[ESTABLISHING A BUSINESS ENTITY IN ROMANIA] 402
concluded an information exchange instrument if such revenues are generated by way of an artificial transaction. Reduced withholding tax rates are applicable under the existing double tax treaties. The provisions of the double tax treaties are applicable upon the presentation of a valid tax residency certificate issued by the tax authorities of the residence country of the income recipient. Tax exemptions may also be applied as long as the conditions set by the EU Parent-Subsidiary and Interest-Royalty Directive are fulfilled. 4.6 Avoidance of double taxation Romania has concluded and signed approximatively 90 double tax treaties providing tax relief either based on the tax credit mechanism or the exemption mechanism. As previously mentioned, according to Romanian tax law, the provisions of the double tax treaty become active as long as the income recipient provides the income payer with the hard copy of a valid tax residency certificate issued by the residence country tax authorities. 4.7 Harmonization with EU tax legislation European Directives in the area of direct taxes have been transposed into Romanian domestic legislation as follows: • According to the EU Parent-Subsidiary Directive, a 0% withholding tax applies in Romania on dividends to be paid to an EU recipient (legal entity, profit taxpayer), provided that the recipient has continuously held at least 10% of the shares in the dividend paying company for at least 1 year (uninterrupted). • According to the EU Interest and Royalties Directive, interest/royalty payments to be made by a Romanian income payer to an EU recipient (legal
entity, profit taxpayer) would be exempt from Romanian withholding tax provided that the non-resident has held at least 25% of the shares in the Romanian company for an uninterrupted period of at least two years. Certain conditions should also be fulfilled in order for the tax exemption to apply (e.g., the loans should not qualify as hybrid or profit participating loans). The provisions of the EU Directives transposed into Romanian legislation will apply so long as the income recipient provides a valid tax residency certificate and a sworn statement attesting the fulfilment of conditions. 4.8 Further corporate tax exemptions In the area of corporate income tax, the following tax incentives are available: Holding related tax incentives: (i) Dividends received from a non-EU corporate income taxpayer are non- taxable, as long as there is a double tax treaty concluded between Romania and the respective non-EU country and certain conditions are fulfilled (i.e., the Romanian taxpayer has held at least 10% of the share capital of the non-EU taxpayer for an uninterrupted 1-year period); • (ii) Revenues derived from the disposal of shares held in a Romanian legal entity or in an entity residing in a state with which Romania has concluded a double tax treaty are non-taxable, as long as the income recipient has held at least 10% of the share capital of the non-EU taxpayer for an uninterrupted one-year period. • Tax exemption on reinvested profit – Companies which reinvest their profits in new technical equipment, computers, invoicing machines, and software
ILN Corporate Group – Establishing a Business Entity Series
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