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Brief description of taxation in the Romanian market.

Tax Income: Romanian tax legislation since 2005 to now, provides a single ordinary tax rate of 16% of the personal and corporate income.

For those who have residence in Romania, the 16 % tax rate is applicable to the personal income wherever it’s produced, however for non-residents 16% affects only the income produced in Romania.

In other worlds Romanians domiciled in Romania are subject to taxation on their worldwide income. Foreign individuals are subject to Romanian taxation only for income surced in territory of Rumania. 

Dividends: the taxable profit dividends may also change from 16% to 10%, depending on the business. Deductions are set to 0 in case of distribution of dividends to EU legal persons who hold less than 15% of the shares for at least 2 consecutive years from the date of incorporation, up to 10% if the legal person holds 25%, under the same conditions just described. In all the other cases taxable dividends profit are equal to 16%.

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International Convention to avoid double taxation.

Under the title  "Coroborarea prevedilor codului fiscal cu cele ale conventiilor to avoid de dublei impuneri" (Verifying tax under Conventions to avoid double taxation) the art. 118 of the  Romanian tax code, published on Official  OUG No. 123 approved on 07.12.2004 - declares in it’s  first statement:

Principle of prevalence of bilateral Conventions over the Romanian national law.

The content of the principle is : all the bilateral conventions concluded by Romania with other countries to avoid double taxation prevail over the domestic tax legislation.  Therefore, the art. 118 of the Romanian fiscal code, in the case of Italy, for example, refers implicitly to the Convention signed with Italy in 1977.

In this brief description we will review only the Italian-Rumanian Convention of 1977, because it provides general principles applicable to other conventions.

Of course Rumania has signed multiple conventions and treaties to avoid double impositions also with other countries.  The most important are: Italy, Germany, France, United Kingdom, Ukraine, Russia, USA, Luxembourg.

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Basic principles of Conventions to avoid double taxation:

Aim of  Convention: the first statement refers to the principle of residence or domicile. According to this criterion, the Convention applies to persons and entities domiciled in one or both of the  States members, which are named  States contractors . The next article gives the concept of residence, for which the term "resident of a Contracting State" means any person who, under the laws of that State is liable to tax in that State by reason of his domicile and/or his residence.

Types of taxes: Article 2 of the Convention lists the taxes that are exempted from double taxation. They are: the income taxes of natural persons and legal persons,  the income tax made in Romania by natural and legal persons not established, the income tax on companies with mixed capital of Romania and foreigner, the  income tax derived from activities of liberal professions, the income tax arising from business ,  income tax derived from agriculture and more.

Permanent establishment: art. 5 clarifies  the term  "permanent establishment". It means a fixed place where the company carries-on all or a part of its activities. This is of fundamental importance to apply the rule to avoid double taxation, because the income of company will be taxable in the country where the contractor has established the permanent establishment of goods and services that have produced this income. .The term permanent establishment shall include the work place of the branch office or any other  site with a duration exceeding 12 months.

Real estate income: income from real estate property, including income from agriculture  may be taxed in the Contracting State in which such property is situated. Shall be deemed real estate property all the rights arising from real estate property including the usufruct.

Companies' profits: the profits of an enterprise of a Contracting State shall be taxable only in that State, unless the enterprise carries on business also in the other Contracting State through a permanent establishment. In this case to avoid to pay two times the same taxes on profits, each Contracting State will apply its own fees and taxes where is found the headquarters of the company. 

Dividends: The term dividend means income from shares or rights entitlement on shares.

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Personal Income tax.

We already stated that the individual tax rate is a flat rate of 16 % for most types of income earned by an individual and that Rumanians individual are subject to taxation on their worldwide income.   But also foreigner EU citizen, or extra UE, can be considered to be Rumanian tax citizen.

Foreigners are subjected to the same tax of Rumanian citizens in this cases:

1) Individuals foreigners are domiciled in Rumania

 2) Individuals foreigners are physically present in Rumania for more than 183 days in  consecutive months of the fiscal calendar year.

Individual foreigner no-residents are only subject to Romanian taxation activities on their income sourced in Romania. This includes the following types of income: Income derived from conducting independent activities through a permanent business organization in Romania, income derived from conducting dependent activities in Romania.

Any way, these are the categories of individual income subjected to taxation : salary, independent activities, rental income, pension, income from agricultural, investments, real estate transactions, gambling.

About individual rental income: net taxable income is determined by deducting a 25 % expense allowance from the gross income and is taxed at a flat rate of 16 %.

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Income from Real Estate transactions.

Income from real estate sale is taxed as follows:

For real estate owned within 3 years from the last sale :

For values up to 200.000 Ron, the income tax is 3 %;

For values exceeding 200.000 Ron the income tax is 6000 Ron + 2 % of the exceeding amount;   

For real estate owned over 3 years:

For values up to 2000.000 Ron the income tax is 2 %;

For values exceeding 200.000 Ron, the income tax is 4000 Ron + 1% of the amount exceeding 200.000 Ron:

Income tax due for transfer of ownership is calculated by the Public Notary. calculation is referred to the value declared by parties in the sale agreement. For local law , if the value declared by parties is lower than the estimated value established by expert appraisal conducted by the Chamber of Public Notaries, the income tax is calculated at the reference value.   

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Corporate tax.

All the companies resident in Romania shall pay the standard corporate income tax rate of 16 %. As we say before, also foreign companies doing business in Romania are subjected to the standard tax through their permanent establishments. The 16 % of standard tax is due also by foreign companies which derive revenues from Real estate transactions.

For the Rumanian fiscal code, as it’s declared in all the bilateral conventions mentioned above, a company is considered resident in Rumania if its head office is registered in Romania or has its effective place in Romania.

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Attorney at Law Camerino & Partners offer legal services in topic such as:

• Real estate sales in Rumania;
• Translation of the Rumanian laws, with particular regard to the Law 112/1995 in topic of real estate nationalization from the year 6.03.1945 to the year 22.12.1989;
• Privatizations in Rumania;
• Advising in fiscal matter regarding the fiscal Rumanian code, O.U.G. 123/2004, currently existing in order to avoid the double impositions in matter of taxes and patrimony;
• Constitution and registration of LTD company, micro companies and more;
• Contracts & legislation for employs working in the foreign European countries;
• Tax accounting reviews;
• International rights, transactions & due diligence;
• Mergers and Aquisitions (M & A);
• Business merger, including acquisitions and joint ventures
• Bankrupr Law 85/2006

Italian, English, Rumanian, French, Spanish, Russian speaking : CONTACT US