Double Taxation Treaties in Romania

The double taxation phenomenon refers to certain specific instances when the same declared income is subject to tax in two different countries. Since national tax regulations may be conceived according to different perspectives, at international level, the designated authorities established several specific standards regarding the proper functioning of the entire revenue enhancement system. On this basis, a series of effective conventions were introduced as a tool designed to handle this matter. These concluded conventions usually expose a standard structure following seven chapters. Details cover information related to explicit purpose of the act, an unambiguous definition, facts related to the taxation of income and capital, means of annulment of the double taxation process, specific stipulations which are to be followed as a state party engaging in respecting all terms.

Tax on income or capital gains

Romania has already concluded a series of about eighty treaties which are to be taken into consideration as upstanding provisions explaining all details occurred in such situations. Percentages adjusting this phenomenon vary according to different circumstances revealing a shift between 0 and 45%. These percentages exert when referring to fees and royalties, interests and dividends. The imposed percentages for tax on dividends oscillates from values of 15% stipulated in agreements concluded with Russia, Ecuador or Israel to rates of 10% in conventions concluded with China, Egypt or Switzerland. According to these documents, taxation on income and capital involves several aspects indicating the following circumstances. A first case points out the example of revenues and earnings of capital which can be subject to taxation without any limitations in the country of source and the country of residence has no tax enforcement rights. We mention here the real estate income, revenues for artists and athletes, earnings of resident natural persons. A second category indicates the example of revenues which are subject to taxation but in a restricted manner in the country of source while the country of residence must guarantee a tax deduction. Here there are to be listed the dividends, interests, fees and royalties.  A third circumstance involves the situation when the country of source cannot exercise its taxation regime but the country of residence can fully interfere in applying taxation regulations. At this point we refer to business revenues and those from international transportation, also capital gains.

Tax residency certificate

In order for these conventions to be applied accordingly the nonresident person has to provide the income payer with the tax residency certificate. The country of residence delivers these types of certificates and the original document must always be accompanied by a Romanian translation. When this document is provided the procedures for avoiding double taxation are initiated, the tax regularization process is started. This certificate is valid also for the first 60 days of the following year excepting the situations when residency circumstances are altered. This document must contain details related to specific proofs of residence in states which had concluded double taxation treaties with Romania, name, address, fiscal identification number, etc. We strongly recommend seeking for an expert’s help since legal provisions may prove difficult to be approached for those who are not familiar with Romanian law. There are also various activities which are considered as exceptions and understanding the legal background of such a fact becomes keenly important. All conventions can be verified here.