Situation:
A company ABC SRL, from Romania, distributes and pays dividends in 2023 to a PJ partner in the UK.
What is the tax due on the dividends and who declares them.?
Solution:
According to article 67 of the Law no. 31/1990 on companies, as amended and supplemented, dividends shall be distributed to shareholders in proportion to their share in the paid-up share capital, optionally quarterly on the basis of the interim financial statements and annually, after adjustment through the annual financial statements, unless otherwise provided in the articles of association.
They may be paid optionally on a quarterly basis within the term established by the general meeting of shareholders or, as the case may be, by special laws, the adjustment of the differences resulting from the distribution of dividends during the year being made through the annual financial statements. The payment of the differences resulting from the regularization shall be made within 60 days from the date of approval of the annual financial statements for the past financial year. Otherwise, the company shall owe, after this term, the penalty interest calculated according to article 3 of the Government Ordinance no. 13/2011 on the legal interest and penalty interest for money obligations, as well as for the regulation of some financial-fiscal measures in the banking sector, approved by the Law no. 43/2012, with subsequent completions, if a higher interest rate has not been established by the articles of association or by the resolution of the general meeting of shareholders that approved the financial statements for the financial year just ended.
Dividends may be distributed only from profits determined in accordance with the law.
According to the Tax Code, income of a dividend nature realized by a non-resident is subject to taxation in Romania in accordance with the provisions of article 223, paragraph (1), letter a) of the Tax Code with the application of the 8% rate.
According to article 224, paragraph (1), letter b) of the Tax Code, in the form valid as from 1 January 2023, the tax due is calculated by applying the following rates on gross income:
- b) 8% for dividend income referred to in Article 223 paragraph (1) letter a);
According to article 224, paragraph (5), the tax shall be calculated, i.e. withheld at the time of payment of the income, declared and paid to the state budget up to and including the 25th of the month following the month in which the income was paid.
The tax is calculated, withheld, declared and paid in lei to the state budget at the exchange rate of the foreign exchange market communicated by the National Bank of Romania for the day on which the income is paid to non-residents.
The tax shall not be calculated, withheld and paid to the state budget for dividends distributed and not paid until the end of the year in which their distribution was approved, if on the last day of the calendar year or on the last day of the modified fiscal year, as the case may be, the foreign legal entity beneficiary of the dividends meets the conditions provided for in Article 229, paragraph (1), letter c) or c1), as the case may be.
As regards the declaration of the dividend tax, it shall be declared in form 100 by the 25th day of the month following the month in which it is withheld and in declaration 207 by the last day of February inclusive of the current year for the expired year.
Taking into account the fact that non-resident companies, as beneficiaries of dividend income, enter into a legal tax relationship with the Romanian tax authorities, they must register for tax purposes in order to receive the tax identification code, according to article 82, paragraph (1), letter a) of the Tax Procedure Code.
Tax registration and assignment of the tax identification code can also be done at the request of the Romanian company as an income payer according to article 82, paragraph 3 of the Tax Procedure Code.
In this case, the Romanian company shall submit for tax registration of the non-resident company the form 015 Tax registration declaration/Declaration of maintenance/Declaration of cancellation for non-resident taxpayers who do not have a permanent establishment in Romania (approved by Order 2034/2022 on the amendment of the OpANAF no.1699/2021 for the approval of the forms for tax registration of taxpayers and the types of tax obligations forming the tax vector).
According to Article 230 of the Tax Code, if a taxpayer is a resident of a country with which Romania has concluded a convention for the avoidance of double taxation, the tax rate to be applied to the taxable income obtained by that taxpayer in Romania is the more favourable tax rate.
In order to apply the provisions of the double taxation convention, the non-resident is obliged to present to the income payer, at the time of payment of the income, the tax residence certificate issued by the competent authority of his state of residence.
The tax residence certificate is presented in original or certified copy accompanied by an authorized translation into Romanian. If the foreign competent authority issues the tax residence certificate in electronic or online format, it represents the original tax residence certificate for the application of the double taxation convention concluded between Romania and the state of residence of the beneficiary of income obtained from Romania.
The tax residence certificate presented during the year for which the payments are made is also valid for the first 60 calendar days of the following year, except in the event of a change in the residence conditions.
A convention on the avoidance of double taxation has been concluded with the United Kingdom, ratified by Decree No 26/1976.
According to the Convention, Article 10 Dividends provides that dividends received from a Romanian legal person may also be taxed in Romania at a tax rate which shall not exceed:
– 10% of the gross amount of the dividends, if the beneficiary holds at least 25% of the voting shares of the Romanian company,
– 15% in all other cases.
Please note that in order to prove that the foreign legal entity is resident in the UK, and that the provisions of the double taxation treaty may apply to it, it must present its tax residence certificate.
The rate of tax that applies to the taxable dividend income cannot be higher than that in the treaty.
Given that there are different tax rates in the Convention and in domestic legislation, the more favourable rate, namely 8%, is applied.
Legal basis:
– Fiscal Code (approved by Law no. 227/2015, published in the Official Gazette no. 688 of 10.09.2015), as amended and supplemented;
– Methodological Norms for the application of the Tax Code (approved by HG no. 1/2016);
– Decree No 26 of 3 February 1976 ratifying the Convention between the Government of the Socialist Republic of Romania and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation with respect to taxes on income and capital gains, signed in Bucharest on 18 September 1975.