Corporate tax in Romania

Summary

Corporate Income Tax Rate (%) 16 (a)
Capital Gains Tax Rate (%) 16 (a)
Branch Tax Rate (%) 16 (a)
Withholding Tax (%) (b)
Dividends 5 (c)
Interest 16 (d) (e) (f)
Royalties 16 (d) (f)
Commissions 16 (d)
Certain Services Rendered Abroad 16 (g)
Services Rendered in Romania 16 (d)
Gambling 1
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward 7 (h)

a) See Section B.

b) These withholding tax rates are standard and final. They can be reduced under double tax treaties or European Union (EU) directives.

c) This rate is effective from 1 January 2016. This tax may be reduced to nil for dividends paid to a legal entity residing in another EU member state or to a permanent establishment of an entity residing in an EU member state, if cer­tain conditions relating to the dividend recipient and dividend payer are satis­fied. These conditions are described in Dividends in Section B. Dividends paid by Romanian legal entities to pension funds resident in an EU member state, as defined by the law of such state, are exempt from withholding tax in Romania.

d) This withholding tax applies only if the income is not attributable to a perma­nent establishment in Romania.

e) The following types of interest derived by nonresidents are not subject to withholding tax:

  • Interest from public debt instruments in national and foreign currency
  • Interest related to instruments issued by the National Bank of Romania to carry out monetary policy
  • Interest paid by Romanian legal entities to pension funds resident in an EU member state, as defined by the law of such state

(f)   The withholding tax rate is 0% for interest and royalties if certain conditions are satisfied, including the following principal conditions:

  •  The beneficial owner of the interest or royalties is a legal person resident in an EU member state or a permanent establishment of an entity resident in such a state.
  •  The beneficial owner of the interest or royalties holds at least 25% of the value or number of participation titles in the Romanian entity for an unin­terrupted period of at least two years that ends on the date of payment of the interest or royalties.

g) This withholding tax applies only to management and consultancy services rendered abroad. International transport and supplies of services ancillary to such transport are not subject to withholding tax.

h) Annual tax losses incurred in 2009 and subsequent years may be carried for‑
ward for seven years (five years for losses incurred before 2009) and are not adjusted for inflation.

Taxes on corporate income and gains

Corporate income tax. Resident entities are subject to tax on their worldwide income. An entity is resident in Romania if it satisfies any of the following conditions:

  • It is incorporated in Romania.
  • Its place of effective management and control is located in Romania.
  • It is a legal entity that has its headquarters in Romania and that is incorporated in accordance with the European legislation.

Associations or consortia, which are not considered separate legal persons in Romania, are tax transparent. Different tax rules apply depending on the members of the associations or consortia (for example, whether the members are Romanian, nonresident, indi­viduals or companies).

Nonresident companies that do not have an effective place of man­agement in Romania are subject to tax on their Romanian-source income only, including capital gains derived from specified trans­actions (see Capital gains).

Rates of corporate income tax. The standard rate of income tax for Romanian companies is 16%, regardless of whether the compa­nies have foreign participation. Income derived by companies from night bars, nightclubs, discos and casinos directly or in association is also normally taxable at a rate of 16%, but the amount of the tax payable may not be less than 5% of the gross income derived from such activities.

Nonresident companies that do not have their place of effective management in Romania are taxed in Romania at the standard rate of 16% on earnings derived from their operations in Romania through branches, permanent establishments or certain consortia. A permanent establishment of a for eign company in Romania may be constituted in certain forms, including the following:

  • An office
  • A branch
  • An agency
  • A factory
  • A mine
  • A place of extraction for gas or oil
  • A building site that exists for a period exceeding six months
  • The place in which an activity continues to be carried out with the assets and liabilities of a Romanian legal person subject to a cross-border reorganization

Foreign companies are also normally taxable in Romania at the standard corporate income tax rate on profits derived in Romania from real estate located in Romania and the exploitation of natural resources, as well as on certain capital gains (see Capital gains).

Representative offices are subject to an annual tax equal to the equivalent in Romanian lei of EUR4,000, payable in two installments.

Microenterprises. Romanian legal persons fulfilling certain con­ditions must pay microenterprise tax, which is calculated at a rate of 3% of the taxable revenues with exemptions for certain reve­nues. A reduced microenterprise tax rate of 1% applies to newly established Romanian legal persons that meet all of the following conditions:

  • They have at least one employee.
  • They are established for a period of more than 48 months.
  • Their shareholders or associates do not hold participation titles in other legal persons.

This reduced tax rate applies for the first 24 months since the registration date of the Romanian legal persons.

The microenterprise regime applies to companies that derived income of less than EUR100,000 in the preceding year and the derived income was from activities other than banking, insurance and reinsurance, capital market (except for intermediaries), gam­bling and activities relating to the exploitation of oil deposits and gas. It also applies if the revenues from consultancy and management are less than 20% of the total revenues (less than EUR100,000).

