[ESTABLISHING A BUSINESS ENTITY IN ROMANIA] 396
other country, according to the payment certificate issued by the Romanian tax authorities. 4.4 Withholding taxes According to the Romanian Fiscal Code, withholding tax is levied on certain revenues earned by non-residents from Romania, as follows: dividends, interest, commission fees, royalties, management/consulting services irrespective of the place of rendering, service fees related to services performed in Romania (excluding international transport services), gambling revenues, etc. The withholding tax rates applicable in Romania are: (i) 8% for distributed dividend, (ii) 10% for interest, royalties, commission fees, management and consulting fees (irrespective of the place where the services are actually rendered), service fees related to services performed in Romania, liquidation proceeds; (iii) for gambling revenues, the tax rate is 3% for amounts up to RON 10,000, RON 300 + 20% for revenues between RON 10,000 and RON 66,750, and RON 11,650 + 40% for revenues above RON 66,750; (iv) 50% for revenues paid to a bank account of a state with which Romania has not 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.
4.5 Avoidance of double taxation Romania has concluded 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. 4.6 Harmonization with EU tax legislation and 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
ILN Corporate Group – Establishing a Business Entity Series
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