People Advisory Services
Claudia Sofianu
Indirect Tax
Georgiana Iancu
Tax Policy and Controversy
Emanuel Bancila
Global Compliance and Reporting
Radu Tudoran
Legal Services
Radu Diaconu
A. At a glance
+40 (21) 402-4000
Mobile: +40 725-809-452
Email: claudia.sofianu@ro.ey.com
+40 (21) 402-4000
Mobile: +40 745-814-938
Email: georgiana.iancu@ro.ey.com
+40 (21) 402-4000
Mobile: +40 731-795-265
Email: emanuel.bancila@ro.ey.com
+40 (21) 402-4000
Mobile: +40 730-398-162
Email: radu.tudoran@ro.ey.com
+40 (21) 402-4000
Mobile: +40 722-478-478
Email: radu.diaconu@ro.ey.com
(a) See Section B.
(b) These withholding tax rates are standard and final. They can be reduced under double tax treaties or European Union (EU) directives.
(c) This tax may be reduced to nil for dividends paid to a legal entity residing in another EU Member State or to a permanent establishment of an entity residing in an EU Member State, if certain conditions relating to the dividend recipient and dividend payer are satisfied. These conditions are described in Dividends in Section B. Dividends paid by Romanian legal entities to pension funds, as defined by the law of an EU Member State or of one of the European Economic Area (EEA) countries, as long as there is an exchange of information instrument in place, are exempt from withholding tax in Romania.
(d) This withholding tax applies only if the income is not attributable to a permanent establishment in Romania.
(e) The following types of interest derived by nonresidents are not subject to withholding tax:
• Interest from public debt instruments in national and foreign currency
• Interest related to instruments issued by the National Bank of Romania to carry out monetary policy
• Interest paid by Romanian legal entities to pension funds, as defined by the law of an EU Member State or of one of the EEA countries, as long as there is an exchange of information instrument in place
• Interest paid on instruments issued by Romanian legal entities based on a prospectus approved by the competent regulatory authority, provided that the interest is not paid to related parties
(f) The withholding tax rate is 0% for interest and royalties if certain conditions are satisfied, including the following principal conditions:
• The beneficial owner of the interest or royalties is a legal person resident in an EU Member State or a permanent establishment of an entity resident in such a state.
• The beneficial owner of the interest or royalties holds at least 25% of the value or number of participation titles in the Romanian entity for an uninterrupted period of at least two years that ends on the date of payment of the interest or royalties.
(g) The rate is 10% for income derived by nonresident individuals who are resident in another EU Member State or in a country that has entered into a double tax treaty with Romania.
(h) This withholding tax applies only to management and consultancy services rendered abroad. International transport and supplies of services ancillary to such transport are not subject to withholding tax.
(i) Income from gambling derived by individuals is taxed at source. The tax due is determined on each payment by applying the following scale of taxation to each gross income received by a participant from an organizer or payer of gambling income:
• 3% for income up to and including RON10,000
• RON300 + 20% of the amount exceeding RON10,000 if the gross income is between RON10,000 and RON66,750
• RON11,650 + 40% of the amount exceeding RON66,750 if the gross income is over RON66,750
(j) Annual tax losses are not adjusted for inflation. The annual tax loss realized starting with 2024 or the amended tax year starting in 2024, is recovered at a rate of 70% of taxable profits obtained in the next five consecutive years. Annual tax losses related to the years prior to 2024, remaining to be recovered on 31 December 2023, will be recovered within a limit of 70% of the related taxable profits, during the remaining period of recovery from the seven consecutive years following the year of recording the respective losses.
B. Taxes on corporate income and gains
Corporate income tax. Resident entities are subject to tax on their worldwide income. An entity is resident in Romania if it satisfies any of the following conditions:
• It is incorporated in Romania.
• Its place of effective management and control is located in Romania.
• It is a legal entity that has its headquarters in Romania and that is incorporated in accordance with the European legislation.
Associations or consortia, which are not considered separate legal persons in Romania, are tax transparent. Different tax rules apply depending on the members of the associations or consortia (for example, whether the members are Romanian, nonresident, individuals or companies).
Nonresident companies that do not have an effective place of management in Romania are subject to tax on their Romanian-source income only, including capital gains derived from specified transactions (see Capital gains).
Rates of corporate income tax. The standard rate of income tax for Romanian companies is 16%, regardless of whether the companies have foreign participation. Income derived by companies from night bars, nightclubs, discos and casinos directly or in association is also normally taxable at a rate of 16%, but the amount of the tax payable may not be less than 5% of the gross income derived from such activities.
Nonresident companies that do not have their place of effective management in Romania are taxed in Romania at the standard rate of 16% on earnings derived from their operations in Romania through branches, permanent establishments or certain consortia.
• It derives revenue other than consultancy and/or management revenues (except tax consultancy) that is more than 80% of total revenue.
• It has at least one employee (full-time or part-time if the fractions of the norm provided in the part-time agreements, added up, represent the equivalent of a full norm).