If during a fiscal year, a taxpayer assessed as microenterprise fulfills the conditions to become a corporate income taxpayer (for example, it has income exceeding EUR100,000), it pays corpo­rate income tax based on revenues and expenses recorded from the beginning of the quarter in which it no longer meets the con­ditions to qualify as a microenterprise.

A fiscal loss incurred by the taxpayer in the period in which the microenterprise income tax is applied is not taken into account (the taxpayer’s fiscal result is not calculated).

Fiscal losses incurred by legal persons before applying the micro-enterprise tax regime can be carried forward until the legal entity fulfills the conditions to become a corporate income taxpayer, but only within the seven-year period stated by the law.

Tax incentives. Romania offers certain tax incentives, which are summarized below.

Corporate income tax. The Fiscal Code contains measures allow­ing com panies to claim accelerated depreciation in certain cir­cumstances.

The Fiscal Code allows “sponsorship” expenses to be claimed as a credit against corporate income tax due, subject to certain limi­tations. Under the Sponsorship Law, “sponsorship” is defined as “the juridical deed by which two persons agree upon the transfer of the ownership right upon certain material goods or financial means, in order to support the activity without lucrative scope, carried out by one of them.” The tax credit for sponsorship ex­penses is limited to the lower of the following:

  • 5% of the company’s turnover
  • 20% of the corporate income tax due

Effective from 1 January 2014, sponsorship expenses that were not used for obtaining a tax credit can be carried forward for seven consecutive years.

Reinvested profit. The profit invested in the production and/or acquisition of certain technological equipment, computers and peripherals, fiscal registers, control and billing machines, as well as software, is exempt from tax if the assets are put into use on or before 31 December 2016. The reinvested profit represents the balance in the profit-and-loss account, which is the difference between the total income and total expenses booked in the trial balance of the company beginning with 1 January of the year in which such assets are commissioned. The assets must be retained for at least half of their useful economic life, but no longer than five years, with certain exceptions (for example, cases in which the assets are destroyed, lost or stolen). In addition, the acceler­ated depreciated method cannot be used for the respective assets.

Research and development costs. An additional allowance grant­ed for research and development activities equals 50% of eligible costs.

Industrial parks. Companies administering industrial parks (ad – ministrator companies) may benefit from the following incen­tives by observing the state-aid legislation:

  • Exemption from taxes due on conversion of agricultural land to be used for industrial parks
  • Buildings, constructions and land located inside industrial parks are exempt from building tax and land tax
  • Other incentives, which may be granted by the local authorities

Petroleum companies. Incentives are available to titleholders of oil and gas concessions. Titleholders are granted the concessions by the government in exchange for the payment of a royalty. The fol lowing are the incentives:

  • For rehabilitation projects, a deductible provision equal to 10% of the annual offshore exploitation profits derived by titlehold­ers of oil and gas licenses that relate to offshore areas with water deeper than 100 meters (328 feet).
  • Provisions set up for equipment decommissioning and environ­mental rehabilitation are deductible up to a limit of 1%, which is applied to the accounting result of the exploitation and pro­duction of natural resources, except for the result related to the offshore activities and other activities of the legal entity.
  • Reserves for the development and modernization of oil and gas production and for oil refining and infrastructure are deduct­ible. These are included in taxable income on the depreciation of the assets and their write-off, respectively, over the period in which the expenses financed from these reserves are incurred.

Free-trade zones. The following tax benefits are available to com­panies performing activities in free-trade zones:

  • Value-added tax (VAT) exemption applies to supplies of non-Community goods to be placed in a free-trade zone and to sup­plies of the respective goods performed in a free-trade zone.
  • Non-Community goods introduced into free-trade zones for storage purposes are not subject to customs duties.
  • State aid is available for investments performed in free-trade zones.

Property taxes. Local councils may grant building and land tax exemptions to legal entities, subject to the state-aid regulations.

Capital gains. Capital gains are included in taxable income and taxed at the normal corporate income tax rate. Capital gains de­rived by non resident companies are also subject to the standard 16% tax rate if they are derived from the disposal of the following:

  • Immovable property located in Romania
  • Participation titles (shares) in a Romanian company

Certain exemptions apply to income derived by nonresident col­lective placement bodies without corporate status from the trans­fer of value titles (securities participation titles in open funds, and other financial instruments, such as derivatives) and participation titles held direct ly or indirectly in Romanian companies, as well as to income derived by nonresidents from the trans fer on a for­eign capital market of participation titles held in a Romanian company and of value titles.

Effective from 1 January 2014, income derived from the sale or assignment of shares held in Romanian legal entities or in legal entities from countries with which Romania has entered into a double tax treaty is not included in taxable income if the taxpayer holds for an uninterrupted period of one year at least 10% of the share capital of the legal entity that issued the shares.

Administration. In general, the tax year is the calendar year. How­ever, certain companies may opt for a fiscal year other than the calendar year.

Under the corporate income tax law, payers of corporate income tax (for example, companies, branches and permanent establish­ments) must file tax returns and pay corporate income tax quar­terly (computed based on actual numbers) by the 25th day of the first month following the first, second and third quarters.

