Profit repatriation of non-resident
companies conducting their activity in Romania is possible and the dominant regulation
mostly establishing the legal framework is provided by the National Bank of
Romania. We shall explain below all other important features related to this
rather intricate topic.
Foreign investors in Romania do
have the alternative of repatriation of profits and the transferred items must
follow certain regulations related to exchange control. The authority which
administers these types of directives is represented by the Romanian National
Bank. Earnings, either from dividends or profits, can be transferred if the
taxation obligations are being met according to stipulations. A 16% withholding
tax is to be paid for dividends according to Romanian regulations but this rate
can be modified as a consequence of a tax treaty or a directive of
parent-subsidiary origins with EU implications. A Romanian company pays
dividends to another legal entity, resident in another EU state, or to a
permanent company representing a corporation located in another EU member
state, following the 16%-tax regulations. These dividends may be subject to
exemption if a resident company derives them either from another company in an EU
member state or another legal entity being a resident, and if the case involves
another company, non-EU one, that has participated together with Romania to a
treaty convention, on the fundamental condition that the Romanian company owns
the minimum of 10% of the distributing company shares for a continuous time
frame of two years.
The general rule states that
non-resident entities must pay this 16% withholding tax on earnings obtained in
Romania covering the following attributes: all profits obtained through
services performed in here, including management, royalties, revenues
determined through termination of a resident legal entity, and as mentioned
above, dividends. So business activities performed by foreign investors in
Romania generate profits which can be transferred in the country of origin. We
shall take several examples in order to concisely illustrate several basic
rules concerning the repatriation of profits. An EU-member-state company
operates in Romania through an establishment which acts as a subsidiary. The
object of activity concerns public constructions. In this case the parent
company may receive profits from the subsidiary taken into account that there
is a chance for exemption if the EU parent company holds at least 10% of the
shares belonging to the subsidiary for two uninterrupted years.
If the supposed EU company
decides to operate in Romania using a structure with branch functions then
profits gained here can be distributed without paying any dividend taxes
because earnings cannot be considered as dividends. This same scenario applies
for an EU company operating directly in Romania. The withholding tax regime was
amended starting with the 1st of January 2014 which means that exemptions
applying to dividends are limited only to situations when these dividends are
remunerated to affiliated legal entities incorporated in other EU states.
Before these changes, the exemption regime could be considered as well for
companies with an affiliation status originating from the European Free Trade
Association perimeter. Understanding all legal aspects dictating these procedures
directly contribute to optimal capital dynamism within a company’s natural
development. Our team strongly encourages foreign investors to seek professional
help, able to point out all possible vulnerabilities, unexpected alternatives
and best options a company may have through its activities conducted in Romania.
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