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Corporate Tax Guide: Romania


The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.
The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.
The standard corporate income tax rate is 16%. The taxpayers that are carrying on activities such as gambling and nightclubs are either subject to a rate of 5% of the revenue obtained from such activities or 16% of the taxable profit, depending on which is higher.
The basis of taxation for a corporation will typically be one of:
  • World income (i.e. income from all sources)
  • Territorial (i.e. only income from within the jurisdiction)
  • Territorial and remittance (income earned within the jurisdiction and income remitted into the jurisdiction)
Other basis of taxation are possible, and, if applicable, they are noted.
World income.
Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.
The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.
National Companies, Limited Liability Companies and their Subsidiaries, Joint-stock Companies, the Branch of a Foreign Company, General Partnerships, Limited Partnerships, Companies Limited by Shares, Consortium (joint venture).
Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.
Non-residents are taxed on their income from Romanian sources. Gains derived by resident and non-resident entities from the sale of shares and real property are included in overall profits and taxes at the general corporate tax rate of 16%. Capital gains from the sale/transfer of shares, as well as income arising from the evaluation or revaluation of the shares held in a Romanian or foreign legal entity located in a country that has concluded a tax treaty with Romania are exempt from the tax if the recipient holds at least 10% of the share capital of the entity whose shares are sold/transferred or evaluated/revaluated for an uninterrupted period of at least one year.
Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.
Group tax consolidation is not generally available in Romania (except in respect of multiple permanent establishments in Romania of a foreign legal entity); consequently, losses cannot generally be offset against the profits of another company in the same group.
Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.
  • The reinvested profits tax exemption.
  • Facilitating access to the financing granted to the beneficiaries in the agricultural and food sector.
  • Dividends derived by a resident company from a company in an EU member State are exempt from tax if the Romanian recipient holds at least 10% of the distributing companyís shares for an uninterrupted period of at least one year.
  • Interest and royalties derived by a resident company in an EU member State are exempt from tax if the Romanian recipient holds at least 25% of the distributing companyís shares for an uninterrupted period of at least two years.
  • Additional reduction for eligible expenses arising from research and development (R&D) activities.
Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.
Interest expenses on inter-company loans are deductible, provided that the debt-to-equity ratio is lower than or equal to three. In case the debt-to-equity ratio is negative or higher than three, interest expenses are non-deductible in the current year and can be carried forward to subsequent years. Expenses with foreign exchange differences also need to be considered. Therefore, in case expenses with foreign exchange differences exceed revenue from foreign exchange differences, the difference is treated as interest expense and is subject to the limitation mentioned above. The expenses with foreign exchange differences subject to this limitation are those related to the liabilities considered for determining the debt-to-equity ratio. This limitation is not applicable to banks, Romanian legal entities or branches of foreign banks, leasing companies for their leasing operations, real estate mortgage companies, credit institutions and non-banking financial institutions.
Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.
Local legislation provides that taxpayers may use traditional transfer pricing methods (comparable uncontrolled price, cost-plus and resale price), as well as any other method that is in line with the OECD Guidelines (transactional net margin and profit split). If the comparable uncontrolled price or a traditional transfer pricing method is not used, the taxpayer should set out in the documentation the reasons for not doing so. Taxpayers should consider the following main criteria when selecting the most adequate transfer pricing method:
  • Activities carried out by the related parties.
  • Availability of data and justifying documents.
  • Accuracy of adjustments to meet comparability criteria.
  • Circumstances of the specific case (e.g., characteristics of the tangible goods transferred, stage within the supply chain, payment conditions, guarantees, discounts).
For specific types of transactions, guidance is provided on the application of transfer pricing methods and the comparability factors that should be considered by the taxpayer.
  • Provision of services Ė the armís length transfer price should be set using the comparable uncontrolled price method, by considering the usual fees for each type of activity or the standard rates in certain fields. In the absence of comparable transactions, the cost-plus method should be used.
  • Inter-company loans Ė the armís length transfer price is represented by the interest that would have been agreed upon between third parties in comparable circumstances, including the commission for handling the loan. Comparability factors that should be considered in assessing the armís length interest rate include: amount and duration of the loan, nature and purpose of the loan, currency and foreign exchange risk, existence of guarantees, costs of hedging the foreign exchange risk, etc.
Many countries tax passive income earned in controlled foreign corporations (CFCís) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.
The general overview of CFC rules is described in simple terms.
Under Romanian legislation, there are no CFC rules.
Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:
  • The dividends are exempt of tax.
  • The dividends are deductible from taxable income, but not fully (90%, for example, of the dividend is deductible).
  • The dividend is taxable, grossed up to the pre-tax amount, and a foreign tax credit claimed for foreign taxes paid.
The applicable method is noted.
