Romania is a place where you should focus next if your business or your clients need a holding structure. The recently adopted legislation is encouraging investment funds and big companies to establish their base here.
Romania is, at this moment, one of the EU countries that has a legislation allowing us to consider it almost a tax haven for holdings as well as a generally attractive investment destination. Following the list with Monaco, but also Netherlands, Cyprus or Luxembourg, Romania has implemented different tax measures to allow different investments to develop and to register their tax base on Romanian territory.
A Romanian company can be used for international tax planning purposes mainly due to:
- The tax incentives and extensive Double Tax Treaties (DTT) Romania has secured with other countries. (86 in place)
- Low corporate tax rate of 16%, which is one of the lowest in E.U.
- Low flat personal income tax of 10%
- The ability to pull profits from the country of the subsidiary with no or very low withholding
tax, provided a DTT is in existence.
- The fact that it can benefit from the application of the provisions of the EU Parent-Subsidiary
Directive, the EU Interest and Royalties Directive, and the EU Merger Directive.
- Local tax on dividends is 5 %
- A bank account can easily be opened for the company, provided that the UBO is known and that it is not a PEP person or has no restrictions in having an account opened (a clear Due Diligence must be done)
The corporate tax is at the same level ( 16%) since 2005 and it looks like the Romanian government will keep it as such for the next period. This actually contributed a great deal to the stability of the Romanian corporate taxation environment and, consequently, is one of the factors that will certainly attract long-term investments in the country.
Also, it is worth noting that dividends distributed by a Romanian company to a non-resident company established in a state that has concluded a DTT with Romania are tax-exempt if this non-resident company (be it an EU or non-EU member) holds a minimum of 10% of the Romanian company's share capital for a period of more than one year.
These provisions are actually more favorable than those of the Parent- Subsidiary Directive for dividend beneficiaries resident in EU Member States, while for those from non-EU countries with which Romania has concluded a DTT, this exemption is very often more advantageous than the dividend tax rate stated in the respective DTT.
Similarly, capital gains obtained following the sale of shares held in a company resident in Romania or in a country with which the country has concluded a DTT are tax-exempt if the beneficiary of these gains holds a minimum of 10% of that company's share capital for a period of more than one year.
The recent implementation of a new Tax Code and new Tax Procedure Code has brought various changes meant to encourage not just holdings, but any type of investment in Romania.
Even though from a political perspective Romania has been relatively unstable due to high-level changes in government and a popular anti-corruption movement, the general direction seems to be towards a more efficient tax system, accompanied with a general reduction in taxation rates.
The most important tax developments are the reduction of the standard VAT rate from 24% to a final rate of 19% in 2017, but with a low percentage for food and drinks ( including draught beer) of 9 % and even lower for hotels and restaurant – only 5%. The implementation of the reverse- charge mechanism was a real benefit for real estate transactions, and provided a much needed simplification in this area, as well as a change regarding the taxation of buildings (previously differentiated based on the type of owner, giving rise to significant differences in taxation between corporate entities and individuals).
Solutions were offered not only to the big companies. The micro companies' regime needs to be mentioned here as it seems like nothing similar currently exists in the EU; companies with turnover less than 1 mil. are consider to be micro companies and are benefiting from a very favorable regime: 3% tax on total turnover if no employees, 1 % tax for a company with employees. This is something that attracts a lot of small investors in the short term, intending to benefit of the best taxation for a start-up business.
As far as banking is concerned, almost all banks are opening bank accounts for holding and micro companies provided that the UBO s are known and they have no obstacles of any kind in having an account in an European country. Internet access is provided and is offering direct connection to the business account which can be easily managed from outside Romania.
Next to the banks, professionals like consultants, lawyers, accountants, tax advisors are developing and increasing their skills to be able to offer professional support, especially for holding structures, including management, accounting, payroll, registered offices and all related services. English is the common business language and people that are offering their services are highly educated.
All of these are, in our opinion, big incentives to ...INVEST IN ROMANIA NOW!!!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.