Romania has 0% witholding tax for resident companies and non resident individuals?

[ElBotellon]

Hi all

based on this document:
https://www2.deloitte.com/content/d...ments/Tax/dttl-tax-romaniahighlights-2021.pdf
a romanian company can distribute dividends with 0% WHT to non-resident individuals and to resident companies.

Deloitte at page 5 of the document above confirms this with a clear table and with a clear description.

Since the above seems to contradict the 5% that I read many times in the forum, it would be worth to understand if there was some un-noticed change on WHT, which would represent a great advantage for a RO-RO structure (holding in romania and subsidiary in romania), avoiding multi-country expensive setups.

update: I found this at art 43 (see below) which seems to suggest that WHT is NOT required if the holding RO had 10% shares of the subsidiary for at least one year. No mention of WHT for individuals.

Any qualified opinion is welcome! many thanks

=========================================================
"ART. 43 - Declaration, withholding and payment of dividend tax

(1) A Romanian legal entity that pays dividends to a Romanian legal entity has the obligation to withhold, declare and pay the withholding tax withheld from the state budget, as provided in this article.

(2) The dividend tax is established by applying a tax rate of 5% on the gross dividend paid to a Romanian legal entity. The dividend tax is declared and paid to the state budget, until the 25th of the month following the month in which the dividend is paid.

(3) By exception from the provisions of par. (1) and (2), if the dividends distributed, according to the law, have not been paid by the end of the year in which their distribution was approved, the related dividend tax shall be paid, as the case may be, until January 25, the following year, respectively until the 25th of the first month of the modified fiscal year following the year in which the dividend distribution was approved. These provisions do not apply to distributed and unpaid dividends until the end of the year in which their distribution was approved, if the Romanian legal entity receiving the dividends meets the conditions provided in par. (4) on the last day of the calendar year or on the last day of the modified fiscal year, as the case may be.

(4) The provisions of this article shall not apply in the case of dividends paid by a Romanian legal entity to another Romanian legal entity, if the Romanian legal entity receiving the dividends holds, at the date of payment of dividends, at least 10% of the shares of the other legal entity. for a period of one year until the date of their payment inclusive.

(5) The provisions of this article do not apply in the case of dividends paid by a Romanian legal entity:

a) privately managed pension funds, voluntary pension funds and collective investment undertakings without legal personality, set up in accordance with the relevant legislation;

b) the public administration bodies that exercise, by law, the rights and obligations deriving from the quality of shareholder of the state / administrative-territorial unit in that Romanian legal person.

(6) *** REPEALED ***"

 

[Marzio]

the 5% that I read many times in the forum

The 5% you read many times wasn't about withholding tax, it's dividends tax rate (page 3 of the same document)

 

[ElBotellon]

The 5% you read many times wasn't about withholding tax, it's dividends tax rate (page 3 of the same document)

thank you.

do you confirm that:
- individuals non resident have 0%WHT;
- resident companies have 0%WHT (is the 1year holding period required?).

is it feasible in your opinion to have a non-resident shareholder individual receiving dividends WHT 0% and paying taxes in his residence country (e.g. cyprus or georgia at 0%)?

many thanks

 

[Marzio]

is it feasible in your opinion to have a non-resident shareholder individual receiving dividends WHT 0% and paying taxes in his residence country (e.g. cyprus or georgia at 0%)?

I know exactly what are you trying to achieve here because it's a scheme i've looked into some time ago.

You only need to verity that the parent-subsidiary directive is applicable to a micro-company (in case you want to use a holding company).

I wouldn't go with Cyprus but with Estonia because even if in both countries you'd have to setup a company in Estonia is way cheaper to form and manage the holding.

But the big plus of Estonia is that to be tax resident you have to have a permanent home while no minimum time spent is required.

Instead if you want to be the non-residet shareholder without forming a holding company Georgia could work fine but you'll have to stay there for 183 days which could be a hassle.

Either way could work but you need to hire somebody in Romania as the director of your micro-company.

 

[ElBotellon]

I know exactly what are you trying to achieve here because it's a scheme i've looked into some time ago.

You only need to verity that the parent-subsidiary directive is applicable to a micro-company (in case you want to use a holding company).

I wouldn't go with Cyprus but with Estonia because even if in both countries you'd have to setup a company in Estonia is way cheaper to form and manage the holding.

But the big plus of Estonia is that to be tax resident you have to have a permanent home while no minimum time spent is required.

Instead if you want to be the non-residet shareholder without forming a holding company Georgia could work fine but you'll have to stay there for 183 days which could be a hassle.

Either way could work but you need to hire somebody in Romania as the director of your micro-company.

thanks.

In order to simplify the scheme one could simply use a Romanian company as holding and one as subsidiary.

Let's say RO-H (holding) and RO-T (trade).

RO-H has 100% of RO-T.
RO-T is a micro-company.

With a local structure things should be easier, substance also is there without big issues (the holding and the operative company can co-exist in the same spece/environment, not requiring travelling to take decisions). Clearly dividends from RO-T to RO-H should be distributed not before 1 year of holding, if I correctly understood. After one year also a capital gain Participation exemption applies, which is an additional plus.

 

[Marzio]

And your tax residency would be?

 

[ElBotellon]

And your tax residency would be?

it depends on the business (does it require to stay physically there?), personal situation etc... here a guide which could be useful
https://static.anaf.ro/static/10/An...StabilireaRezidenteiFiscale_Editie2019_EN.pdf

 

[Marzio]

it depends on the business

Well since it's your business you should know where you will be tax resident.

If you'll be tax resident in RO then you can hire yourself so no substance required but the holding would be useless because you will always have to pay 5% dividends tax rate when you distribute dividends to yourself.

