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Tax minimization in Romania

Updated on Sunday 17th April 2016

tax_minimization_in_romania.jpgRomania is one of the attractive European countries for doing business due to the low income tax and corporate tax (applied on profit) rates which are unique (16 percent). When comparing it to other European countries, foreign investors may find that they have an interesting opportunity for developing a business in Romania.

Tax system in Romania

The Romanian tax system applies to residents as well as to foreigners in Romania. Foreigners are liable to pay income tax, but only on income sourced in Romania, such as salary received from a foreign employer for the work carried in Romania, income paid by a Romanian company or individual that is employment related, or income from a source on the Romanian territory. When it comes to expatriates, Romania does not have a special income tax regime applied to them, but if double tax treaties exist, then they can overrule domestic legislation.

How to pay fewer taxes in Romania

An easy way to pay fewer taxes in Romania is to open a holding company. Since 2014, Romania has fiscal laws governing the holding companies, but it is a rather simple system. A holding company does not need to pay income tax on capital gains or dividends. In addition, liquidation proceeds obtained from the sale of the holding company’s shares in subsidiaries are also not subject to income tax. This fiscal relaxation can draw attention to foreign investors, but also to Romanian investors that up until now kept looking for new jurisdictions where to open their business, countries such as Cyprus or Holland.

These new fiscal measures are specific for strategic investments that have development as the main purpose. Romania has chosen to impose holding at least 10% of shares in a subsidiary from which they receive dividends and set a minimum holding period of one year.

With the new regime, Romanian subsidiary companies that pay dividends to shareholders or to associates who are Romanian legal persons, do not calculate and do not withhold taxes on dividends for the distributed dividends, if the dividend recipient holds, at the payment date, less than 10% of the units’ participation of other legal entities for a period of one year.

From this point of view, equity above 10% in Romanian firms, held for a minimum of one year, benefits from tax exemption on dividends and tax, while less than 10% stakes are double taxed: the 16% dividend tax, withholding of subsidiary, and the income tax of 16% from the mother company. This is clearly a favorable tax treatment for minority stakes.

Keeping accounting in Romania is a rather difficult process, as such, we advise you to hire an Romanian accounting firm in order to help you with all the financial aspects. Our experienced Romanian accountants will provide assistance for all the fiscal procedures, including audit in Romania.

Is Romania becoming an interesting investment destination?

In 2014, Romania has entered the international fiscal market with the new holding regime, as such United States and United Kingdom had shown a great deal of interest due to this change. As such, Romania was placed on the investitors' map. Even if the business environment insisted on changing the fiscal regime, Romanian Ministry of Finance finally decided to adapt the regime when the Cyprus crisis took place.

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