Newsletter 10/2017 - Double Tax Treaty RO-IT

Tax on dividends

The tax on dividends is reduced from 10% to 5% and may be further reduced to 0% under certain conditions.

We remind you that for the tax on dividends the more favorable provisions between the local legislation, the double tax conventions and the European legislation will apply. The Romanian tax law currently stipulates a 5% withholding tax on dividends and the European legislation provides tax exemption under certain conditions.

Tax on interest

The tax withheld by a state for the interest paid to a resident of the other state decreases from 10% to 5%.

The tax may also be reduced to 0% under certain conditions, as per the European legislation.

Moreover, the penalties for late payment are no longer assimilated to interest payments, as per the new Convention.

Tax on royalties

The tax withheld for royalty payments is also reduced from 10% to 5%.

Similar to the tax on interest, the tax on royalties may also be reduced to 0% under certain conditions, as per the European legislation.

tax on commissions

According to the old Convention, the commissions obtained from one of the states could have been taxed by that state with 5%. Such a tax has been removed from the new convention.

Capital gains

A very important change comes in the article regarding the capital gains. More specifically, the sale of shares owned in a company deriving more than 50% of their value from immovable property will be taxed in the state where the property is situated.

Income from dependent activities

The 183 days threshold to be spent in a state after which the income received may be taxed in that state will be computed according to the new Convention by referring to any 12 months period commencing or ending in the fiscal year in question.

As per the old Convention, the 183 days limit referred only to the days during the fiscal year in question.

Entering into force

The provisions of the new Convention will be applicable for the payments made between the residents of the two states after 01.01.2018.

Reminders

• The withholding tax applies at the moment of the actual payment of the income.
• The more favorable provisions from the double tax Conventions may be applied only if the income receiver makes available to the income payer a Tax Residency Certificate issued by the tax authorities in its state and which is valid for the year when the payments were made.