As an exception to the general rule, payments made by banks are advance payments based on the corporate income tax for the preceding year, adjusted by the inflation rate. These payments must be made quarterly by the 25th day of the first month follow­ing the first, second and third quarters, as well on 25 December, of the respective year. This rule does not apply to newly estab­lished banks and banks that recorded a tax loss in the preceding year. These banks apply the 16% rate to the accounting profit of the current quarter.

All other companies may opt for reporting and paying the annual corporate income tax through advance payments made on a quar­terly basis.

The annual corporate income tax return must be filed and any balance of annual corporate income tax must be paid by 25 March of the following year. For the taxpayers using a non-calendar fis­cal year, the annual corporate income tax return must be filed and any balance of annual corporate income tax must be paid by the 25th day of the third month following the fiscal year-end. Certain taxpayers, such as nonprofit organizations or taxpayers deriving most of their revenues from cereals and technical plants, must submit the annual corporate income tax return and pay the related tax by 25 February of the following year.

Companies ceasing to exist must submit a final tax return and pay the corporate income tax based on special rules.

The annual financial statements must be submitted within speci­fied time periods after the year-end. The following are the time periods:

  • Companies (in general), national companies and research and development institutes: 150 days
  • Certain specified legal persons, individuals and bodies: 120 days
  • Companies not performing any activities after their formation: 60 days

The failure of a company to file tax returns by the deadline may result in a fine ranging usually from RON500 to RON5,000. Companies are liable for the payment of the fines for late filing of returns even if they pay the tax due. For the late payment of tax liabilities, the following late payment interest and late payment penalties are due (except as otherwise provided):

  • Late payment interest, computed at 0.02% per day of delay
  • Late payment penalties, computed at 0.01% per day of delay
  • Late payment penalties for local tax liabilities, computed at 1% per day of delay
  • Penalties for unreported or inaccurately reported obligations, computed at 0.08% per day of delay

Dividends. Dividends paid by Romanian companies to resident companies are to subject to a 5% withholding tax. The 5% rate is effective from 1 January 2016. The 5% tax is considered a final tax and, accordingly, the dividends are not included in the taxable income of the recipient. However, as a result of Romania’s acces­sion to the EU, no tax is imposed on dividends paid by a Romanian resident company to resident companies that held at least 10% of the shares of the payer for an uninterrupted period of at least one year that ended on the date of payment of the dividend.

Dividends paid by Romanian companies and legal entities having their social headquarters in Romania (that is, societas europea registered with the Romanian Trade Registry and set up according to European law) to resident individuals and nonresident compa­nies and individuals are generally subject to a 5% withholding tax. However, dividends paid by a Romanian legal entity to a legal entity resident in another EU member state or to a permanent es­tablishment of an entity residing in an EU member state are not subject to withholding tax if certain conditions relating to the legal entity re ceiving the dividends and to the Romanian income payer are satisfied. These conditions are described below.

The following conditions must be satisfied with respect to the legal entity receiving the dividends:

  • The legal entity or permanent establishment receiving the divi­dends must be established in ones of the legal forms provided by the law and must be resident in the respective EU member state and, according to the double tax treaties entered into with third countries, may not be resident outside the EU from a tax perspective.
  • The legal entity or permanent establishment receiving the divi­dends must be liable to pay corporate income tax or other simi­lar tax under the tax law in its state of residence without the possibility of exemption or choice of the fiscal treatment.
  • The beneficiary of the dividends must own at least 10% of the participation titles in the Romanian legal entity for an unin­terrupted period of at least one year ending on the date of the payment of the dividends.

The Romanian entity paying the dividends must satisfy the fol­lowing conditions:

  • It must be a joint stock company, limited stock partnership (societate in comandita pe actiuni), limited liability company, general partnership (societate in nume colectiv) or limited part­nership (societate in comandita simpla).
  • It must be liable to pay corporate income tax without the pos­sibility of exemption or choice of the fiscal treatment.

Dividends paid by Romanian legal entities to pension funds, as defined by the law of the respective EU member state, are exempt from withholding tax in Romania if a legal instrument for infor­mation exchange exists.

The deadline for payment of dividend withholding tax is the 25th day of the month following the month in which the dividends are paid. However, if the dividends are distributed but not paid to shareholders by the end of the year in which the annual financial statements are approved, the tax is due on 25 January of the fol­lowing year.

Foreign tax relief. Foreign taxes may be credited against Romanian taxes based on the provisions of a double tax treaty between Romania and the foreign state.

Permanent establishments. Romanian permanent establishments of foreign legal entities resident in an EU or European Economic Area (EEA) member state that derive income from another EU or EEA state benefit under certain conditions from a tax credit for the tax paid in the state from which the permanent establishment from Romania derived the income.