If you'll be tax resident in CY then you will save 5% on dividends but you'll have to hire a RO director + form a company in CY to be able to obtain non-dom status and will need to stay at least 60 days in CY.

If you'll be tax resident in EE you will save 5% diviends but you'll have to hire a RO director + form a company in EE (no minimum stay required if you rent a permanent home).

In all cases i don't really see the usefulness of a RO holding.

 

[kkein]

Well since it's your business you should know where you will be tax resident.

If you'll be tax resident in RO then you can hire yourself so no substance required but the holding would be useless because you will always have to pay 5% dividends tax rate when you distribute dividends to yourself.

If you'll be tax resident in CY then you will save 5% on dividends but you'll have to hire a RO director + form a company in CY to be able to obtain non-dom status and will need to stay at least 60 days in CY.

If you'll be tax resident in EE you will save 5% diviends but you'll have to hire a RO director + form a company in EE (no minimum stay required if you rent a permanent home).

In all cases i don't really see the usefulness of a RO holding.

So you are saying that under such schemes, the tax paid by the RO company itself (corporate tax) will be 0%? sounds like HK company.. this makes me suspicious that it can be possible within EU.. Not evey Malta or Cyprus are doing that.
Could you confirm?

 

[Marzio]

the tax paid by the RO company itself (corporate tax) will be 0%?

Nope, under the micro-company scheme the least amount of tax payable is 1% of turnover till 1€ million

 

[RealDude]

Nope, under the micro-company scheme the least amount of tax payable is 1% of turnover till 1€ million

They will almost certainly downsize the 1€M treshhold soon. They need to increase their army spending because they will take a central role as a European military base.

 

[RealDude]

Romania wants to increase defence spending to 2.5% of GDP​

https://www.euractiv.com/section/po...s-to-increase-defence-spending-to-2-5-of-gdp/

 

[JamesDonkey]

Romania wants to increase defence spending to 2.5% of GDP

By why is Romania and the whole Europe are afraid of Russia if, you claim and allude, that Russia is weak, screwed, has no future and everything for it will become even worse? How can dozens of countries located next to each other be afraid of one weak country?

Isn't there a contradiction here?

 

[bizman]

If you pay 2.5% or 1% it doesn't matter, it is still the lowest possible tax rate you can find in the entire European zone. If it does not require to spend your live there but you could benefit from a remote opening company there with substance, I would setup my entity right away.

 

[JohnLocke]

But the big plus of Estonia is that to be tax resident you have to have a permanent home while no minimum time spent is required.

That could be a real game changer actually. And do you know, can foreigners by property there if they are not resident?

 

[Marzio]

That could be a real game changer actually. And do you know, can foreigners by property there if they are not resident?

You don't have to buy, you can rent an apartment. It's the same as Portugal

 

[ilpablo]

Well since it's your business you should know where you will be tax resident.

If you'll be tax resident in RO then you can hire yourself so no substance required but the holding would be useless because you will always have to pay 5% dividends tax rate when you distribute dividends to yourself.

If you'll be tax resident in CY then you will save 5% on dividends but you'll have to hire a RO director + form a company in CY to be able to obtain non-dom status and will need to stay at least 60 days in CY.

If you'll be tax resident in EE you will save 5% diviends but you'll have to hire a RO director + form a company in EE (no minimum stay required if you rent a permanent home).

In all cases i don't really see the usefulness of a RO holding.

Hi Marzio, nice suggestions.

If you have setup your company and fiscal residence in Romania, but you don't want to spend your life there, where is the best and most flexible option to officially take your residence?

- In Estonia, you'll pay zero taxes on dividends? It's strictly necessary to hire a director?
- In Portugal will be the same? Also necessary to hire a director?
- In Malta can you use the self-sufficient scheme, without the need to hire a director?

The problem is that in Romania nobody wants to be a director.

Also, my accountant told me that Romania doesn't really care if you stay or not 183 days. So just keeping the residence there and traveling around avoiding overstaying anywhere for 183 days would be fine or risky?

thanks a lot!

 

[Marzio]

The problem is that in Romania nobody wants to be a director.

The need for a director depends if you are tax resident in Romania or not.

If you are then you can hire yourself but you'll pay 5% on dividends distribution.

If you are not tax resident in Romania you need a director.

If nobody wants to be a director it's probably because nobody knows what's your business model.

I would't want to be a director for a company that could get me in trouble.

The solution is to hire somebody while you are tax resident in Romania, teach him what he needs to do and then promote it as the director with a pay raise.

I would opt for Estonian residence because it flyes under radar with any foreign tax administration.

 

[ilpablo]

The need for a director depends if you are tax resident in Romania or not.

If you are then you can hire yourself but you'll pay 5% on dividends distribution.

If you are not tax resident in Romania you need a director.

If nobody wants to be a director it's probably because nobody knows what's your business model.

I would't want to be a director for a company that could get me in trouble.

The solution is to hire somebody while you are tax resident in Romania, teach him what he needs to do and then promote it as the director with a pay raise.

I would opt for Estonian residence because it flyes under radar with any foreign tax administration.

Thanks! But are you sure it's tax free?
Yesterday I searched online and it seems the taxes on foreign income for Estonian residents are 20%

 

[KDX]

- In Estonia, you'll pay zero taxes on dividends? It's strictly necessary to hire a director?
- In Portugal will be the same? Also necessary to hire a director?
- In Malta can you use the self-sufficient scheme, without the need to hire a director?

For Estonian companies, the dividends are taxed 20%. You can reinvest as much as you want and then cash out with 20% tax by paying yourself a dividend. Don't forget about PE CFC etc.