Romania: Types of Company
Tax consolidation, either domestic or cross-border, is not permitted in Romania.
For a country to be an attractive location in which to set up a holding company 4 criteria must be satisfied:
- Incoming Dividends: Incoming dividends remitted by the subsidiary to the holding company must either be exempted from or subject to low withholding tax rates in the subsidiary's jurisdiction.
- Dividend Income Received: Dividend income received by the holding company from the subsidiary must either be exempted from or subject to low corporate income tax rates in the holding company's jurisdiction.
- Capital Gains Tax on Sale of Shares: Profits realized by the holding company on the sale of shares in the subsidiary must either be exempt from or subject to a low rate of capital gains tax in the holding company's jurisdiction.
- Outgoing Dividends: Outgoing dividends paid by the holding company to the ultimate parent corporation must either be exempt from or subject to low withholding tax rates in the holding company's jurisdiction.
A 16% withholding tax is imposed on dividends paid to non-resident companies (reduced to 10% for payments to other EU countries in 2009), unless exemption is available under the terms of the EC parent-subsidiary directive.
Additionally, a 16% withholding tax is imposed on interest or royalties paid to nonresident companies. However, under transitional rules contained in the Interest and Royalties Directive, Romania was authorized not to apply the exemption from withholding tax until 31 December 2010. During this transitional period, the Romanian withholding tax on payments made to a company in another member state can be up to 10%, although treaties in place with other countries may affect this.