Withholding Tax in Romania - Guidance for Foreign Entrepeneures
Withholding Taxes in RomaniaUpdated on Friday 05th November 2021
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The withholding tax in Romania is 16% and is applied to various types of income. Romania taxpayers must comply with the rules in this case, and in order to better understand what this type of tax entails, it is advisable to talk to a specialist in the field. Our Romanian accountants are at your disposal with complete information about withholding tax in Romania, but also about other taxes that you have to pay if you have a business in this country.
What is withholding tax?
This type of tax (WHT) is also categorized as an income tax deduction that applies to other types of income, in addition to salaries. For example, a work commitment that not ends with a monthly salary, but is subject to another type of income, can be levied with withholding tax.
How is the withholding tax applied in Romania?
Royalties, interests, and dividends are the types of income for which withholding tax is applied in Romania. Here's how to apply withholding tax in Romania:
- In the case of legal entities in Romania, the withholding tax in Romania is 5% for the distribution of dividends. If there is a participation percentage ( at least 10%) for an uninterrupted period of at least one year and then the tax is eliminated.
- Non-resident taxpayers in Romania that obtain income in this country from various activities are subject to the withholding tax in Romania of 16%.
- This rate also applies to consulting and management services in Romania.
- Companies that do not operate through a permanent establishment in Romania must also pay a withholding tax of 16%. This tax applies to the royalties, interests, and revenues of the respective company.
- Revenues of foreign companies in Romania are taxed with a withholding tax of 5%.
However, there are also exceptional cases regarding the withholding tax in Romania, and one of our Romanian accountants can offer you complete details in this case. Moreover, if you want to set up a company in Romania and you want complete accounting services, you can call on the experience and help of our specialists.
Exceptions of withholding tax in Romania
Payments made by Romanian residents are levied with 50% withholding tax unless there is a commitment with non-resident countries. This fee applies if the payments are based on artificial transactions.
It is important to mention that pension funds registered in the EU / EEA are not subject to withholding tax in Romania. As for the interests and royalties paid by a Romanian company to one with residence in the European Union, they are not subject to withholding tax in Romania under certain conditions. For example, it must be proved that 25% of the share capital of the foreign company was held for 2 years without interruption. Find out from Romanian accountants what withholding tax means in Romania and how it applies.
Tax residence certificate
The legislation of the European Union regarding the taxes that foreign companies have to pay in Romania is quite clear in this direction. The companies must present a tax residence certificate and a declaration in which they assume the directives imposed in this case. In Romania, these aspects are mentioned by the Fiscal Code, to which are added the regulations for the prevention of anti-abuse and tax evasion rules. Please discuss with our accounting specialists more about withholding tax in Romania.
No withholding tax applies in the following cases
In addition to the examples mentioned above, there are other cases in which withholding tax in Romania does not apply. For example, earnings from artistic competitions that have been paid from public money are not subject to withholding tax in Romania. Government bonds in Romania are exempt from WHT, as well as the income of partnerships established in Romania by a foreign entity.
As for investments in Romania, the country attracts quite a lot in areas such as construction, IT, agriculture, and tourism. What makes foreign investors attracted to Romania is the labor force accessible from the cost point of view, but also the advantageous business climate from this point of view. Here are some interesting facts about Romania's economy:
- The total FDI for Romania in 2020 was approximately USD 107.5 billion.
- According to the 2020 Doing Business report, Romania ranked 55th out of 190 world economies in terms of climate and optimal business conditions.
- Most foreign investments are covered by the manufacturing sector in Romania, followed by construction and real estate.
Therefore, those who want complete information about withholding tax in Romania are advised to contact our accounting company in Romania. We offer specialized help to local and foreign companies.