Determination of trading income

General. In general, all income that is booked as revenue is includ­ed in taxable income. However, the following items, among others, are not included in taxable income:

  • Dividends received by a Romanian company from another Romanian company or from a foreign legal entity subject to corporate income tax or a similar tax located in a state with which Romania entered into a double tax treaty. Dividends re­ceived by a Romanian company from an EU resident subsidiary and dividends received by a Romanian permanent establish­ment of an EU company are also not taxable if certain condi­tions are satisfied.
  • The value of new shares or increases in the value of existing shares held in other companies, resulting from the incorpora­tion of reserves, premiums, profits and similar items.
  • Revenues from the reversal, recovery and recharge of expenses and provisions that were previously considered to be nonde­ductible.
  • Income derived from the liquidation of other Romanian legal entities or foreign legal entities located in countries with which Romania has entered into a double tax treaty, if certain condi­tions are met.
  • Income from the revaluation of fixed assets, land and intangi­bles, which offsets the previous decreases incurred with respect to the same assets.
  • Income derived from a permanent establishment in a country with which Romania has entered into a double tax treaty that provides the exemption method for the elimination of double taxation.

The first and fourth items above apply if the taxpayer holds for an uninterrupted period of one year at least 10% of the share capital of the legal entity distributing the dividends or the legal entity subject to liquidation. This condition does not apply to dividends received by a Romanian company from another Roma­nian company.

In general, expenses are deductible for tax purposes if they are incurred for the purpose of carrying out business activities. How­ever, the following items are deductible within specified limits:

  • Protocol and entertainment expenses (for example, gifts to cli­ents and business lunches), up to 2% of the sum of the account­ing profit, corporate income tax, and protocol and entertainment expenses
  • Employee-related expenses (social expenses), up to 5% of the total salary cost
  • Contributions to the legal reserve fund, generally up to 5% of the accounting profit before tax, until the reserve fund reaches 20% of share capital
  • Expenses with respect to shrinkage of goods and to perishable goods (goods on which a company might incur losses for vari­ous reasons, such as from damage suffered during the transport of the goods), which are deductible within the limits set by a government decision
  • Provisions (see Provisions)
  • Interest expenses and foreign-exchange losses related to loans if the debt-to-equity ratio is not exceeded (see Section E)
  • Depreciation expenses (see Tax depreciation)

The following expenses are not deductible for tax purposes:

  • Service expenses, including management, assistance and con­sultancy expenses, if they are provided by a person located in a state with which Romania does not have a legal instrument for information exchange and if such transactions are considered to be artificial.
  • Expenses relating to insurance, other than insurance relating to assets owned by the company and risks related to the company’s activity.
  • Interest on loans that are not from financial institutions, to the extent that the interest exceeds the following limits:

— For loans denominated in lei (RON), the level of the Nation­al Bank of Romania’s (NBR) monetary policy rate pub­lished by NBR for the last month of the quarter

— For loans denominated in foreign currencies, an annual interest rate of 4%

  • Penalties and fines paid to Romanian or foreign authorities.
  • Losses from the reduction in the value of inventory that cannot be recovered and uninsured assets, as well as the related VAT. However, these losses are deductible under certain conditions, such as losses regarding goods that exceeded their validity term or passed their expiration date according to the law or that were qualitatively degraded, if their destruction can be proved accord­ingly.
  • Romanian and foreign corporate income tax (however, a tax credit is allowed for taxes paid in other countries based on the provisions of a double tax treaty between Romania and the foreign state).
  • Expenses incurred for the benefit of shareholders or associates, other than payments for goods and services at market value.
  • Expenses related to non-taxable income.

The deductibility of car expenses not falling under the full deduct­ibility criteria provided under the Romanian tax law is limited to 50% for certain cars not exclusively used for business purposes.

Sponsorship expenses are also nondeductible, but they may be claimed as a credit against corporate income tax due, subject to certain limitations (see Section B).

Taxpayers applying International Financial Reporting Standards. Beginning in 2012, taxpayers applying International Financial Reporting Standards (IFRS), such as banks and listed companies, must take specific tax rules into consideration in determining the corporate income tax.

Inventories. Under Romanian law, inventories of raw materials and merchandise are valued at purchase cost, while inventories of fin­ished goods and work-in-progress are valued at production cost. On the write-off of the inventories, the valuation is calculated using the first-in, first-out (FIFO), weighted average or last-in, first-out (LIFO) methods.

Provisions. Under Romanian law, the following provisions are deductible for corporate income tax purposes:

  • Bad debt provisions under specified conditions
  • Provisions for performance guarantees granted to clients
  • Mandatory credit risk provisions, if established by banks, credit institutions or nonbanking financial institutions (leasing com­panies)
  • Special provisions for titleholders of oil and gas concessions

Tax depreciation. The following are the permissible depreciation methods:

  • Buildings: straight-line depreciation
  • Equipment: straight-line, reduced-balance or accelerated depre­ciation
  • Other depreciable assets: straight-line or reduced-balance depre­ciation

The depreciation method must be applied consistently. Land may not be depreciated.

