Several provisions regarding the taxation regime applicable to Romanian holding companies were introduced in the Romanian Fiscal Code as of January 1st 2014.
According to Ioana Hockl, partner at ZRP Tax, such companies benefit from corporate tax exemption for the income consisting of dividends, capital gains, liquidation proceeds earned from subsidiaries located in Romania, the EU, or in other countries which have concluded double taxation treaties with Romania, as long as they hold a participation these subsidiaries of at least 10 percent of a period of minimum one year.
Romulus Badea, tax partner at Soter & Partners, a tax consultancy said the tax exemption applies for income from dividends, the favorable value differences on securities, the income from the sale/assignment of securities and the income from the liquidation of a legal person, the last three provisions being newly introduced in the fiscal code.
Hockl said these tax incentives are a first important step aimed at boosting foreign investments and to determine local investors to keep their capital in Romania, and not in offshore accounts.
“However, I believe it would be necessary for these tax incentives to be supplemented by other tax favorable measures (e.g. the consolidation for corporate tax purposes of the tax results of the Romanian subsidiaries of Romanian holding companies). Also, legal provisions may need to be introduced in the Romanian Company Law in order to provide for a special legal regime governing the relations/transactions between a Romanian holding company and its subsidiaries,” explained Hockl.
Hockl explained a Romanian company should, for instance, be allowed to grants loans to its subsidiaries in order to support and/or develop their operations. This could represent a flexible financing mechanism, since today Romanian companies other than financial insitutions are restricted from granting loans to other companies other than on an occasional basis, except under cash pooling operations, concluded the ZRP Tax partner.