The taxable income obtained by non-residents in Romania now also include services that are provided abroad, after the government has changed the Fiscal Code in February to accommodate an expansion of the taxation base.
The income of non-residents that provide services abroad in consulting, marketing, technical assistance, advertising, or provide assistance as lawyers, engineers or accountants will be taxed in Romania. Up to February 1, non-residents were taxed only for dividends, commissions, royalties or services (management, consulting) provided in Romania.
Otilia Bujor, tax manager at PKF Finconta, says Romania’s 16 percent taxation rate for the income of non-residents can be lowered, if a double taxation avoidance treaty is closed between Romania and the fiscal residence location of the income beneficiary, as long as this person owns a fiscal residence certificate.
“If the non-resident presents a valid fiscal residency certificate to the income payer in Romania, the treaty applies and the income generated from the provided services are exempted, and can be taxed only in the non-resident’s country,” said Bujor.
She added that if the income is paid in country that hasn’t closed a double taxation treaty or doesn’t have a legal communication option, than the tax rate jumps to 50 percent. Even non-residents that have their fiscal residency in a country that closed the double taxation avoidance treaty with Romania will fall under this provision.
Bujor explained this applies for income registered from dividends, royalties, commission, interest or services.
For instance, if a Romanian resident pays a non-resident through an account in the British Virgin Islands, the resident will be taxed 50 percent, although the non-resident may have his fiscal residence in The Netherlands or other country that has a double taxation avoidance treaty closed with Romania.
As services provided abroad will also be taxed, fiscal residency certificates will be required for these transactions, according to Bujor. This will lead to higher administrative costs, because the contracts or transactions will have to be analyzed thoroughly. Additional staff may be required to request and trace the issuance of the fiscal certificates, stated Bujor.
The tax manager suggested that transactions with non-residents need to be restructured from the payments perspective, given the 50 percent tax rate for off-shore payments. This will also trigger higher banking costs within the group for transaction or cash fluxes.
Otilia Bujor is a key speaker of the Tax & Law Event, organized on March 28 by weekly magazine Business Review. The event hosts a panel of experts that will outline the main fiscal and legal changes that impact the local business environment.