Under the accelerated depreciation method, the assets are depre­ciated at a maximum rate of 50% in the year of purchase, and the balance of the value is deducted using the straight-line method during the remain ing useful life of the asset. Assets financed from reinvested profit cannot be depreciated using the accelerated de­preciation method (see Section B).

Patents, licenses, know-how, manufacturers’ brands, trademarks and service marks, as well as other similar industrial and commer­cial property rights, are depreciated during the contract period or during the period in which the purchaser intends to use the rights.

Expenses for the production or purchase of software programs are deductible on a straight-line or reduced-balance basis over three years. The reduced-balance and accelerated depreciation meth­ods may be used for patents.

Goodwill, as well as intangibles with an undetermined operational life according to the accounting regulations, cannot be depreciat­ed for tax purposes.

The deductibility of the fiscal de preciation of certain vehicles is limited to RON1,500 per month per vehicle.

For tax depreciation purposes, useful lives are prescribed by law. The following are the useful lives that are generally applicable to major categories of assets.

Asset Years
Buildings and constructions (for example,
roads and fences)
8 to 60
Machinery and equipment 2 to 24
Furniture and fittings 2 to 15
Motor vehicles 3 to 9

Reserves from the revaluation of fixed assets, carried out after 1 Jan uary 2004, which are deducted as tax depreciation or expens­es when assets are sold or written off are taxed simultaneously with the deduction of the tax depreciation or expenses (that is, when the assets are sold or written off).

Relief for losses. Annual tax losses may be carried forward for seven years and are not adjusted for inflation. Losses of entities ceasing to exist as a result of a spin-off or merger are recovered by the taxpayers taking over the patrimony of the absorbed or spun-off company, proportionally to the value of the assets trans­ferred to the beneficial legal entity. The same rules apply to enti­ties that do not cease to exist.

Losses may not be carried back.

Groups of companies. Although the Romanian law provides finan­cial accounting rules for the consolidation of companies, the tax law treats each group company individually for tax purposes. Under certain circumstances, a group of taxable persons estab­lished in Romania may be treated as a single taxable person for VAT reporting purposes.

Tax consolidation is available for foreign legal entities that have several permanent establishments in Romania. As a result, the taxable profits of one permanent establishment may be offset against the tax losses of another permanent establishment.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax; certain enterprises, products and services are exempt, including banks, financial intermediaries and insurance companies
Standard rate 20
(The standard rate will be reduced to 19%,
effective from 1 January 2017.)
Special rates for certain goods and services 5 / 9
Special consumption (excise) taxes; imposed,
for example, on energy products, beverages,
cigarettes and coffee; taxes are imposed at
specified amounts per unit on certain products
(for example, coffee and alcohol) and at
percentage rates for other products
Various
Social security contributions; paid by employers
on the total gross realized salaries
Social Insurance Fund; rate varies according
to work conditions
15.8 to 25.8
Health fund 5.2
Unemployment Fund 0.5
National Insurance Fund for Labor Accidents
and Professional Diseases
0.15 to 0.85
Fund for Guarantee of Salary
Payment Liabilities; this fund finances the
payment of salary debts resulting from labor
agreements entered into between employees
and employers against which an insolvency
procedure has begun
0.25
Medical leaves 0.85
Local taxes on land, buildings, cars, certain
authorizations and other items
Various
Construction tax; the tax base for construction
tax is the value of constructions, other than
buildings, booked in the trial balance as of
31 December of the preceding year, which
were not subject to building tax; taxpayers
subject to construction tax are Romanian
legal entities, except for public institutions,
national research and development institutes,
associations, foundations and other nonprofit
legal persons, as per the relevant organization
and functioning regulations, foreign legal
persons carrying out business in Romania
through a permanent establishment, and legal
persons having a registered office in Romania
set up according to the EU legislation
1

Miscellaneous matters

Foreign-exchange controls. The Romanian currency is the leu (RON). Regulation 4/2005, as amended, governs the foreign-exchange regime in Romania.

In Romania, transactions between resident companies or between resident companies and resident individuals must be made in local currency, with certain exceptions. Transactions between residents and nonresidents can be made in domestic as well as in foreign currency. In the free-trade zones (see Section B), transactions between residents can also be performed in foreign currency.

Residents and nonresidents may open foreign-currency accounts in Romanian banks or foreign banks authorized to operate in Romania. Residents are allowed to open ac counts in banks locat­ed abroad. Romanian legal entities may hold and use hard cur­rency deposited with authorized banks.

Romanian legal entities may make payments in foreign currency to nonresidents without prior approval. Current-account transac­tions include, among others, imports of goods and services, pay­ments of dividends and repatriation of profits.

Romanian and foreign entities may freely buy and sell hard cur­rency on the interbank foreign-exchange market, but specified documentation is usually required.

Transfer pricing. Under the provisions of the Romanian Fiscal Code, for transactions between related parties, the tax authorities may adjust the amount of income or expenses of either party to reflect the market value of the goods or services provided in the transaction. Such reassessment affects only the tax position of the Romanian entity. It does not affect the entity’s financial statements.