• It has shareholders that own more than 25% of the value or number of shares or voting rights, and these shareholders do not have this level of ownership in any other Romanian legal entity that is also taxed under the microenterprise income tax regime.
• It has submitted the financial statements in due time, if required under the law.
• Its share capital is owned by persons other than the state and administrative-territorial units.
• It is not in dissolution, followed by liquidation, registered in the commercial register or in the courts, according to the law.
The microenterprise regime is optional. An entity that opted to be a microenterprise taxpayer must switch to the corporate income tax regime during a tax year if one of the first two conditions mentioned above are met.
The microenterprise regime is optional starting 1 January 2023; it will no longer be automatically applied at the setup of a Romanian legal entity. An entity must switch to the corporate income tax regime during a tax year if one of the first two conditions mentioned above are met.
A tax loss incurred by the taxpayer in the period in which the microenterprise income tax is applied is not taken into account (the taxpayer’s tax result is not calculated).
Tax losses incurred by legal persons before applying the microenterprise tax regime can be carried forward until the legal entity applies the corporate income tax regime again, but only within the standard five-year period stated by the law.
Tax incentives. Romania offers certain tax incentives, which are summarized below.
Corporate income tax. The Tax Code contains measures allowing companies to claim accelerated depreciation in certain circumstances.
The Tax Code allows “sponsorship” expenses to be claimed as a credit against corporate income tax due, subject to certain limitations. Under the Sponsorship Law, “sponsorship” is defined as “the juridical deed by which two persons agree upon the transfer of the ownership right upon certain material goods or financial means, in order to support the activity without lucrative scope, carried out by one of them.” The tax credit for sponsorship expenses is limited to the lower of the following:
• 0.75% of the company’s turnover
• 20% of the corporate income tax due
Sponsorship expenses incurred up to 31 December 2021 that were not used for obtaining a tax credit can be carried forward for seven consecutive years.
Starting with 1 January 2022, it is not possible anymore to carry forward sponsorship expenses incurred for which the tax
credit could not be claimed. Instead, it is possible to redirect the corporate income tax up to the unused sponsorship tax credit limit, by the date of submission of the annual corporate income tax return.
Reinvested profit. The profit invested in the production and/or acquisition of certain technological equipment, assets used in production or processing, assets representing refurbishment, computers and peripherals, tax registers, control and billing machines, as well as software and the right to use software, is exempt from tax. The reinvested profit represents the balance in the profit-and-loss account, which is the difference between the total income and total expenses booked in the trial balance of the company from the beginning of the year in which such assets are commissioned. The assets must be retained for at least half of their useful economic life, but no longer than five years, with certain exceptions (for example, cases in which the assets are destroyed, lost or stolen). In addition, the accelerated depreciated method cannot be used for the respective assets.
Innovation and research and development, as well as ancillary activities. Effective from 1 January 2017, a new exemption from corporate income tax was introduced. It applies for the first 10 years of activities to taxpayers that exclusively undertake innovation and research and development (R&D), as well as ancillary activities. Application norms for this incentive are still to be issued by the Romanian authorities.
R&D costs super-deduction. An additional allowance granted for R&D activities equals 50% of eligible costs under certain conditions. Also, accelerated depreciation can be applied for the equipment and machinery used in the R&D activities. To be eligible for this incentive, the R&D activities must qualify as applicative research and/or experimental development.
The procedure for applying the R&D incentives was amended; as of 1 January 2023, a certification by an expert registered in the National Register of Experts for the certification of R&D activity is required for large taxpayers.
Industrial parks. Companies that own buildings and land located inside industrial parks are exempt from building tax and land tax.
Petroleum companies. Incentives are available to titleholders of oil and gas concessions. Titleholders are granted the concessions by the government in exchange for the payment of a royalty. The following are the incentives:
• For rehabilitation projects, a deductible provision equal to 10% of the annual offshore exploitation profits derived by titleholders of oil and gas licenses that relate to offshore areas with water deeper than 100 meters (328 feet).
• Provisions set up for equipment decommissioning and environmental rehabilitation are deductible up to a limit of 1%, which is applied to the accounting result of the exploitation and production of natural resources, except for the result related to the offshore activities and other activities of the legal entity.
• Reserves for the development and modernization of oil and gas production and for oil refining and infrastructure are deductible. These are included in taxable income on the depreciation
of the assets and their write-off, respectively, over the period in which the expenses financed from these reserves are incurred.
Free-trade zones. The following tax benefits are available to companies performing activities in free-trade zones:
• Value-added tax (VAT) exemption applies to supplies of nonCommunity goods to be placed in a free-trade zone and to supplies of the respective goods performed in a free-trade zone.
• Non-Community goods introduced into free-trade zones for storage purposes are not subject to customs duties.
• State aid is available for investments performed in free-trade zones.
Property taxes. Local councils may grant building and land tax exemptions to legal entities, subject to the state-aid regulations.
