Dividend Tax in Romania
Dividend Tax in RomaniaUpdated on Monday 03rd August 2020
Rate this article
based on 3 reviews.
based on 3 reviews.
When you own a Romanian company that distributes the profit in dividends, you should ask an accountant about the Romanian regulations in this field. Even though the procedure is not complicated, it may incur tricky rules which can be solved only by an experienced accountant in Romania. This is why we propose you to take advantage of our accounting law firm in Romania specialized in the Romanian tax laws. The same team can provide audit services in Romania for domestic or foreign companies.
What do you need to know about the dividend tax?
As the main purpose of a company is to realize benefits, the profit obtained may be shared between partners or shareholders as dividends. In Romania, the dividends are subject to taxation by the recipient and by the concrete conditions of ownership of shares. Here is information about the dividend tax in Romania:
- The dividend tax is determined by applying a tax rate of 5% on gross dividend distributed or paid.
- The dividend tax is applied following the main rule that provides that when a Romanian company distributes or pays dividends paid to a Romanian legal entity, the company that distributes or pays the dividends is obligated to withhold, declare and pay the dividends withheld tax to the state budget until the 25th of the month following the month.
- Any Romanian entrepreneur must be aware that if dividends were not paid by the end of the year in case they have been approved in the annual financial statements, the tax on dividends must be paid until January 25 next year.
- In case of dividends paid by a company to another Romanian legal person the tax on dividends is not withheld if the dividend recipient holds at the dividend payment date, at least 10% of the units of the other legal entities on a period of two years until the date of payment.
For in-depth support in tax matters, our Romanian accountants are at your disposal at any time.
Dividend tax exemptions in Romania
It is good to know that the same legal provisions are applied to dividend tax exemptions for the dividends paid by a Romanian legal person to:
- Voluntary or privately managed pension funds.
- Government bodies exercising the rights and obligations of a shareholder of the State in Romanian legal entity.
However, the tax rate on dividends applies to the dividend distributed on open investment funds. Starting with 2009, the Romanian Law stipulates that legal persons who reinvest the dividends in order to preserve and increase the number of jobs and for the business’ development are exempted from the dividend tax payment. In Romania, there are also exempted from dividend tax the dividends reinvested in the capital of another Romanian legal entity in order to develop the company’s activity and to create new jobs.
It is important to note that in Romania, a legal person who receives the dividends does not have to pay taxes on dividends if that legal person already pays the corporate tax. However, legal persons who pay taxes on the income realized by a Romanian microenterprise and receive dividends as a result of participation in the capital of a Romanian legal person must pay the dividend tax.
How is the dividend distribution made?
The dividends are a form of payment distributed in cash or in kind to the stockholders of a company, through which they benefit directly from their profits as a result of the investments made in the firm. Any individual, whether legal or physical, can benefit from the payment of such dividends, as long as he or she holds shares in the company. Dividends are, in particular, a share of the profits made by a company that is distributed to the stockholders. Therefore, investors or company owners can take advantage of the high profit registered by the company they own.
There are also other types of revenue that can be integrated to dividends. For example, the amount paid over the market price of a legal person for certain goods or services purchased from a shareholder, if that amount was not subject to the income tax. Also, the amount paid by the legal person for products or services provided in favor of a stockholder, if the payment made by the legal person is for his/her personal advantage.
It is important to know that the payment of dividends in Romania can also be made on a quarterly basis since 2018, according to Law no.31/1990, and under certain conditions:
- The quarterly distribution of profits to shareholders may be made within the net quarterly profit margin, plus any retained incomes and withdrawn amounts of the reserves available at that point.
- If there are losses carried forward from previous years, the amount that can be distributed in the form of dividends is reduced, and only the remaining income can be allocated. It is recommended in the first place to cover the losses, and then to distribute the dividends.
- Companies that choose the quarterly distribution of dividends will have to prepare temporary financial statements approved by the general meeting of the shareholders of the company.
- The sums relating to temporary dividend distributions need to be registered in the accounts as receivables from stockholders or company associates.
Other dividend tax exemptions for companies in Romania
According to the Fiscal Code in Romania, the following types of incomes do not enter the dividends category:
- The distribution made in the case of the acquisition or redemption of the own shares by the legal person.
- The distribution in cash or in kind that was made in the event of the liquidation of the legal person.
- The distribution in cash or in kind that was made in the case of the reduction of the share capital established by the participants in the company.
- The distribution of bonuses in the proportion to the share of each participant.
- A distribution of new units or the increase of the nominal value of the existing shares, because of a share capital increase operation.
All the details involving shareholders and dividends in the firm can be explained by our team of accountants in Romania, alongside information about the taxes for such payments. Also, if you are interested in audits in Romania, you can talk to our team of advisors.