The law indicates that in applying the domestic transfer-pricing measures, the Romanian tax authorities must also take into account the Organisation for Economic Co-operation and Development (OECD) Transfer-Pricing Guidelines.

On request, Romanian entities performing transactions with non­resident related parties must make available to the tax authorities a file containing specified transfer-pricing documentation.

Debt-to-equity rules. Interest expenses are fully deductible if the debt-to-equity ratio is positive and does not exceed 3:1. Only loans granted for a period of greater than one year are included in the debt-to-equity computation. If the 3:1 threshold is exceeded, interest expenses on all loans (including those shorter than one year) and net losses from foreign-exchange differences related to such loans are not deductible, but they may be carried forward to the following tax years until they are fully deducted.

The amount of the carryforward of the deductible interest and net foreign-exchange losses that is transferred to taxpayers that take over assets and liabilities of a company following a reorganization (for example, a merger or spin-off) is determined by the propor­tion of the value of the assets transferred to the beneficiary legal entities.

Interest expenses and net foreign-exchange losses are not subject to the debt-to-equity rules if the loans satisfy any of the following conditions:

  • They are granted by international development banks or similar organizations, Romanian or foreign credit institutions, or non-banking financial institutions.
  • They relate to bonds traded on a regulated market.
  • They are guaranteed by the state.
  • They are included in the acquisition or production cost of assets with a long production cycle.

Treaty withholding tax rates

The following table shows the applicable withholding rates under Romania’s bilateral tax treaties.

  Dividends (gg)

%

Interest (hh)

%

Royalties (hh)

%

Albania 10/15 (a) 10 15
Algeria 15 15 15
Armenia 5/10 (a) 10 10
Australia 5/15 (b) 10 10
Austria 0/5 (a) 0/3 (n) 3
Azerbaijan 5/10 (a) 8 10
Bangladesh 10/15 (b) 10 10
Belarus 10 10 15
Belgium 5/15 (a) 10 5
Bulgaria (qq) 10/15 (a) 15 15
Canada 5/15 (b) 10 5/10 (r)
China 10 10 7
Costa Rica (dd) 5/15 (a) 10 10
Croatia 5 10 10
Cyprus 10 10 0/5 (e)
Czech Republic 10 7 10
Denmark 10/15 (a) 10 10
Ecuador 15 10 10
Egypt 10 15 15
Estonia 10 0/10 10
Ethiopia 10 15 15
Finland 5 0/5 2.5/5 (f)
France 10 10 10
Georgia 8 10 5
Germany 5/15 (b) 0/3 (g) 3
Greece 25/45 (h) 10 5/7 (i)
Hungary 5/15 (j) 15 10
Iceland 5/10 (a) 3 5
India 10 0/10 (pp) 10
Indonesia 12.5/15 (a) 12.5 12.5/15 (k)
Iran 10 8 10
Ireland 3 0/3 (l) 0/3 (i)
Israel 15 0/5/10 (m) 10
Italy (rr) 10 10 10
Japan 10 10 10/15 (i)
Jordan 15 12.5 15
Kazakhstan 10 10 10
Korea (North) 10 10 10
Korea (South) 7/10 (a) 0/10 (x) 7/10 (k)
Kuwait 0/1 (ii) 1 20
Latvia 10 10 10
Lebanon 5 5 5
Lithuania 10 10 10
Luxembourg 5/15 (a) 0/10 (c) 10
Macedonia 5 10 10
Malaysia 0/10 (o) 0/15 (p) 0/12 (q)
Malta 5/30 (h) 5 5
Mexico 10 15 15
Moldova 10 10 10/15 (k)
Morocco 10 10 10
Namibia 15 15 15

 

 
Netherlands 0/5/15 (s) 0/3 (t) 0/3 (t)
Nigeria 12.5 12.5 12.5
Norway 10 10 10
Pakistan 10 10 12.5
Philippines 10/15 (a) 10/15 (u) 10/15/25 (v)
Poland 5/15 (a) 10 10
Portugal 10/15 (w) 10 10
Qatar 3 3 5
Russian      
Federation 15 15 10
San Marino 0/5/10 (ee) 3 3
Saudi Arabia 0/5 (jj) 0/5 (kk) 10
Singapore 0/5 (ff) 5 5
Slovak Republic 10 10 10/15 (k)
Slovenia 5 5 5
South Africa 15 15 15
Spain 10/15 (a) 10 10
Sri Lanka 12.5 10 10
Sudan 5/10 (a) 0/5 5
Sweden 10 10 10
Switzerland 0/15 (ll) 0/5 (mm) 0/10 (y)
Syria 5/15 (a) 10 12
Tajikistan 5/10 (a) 10 10
Thailand 15/20 (a) 10/20/25 (z) 15
Tunisia 12 10 12
Turkey 15 10 10
Turkmenistan 10 10 15
Ukraine 10/15 (a) 10 10/15 (k)
United Arab      
Emirates 0/3 (d) 3 0/3 (aa)
United Kingdom 10/15 (a) 10 10/15 (i)
United States 10 10 10/15 (i)
Uruguay 5/10 (a) 0/10 (nn) 10
Uzbekistan 10 10 10
Vietnam 15 10 15
Yugoslavia (Federal      
Republic of) (oo) 10 10 10
Yugoslavia
(former) (bb)
5 7.5 10
Zambia 10 10 15
Non-treaty countries 5 0/16 (cc) 16

