qualifying beneficial owner are held by a third company which at the same time has a minimum direct holding of 25% both in the capital of the first company and in the capital of the second company for at least two uninterrupted years at the time of payment); 0% also applies to payments made under the Agreement between the European Community and the Swiss Confederation to Swiss tax resident companies qualifying under specified conditions.
    The domestic law increases the withholding tax rate to 50% in case of, for example, interest and royalties paid towards accounts in countries with which Romania does not have in place exchange of information mechanisms and if the said payments are made within transactions qualified as "artificial" under the Romanian tax legislation. Dividends are excluded from this treatment as of January 1 2016.
  4. The seven-year period applies starting with the loss related to fiscal year 2009 (losses incurred before 2009 can only be carried forward for five years).

Source: Taxhouse, Taxand Romania