Foreign dividends – What you need to know
Beneficiaries residing in Romania and having incomes obtained from foreign dividends are obliged to declare this income on a yearly basis. If so far, the responsibility was to complete Form 201, this was recently introduced into the unique statement which must be filed annually. It is important to know that the form can be downloaded without any costs from the ANAF official website under the Tax Forms and Completion Guide or directly from the tax office headquarters, by completing a request form in this sense.
What’s new regarding dividends in 2020?
This year, the dividend tax rate is unchanged, remaining at a rate of 5%, even though there were speculations that this tax will be eliminated. According to the Fiscal Code updated for 2020, the dividends income that also includes earnings can be functional following a definition of the equity securities demarcated by the applicable legislation, which imposes a share of a 5% rate of the total amount.
It is important to note that the dividend tax needs to be calculated, withheld and paid to the country by companies that pay this type of income to individuals/ Also, the rule applies even if dividends are paid to another company. The tax is normally declared by using form 100 and then paid by the 25th of the month following the month in which the dividends are paid.
According to the applicable legislation in Romania, dividends can be paid each year, but also on a semester basis, only if there is a shareable profit. In this direction, the dividend payment is made with the help of short-term financial statements, compared to the annual payments where annual financial documents are used. Such aspects are normally agreed upon by the general meeting or with the help of special law. Then, a regularization is made in order to detect if there are any financial differences. Anything you need to know about dividend tax in Romania can be explained by one of our accountants in Romania, so feel free to discuss it with our team.
Other tax facts in Romania
The corporate tax in Romania is set at a 16% rate, one of the lowest in Europe, and needs to be paid by domestic and foreign legal entities with activities in this country. This kind of tax can be paid on a quarterly or yearly basis, as stated by the Romanian Fiscal Code. It is important to note that there are no stamp duty or transfer taxes, yet other fees and tax obligations should be observed.
FAQ about dividend tax in Romania
1. What are the dividends?
Dividends are company profits distributed to stockholders and partners involved in the business. According to the laws in Romania, company owners must pay a tax on dividends.
2. What is the tax dividend in Romania?
5% rate is the dividend tax in Romania and it is applicable to gross dividend paid or distributed.
3. Are there any dividend tax exemptions in Romania?
Yes, there is no dividend tax for voluntary or privately managed pension funds. Also, there is no dividend tax for reinvested dividends, but for more details about these aspects can be solicited from our team of accountants in Romania.
4. How is the dividend distribution made?
The distribution of dividends is normally made in cash or kind. Persons owning company shares are entitled to receive dividend payments after the tax is paid. All the details referring to the distribution of dividends are normally comprised of the company’s documents.
5. When are dividends paid in Romania?
Dividends can be paid on a quarterly or yearly basis, depending on the terms established by the legislation in Romania. If you want the support of our accountants in Romania regarding the dividend payment, feel free to address your inquiries.
Tax benefits in Romania
The legislation on foreign investments in Romania is quite permissive for international entrepreneurs who can benefit from a series of advantages. For instance, there are no taxes imposed on the reinvested profits in the firm in fields like agriculture or manufacturing, but not limited to these. In matters of tax registration, the procedures have been simplified, and it is a lot easier to register for VAT, for example. Romania has one of the lowest VAT rates in the European Union, set at 19%. As for the reduced rate, the 9% rate is applicable to food products, specific medical devices, non-alcoholic drinks, water supply and to agricultural products. Also, a VAT rate of 5% is imposed on the supply of newspapers, magazines, school books, hotel accommodation services, restaurants, transportation and real estate properties with particular conditions.
Making investments in Romania
Romania is quite attractive from an investment point of view and there are numerous successful businesses and foreign companies established in this country. A well-trained and educated workforce, a large domestic market, connection to solid business economies around the world, a strong manufacturing sector, plus a favorable tax regime for experienced and also young entrepreneurs represent of few of the excellent business advantages of Romania. Italy, the Netherlands, Cyprus, Austria, and Germany are the main investors in Romania and among the important business partners of the country. The automotive industry met significant improvements and developments in the past few years and represents an important engine of the economy in Romania. Here are some facts and figures about Romania’s economy and business environment that might attract your attention:
- Romania ranks 55th out of 190 economies in the world, as stated by the 2020 Doing Business report issued by the World Bank;
- about USD 97 billion was the total FDI stock registered for 2019 in Romania;
- approximately USD 6,059 million was the total value of the greenfield investments in Romania in 2019.
- the total FDI inward flow was of approximately USD 5 billion in 2019.
The tax structure in Romania should be attentively measured by international investors looking for a business in this country, Immediate and complete support can be offered by our team of accountants in Romania.
We advise you to get in touch with our accounting firm in Romania and find out more about the taxation regime for companies, including for dividends.