 

a) The lower rate applies if the beneficiary of dividends is a company owning at least 25% of the capital of the payer.

b) The lower rate applies if the beneficiary of dividends is a company owning at least 10% of the capital of the payer.

c) The rate is 0% if the indebtedness on which the interest is paid is guaranteed, insured, or financed by the other state or by a financial institution that is a resident of the other state.

d) The 0% rate applies if the beneficial owner of the dividends is one of the following:

  • The government of a contracting state
  • The governmental institution or entity of a contracting state
  • A company that is resident in a contracting state and that has at least 25% of its capital owned directly or indirectly by the government or governmen­tal institutions of either contracting state

e) The 5% rate applies to royalties paid for patents, brands, designs and models and know-how.

f) The 2.5% rate applies to royalties relating to computer software or industrial equipment.

g) The 0% applies to interest paid to the German government, Deutsche Bundesbank Kreditanstalt fur Wiederaufbau or Deutsche Investitions und Entwicklungsgesellschaft (DEG) and to interest paid on a loan guaranteed by Hermes-Deckung. The 0% rate also applies to interest paid to the Romanian government if it is derived and beneficially owned by certain types of institu­tions (for example, the Romanian government, an administrative-territorial unit, a local authority, or an agency, bank unit or institution of the Romanian government) or if the debt claims of Romanian residents are warranted, insured or financed by a financial institution wholly owned by the Romanian government. In addition, as long as Germany does not impose taxes on inter­est, Romania may not tax interest. The protocol to the treaty provides that the following types of interest are taxed only in the state where the interest arises and according to the law of that state, provided that they are deductible in the determination of profits of the interest payer:

  • Interest derived from rights or debt claims carrying a right to participate in profits
  • Interest linked to the borrower’s profits
  • Interest derived from profit-sharing bonds

h) The lower rate applies to dividends paid by companies resident in Romania.

i) The lower rate applies to cultural royalties.

j) The lower rate applies if the beneficiary of dividends is a company owning at least 40% of the capital of the payer.

k) The lower rate applies to payments received for the use of, or the right to use, patents, trademarks, designs or models, plans, secret formulas and processes, or industrial, commercial or scientific equipment, and for information con­cerning industrial, commercial or scientific experience.

l) The 0% rate applies to the following types of interest:

  • Interest paid in connection with sales on credit of industrial, commercial or scientific equipment
  • Interest on loans granted by banks or other financial institutions (including insurance companies)
  • Interest on loans with a term greater than two years
  • Interest on debt-claims guaranteed, insured or directly or indirectly financed by or on behalf of the government of either contracting state

m) The 0% rate applies to interest arising in one contracting state with respect to debentures, public funds or similar instruments of the government that is paid to residents of the other contracting state and to interest on loans granted or guaranteed by the National Bank of Romania or by the Bank of Israel. The 5% rate applies to interest paid with respect to sales on credit of merchandise or industrial, commercial or scientific equipment and to interest on loans granted by banks. The 10% rate applies to other interest.

n) As long as Austria, under its national law, does not levy withholding tax on interest paid to Romanian residents, the withholding tax rate is 0%.

o) The 0% rate applies to dividends paid by a company resident in Malaysia to a Romanian resident; the 10% rate applies to dividends paid by a company resident in Romania to a Malaysian resident.

p) The 0% rate applies to interest paid to Romanian residents on long-term loans.

q) The 0% rate applies to industrial royalties received from Malaysia by Romanian residents.

r) The 5% rate applies to the following:

  • Copyright royalties and similar payments with respect to the production or reproduction of literary, dramatic, musical or other artistic works (but not including royalties with respect to motion picture films or works on film or videotape or other means of reproduction for use in connection with televi­sion broadcasting)
  • Royalties for the use of, or the right to use, computer software, patents or information concerning industrial, commercial or scientific experience (but not including royalties paid with respect to a rental or franchise agreement)

s) The 0% rate applies if the beneficiary of the dividends is a company owning at least 25% of the capital of the payer. The 5% rate applies if the beneficiary of the dividends is a company owning at least 10% of the capital of the payer. The 15% rate applies to other dividends.

t) Romania will not impose withholding tax on interest and royalties paid to Dutch residents as long as Dutch domestic law does not impose withholding tax on these types of payments.

u) The lower rate applies to interest related to sales on credit of equipment, loans granted by a bank or to public issues of bonds and debentures.

v) The 10% rate applies to royalties paid by a company that is registered as a foreign investor and is engaged in an activity in a priority economic field. The 15% rate applies to royalties related to film or television production. The 25% rate applies to other royalties.

w) The 10% rate applies if the beneficiary of dividends is a company owning at least 25% of the capital of the payer for an uninterrupted period of two years.

x) The 0% rate applies to interest related to sales on credit of industrial and scientific equipment.

y) Romania will not impose withholding tax on royalties paid to Swiss resi­dents as long as Swiss domestic law does not impose withholding tax on royalties.

z) The 10% rate applies if the beneficiary of the interest is a financial company, including an insurance company. The 20% rate applies to interest with respect to sales on credit. The 25% rate applies to other interest payments. (aa) The 0% rate applies to industrial royalties.