In the case of the Romanian company being set up as a subsidiary of a foreign company, profits may be repatriated solely by way of dividend distribution, which, according to domestic law, is allowed only after the annual financial statements are approved by the shareholders. Advance payments on distribution of dividends before the end of the financial year are not allowed.
Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.
The DTT conventions concluded between Romania and other states may provide that non-residents deriving revenues from Romania may obtain credit for the tax paid in Romania in relation to such revenues.
14. Losses
Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.
Losses may be carried forward for seven years. The carry back of losses is not permitted.
It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
  • Income Tax: 107
  • TIEA: 1
  • LOB provisions: Very few Treaties have LOB clauses, most do not.
Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to armís length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.
Dividends: The general withholding tax on dividends paid to a non-resident is 5%. This rate also applies to dividends paid by a Romanian legal entity to a legal entity resident in another EU member state, or to a permanent establishment of a company from an EU member state situated in another EU member state if the dividends do not qualify for an exemption under the EU parent subsidiary directive. The rate is 0% if the directive applies.
Interest: A 16% withholding tax is levied on interest paid to a non-resident company, unless the rate is reduced under a tax treaty or the EU interest and royalties directive.
Royalties: A 16% withholding tax is levied on royalties paid to a non-resident company, unless the rate is reduced under a tax treaty or the EU interest and royalties directive.
Technical service fee: Service fees paid to a non-resident entity are, generally, subject to a 16% withholding tax, unless otherwise provided under a tax treaty.
Branch remittance tax: No.
Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.
The Romanian tax year runs from 1 January to 31 December.
This is the due date for filing a tax return. Where extensions are available, this is noted.
As a general rule, the corporate income tax is calculated quarterly. For the first three quarters the filing and the payment of the corporate income tax is performed quarterly, until 25th of the first month following the end of the quarters. The final computation and payment of the corporate income tax for the whole calendar year is to be performed until 25th March of the following year. There are exemptions from the above general rule that apply to companies such as:
  • Companies that have chosen the fiscal year different from the calendar year must declare and pay the annual corporate income tax until 25th of the third month after the ending of the fiscal year;
  • Non-profit organizations, companies that obtain revenues mainly from agricultural activities, educational units, religious cults and other taxpayers specifically mentioned by law must declare and pay the annual corporate income tax by 25th February of the following year;
  • Credit institutions and branches of foreign credit institutions in Romania are required to apply the system of quarterly advance payments.
The typical tax instalment requirements are noted.
Yes, if the taxpayer opts for such. Typically, quarterly based on the previous yearís tax result.
This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.
The tax can be paid quarterly or annually.
This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.
As a general rule, the statute of limitations is five years and, as of 1 January 2016, begins to run on 1 July (previously 1 January) of the year following that of the tax obligation, if the law does not provide otherwise. However, the statute can be suspended for the duration of a tax inspection but will recommence after the inspection has been completed. Treaties may contain shorter periods.
If a country has exchange controls, this is noted, together with the main requirements.
23. VAT
A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
19%. Reduced rate of 9% applies to the food & beverage industry, medical treatments and prosthesis, accommodation, etc. Extra-reduced rate of 5% applies to supplies of social housing under certain conditions and to school books, newspapers, magazines, admission fees to castles, museums, sport events, cinemas, etc.
Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.
If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.
Where significant, other taxes are noted.
Customs duties, Binding Tariff Information (BTI)/Binding Origin Information (BOI), Building tax, Land tax, Construction tax, Social security contributions, Environmental taxes.
Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.
Transfer pricing rules: OECD Guidelines.
Controlled foreign companies: No.
Disclosure requirements: No.
Other: The tax authorities may disregard a transaction or reclassify the nature of a transaction to reflect economic substance if the transaction is viewed as artificial or would not form part of an entity`s regular business. Tax treaties and EU directives are not applicable in cases of artificial transaction.
Thin capitalization rules: Yes.
LOB Clauses: No.
Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.
Any capital gain arising on the disposal of shares is subject to tax for the outgoing shareholders (individuals or companies). Where the seller of the shares is an individual, the tax rate applicable to the realized gain is 16 % of the gain earned on a disposal of shares, whether or not the companies are listed. Gains obtained by companies from the sale of shares in Romanian companies are generally non-taxable, provided that certain conditions are fulfilled (e.g., minimum 10% shareholding, minimum one-year holding period). Further, non-Romanian vendors may be entitled to claim a Romanian tax exemption under a tax treaty (subject to the treatyís conditions).
Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.
Where shares of a company are purchased, there is no change in the base value of its assets for tax purposes (i.e., no step-up in tax depreciation basis). Step-up in taxable base of assets in asset purchases, and no step-up in taxable base of assets in share purchases.
In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.
Yes, in order to clarify the way the tax legislation applies to a single tax arrangement and will apply for a future transaction.
31. Other
Other important aspects of the tax system are noted.
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