(bb) This treaty is currently applied only to Bosnia and Herzegovina. (cc) The 0% rate applies to the following types of interest:

  • Interest related to public debt instruments or to instruments issued by the National Bank of Romania with the purposes of reaching monetary policy objectives
  • Interest paid to EU pension funds

The 16% rate applies to other interest payments.

(dd) This treaty is not yet in force.

(ee) The 0% rate applies if the beneficiary of the dividends is a company owning at least 50% of the capital of the payer. The 5% rate applies if the beneficiary of the dividends is a company owning at least 10% of the capital of the payer. The 10% rate applies to all other dividends.

(ff) The 0% rate applies to dividends paid to the government of the other contracting state.

(gg) In accordance with an EU directive, the following rules apply to dividends paid to companies residing in the EU:

  • The withholding tax rate in Romania is 0% if certain conditions are met, such as the beneficiary of the dividends owns at least 10% of the capital of the payer for an uninterrupted period of one year before the payment of the dividends.
  • The withholding tax rate in Romania is 16% if the conditions mentioned in the preceding bullet are not satisfied.

(hh) The withholding tax rate is 0% for interest and royalties if both of the fol­lowing conditions are satisfied:

  • The beneficial owner of the interest or royalties is a legal person resident in an EU member state or a permanent establishment of an entity resident in such a state.
  • The beneficial owner of the interest or royalties holds at least 25% of the value or number of participation titles in the Romanian entity for an unin­terrupted period of at least two years that ends on the date of payment of the interest or royalties.

(ii) The 0% rate applies to dividends paid to the government or political subdivi­sions, local authorities or administrative territorial units. The 0% rate also applies to majority state-owned companies (at least 51%) if the minority shareholders are residents of that state.

(jj) The 0% rate applies if the beneficial owner of the dividends is one of the following:

  • The government of a contracting state
  • A governmental institution or entity of a contracting state (kk) The 0% rate applies if any of the following circumstances exists:
  • The payer of the income from debt-claims is the government of a contract­ing state or an administrative-territorial unit or an administrative subdivi­sion or a local authority thereof.
  • The income from debt-claims is paid to the government of the other con­tracting state or administrative-territorial unit, or an administrative subdi­vision or local authority thereof, or an agency or instrumentality (including a financial institution) wholly owned by the other contracting state or administrative-territorial unit, or an administrative subdivision or local authority thereof.
  • The income from debt-claims is paid to any other agency or instrumental­ity (including a financial institution) with respect to loans made in appli­cation of an agreement between the governments of the contracting states.
  • The income from debt-claims is paid on loans granted, insured or guaran­teed by a public institution for purposes of promoting exports.

(ll)      A withholding tax exemption for dividends applies if either of the follow­ing circumstances exists:

  • The dividends are paid to a company (other than a partnership) that holds directly at least 25% of the capital of the company paying the dividends.
  • The beneficial owner of the dividends is the government of the contract­ing state or a governmental institution or entity of a contracting state. (mm) The withholding tax exemption for interest applies if either of the following circumstances exists:
  • The interest is paid to related parties (that is, direct parent or sister com­panies) that have a shareholding of 25% or more.
  • The loan is secured by a governmental institution. (nn) The 0% rate applies if any of the following circumstances exist:
  • The beneficial owner is the government, an administrative subdivision, a local authority or an administrative-territorial unit.
  • The beneficial owner is a bank owned by the government, an administra­tive subdivision, a local authority or an administrative-territorial unit.
  • The loan is guaranteed, assured or financed by a bank entirely owned by the government.

(oo) This treaty currently applies to Montenegro and Serbia.

(pp) The 0% rate applies if the interest is derived and beneficially owned by the

following:

  • The government, an administrative territorial unit, a political subdivision, a local authority or an administrative-territorial unit
  • In the case of Romania, by the National Bank of Romania or the Export-Import Bank of Romania
  • In the case of India, by the Reserve Bank of India, the Export-Import Bank of India or the National Housing Bank
  • Any other institution that may be agreed to through an exchange of letters between the competent authorities

(qq) The foreign ministers of the countries have signed a new treaty, but the parliament of Romania has not yet approved the treaty.

(rr)      A new treaty has been signed, but the legislatures of the countries have not yet approved the treaty.