Tax reduction for capitalized entities. Tax reductions of up to 15% are granted for taxpayers paying corporate income tax, microenterprise tax or specific tax in the period of 2021 to 2025 for the increase of equity, under certain conditions. The following are the percentages of the reductions:
• 2%, if the value of accounting equity in the year for which the tax is due is positive and at least half of the value of the subscribed share capital
• Between 5% and 10% for annual increases in adjusted equity, depending on the increase percentage
• 3%, starting with 2022, if the taxpayer registers an increase of the adjusted equity compared to 2020 by a certain targeted percentage
Capital gains. Capital gains are included in taxable income and taxed at the normal corporate income tax rate. Capital gains derived by nonresident companies are also subject to the standard 16% tax rate if they are derived from the disposal of the following:
• Immovable property located in Romania
• Participation titles (shares) in a Romanian resident company
Income derived by nonresident collective placement bodies without corporate status from the transfer of value titles (securities participation titles in open funds, and other financial instruments, such as derivatives) and participation titles held directly or indirectly in Romanian resident companies, as well as income derived by nonresidents from the transfer on a foreign capital market of participation titles held in a Romanian resident company and of value titles, is not taxable in Romania.
Income derived from the sale or assignment of shares held in Romanian resident legal entities or in legal entities from countries with which Romania has entered into a double tax treaty is not included in taxable income if the taxpayer holds for an uninterrupted period of one year at least 10% of the share capital of the legal entity that issued the shares.
Administration. In general, the tax year is the calendar year. However, certain companies may opt for a tax year other than the calendar year.
Under the corporate income tax law, payers of corporate income tax (for example, companies, branches and permanent establishments) must file tax returns and pay corporate income tax quarterly (computed based on actual numbers) by the 25th
the tax year for taxpayers that apply a tax year different than the calendar year).
Foreign tax relief. Foreign taxes may be credited against Romanian taxes based on the provisions of a double tax treaty between Romania and the foreign state.
Permanent establishments. Romanian permanent establishments of foreign legal entities resident in an EU or EEA Member State that derive income from another EU or EEA Member State benefit under certain conditions from a tax credit for the tax paid in the state from which the permanent establishment from Romania derived the income.
C. Determination of trading income
General. In general, all income that is booked as revenue is included in taxable income for corporate income tax purposes. However, the following items, among others, are not included in taxable income:
• Dividends received by a Romanian resident company from another Romanian resident company
• Dividends received by a Romanian resident company from a foreign legal entity subject to corporate income tax or a similar tax located in a state with which Romania entered into a double tax treaty, dividends received from an EU resident subsidiary and dividends received by a Romanian permanent establishment of an EU company, if certain conditions are satisfied
• The value of new shares or increases in the value of existing shares held in other companies, resulting from the incorporation of reserves, premiums, profits and similar items
• Revenues from the reversal, recovery and recharge of expenses and provisions that were previously considered to be nondeductible
• Income derived from the liquidation of other Romanian resident legal entities or foreign legal entities located in countries with which Romania has entered into a double tax treaty, if certain conditions are met
• Income from the revaluation of fixed assets, land and intangibles, which offsets the previous decreases incurred with respect to the same assets
• Income derived from a permanent establishment in a country with which Romania has entered into a double tax treaty that provides the exemption method for the elimination of double taxation
The second and fifth items above apply if the taxpayer holds for an uninterrupted period of one year at least 10% of the share capital of the legal entity distributing the dividends or the legal entity subject to liquidation.
In general, expenses are deductible for tax purposes if they are incurred for the purpose of carrying out business activities. However, the following items, among others, are deductible within specified limits:
• Protocol and entertainment expenses (for example, gifts to clients and business lunches), up to 2% of the sum of the accounting profit, corporate income tax, and protocol and entertainment expenses
• Employee-related expenses (social expenses), up to 5% of the total salary cost
• Contributions to the legal reserve fund, generally up to 5% of the accounting profit before tax, until the reserve fund reaches 20% of share capital
• Expenses with respect to shrinkage of goods and to perishable goods (goods on which a company might incur losses for various reasons, such as from damage suffered during the transport of the goods), which are deductible within the limits set by a government decision
• Provisions expenses and contributions to reserve funds within specified limits (see Provisions)
• Borrowing costs (see Section E)
• Depreciation expenses (see Tax depreciation)
• Net losses from the transfer of receivables, which are deductible within a limit of 30% of such losses
The following expenses, among others, are not deductible for tax purposes:
• Service expenses, including management, assistance and consultancy expenses, if they are provided by a person located in a state with which Romania does not have a legal instrument for information exchange and if such transactions are considered to be artificial.
• Expenses relating to insurance, other than insurance relating to assets owned by the company and risks related to the company’s activity.
• Penalties and fines paid to Romanian or foreign authorities.
• Losses from the reduction in the value of inventory that cannot be recovered and uninsured assets, as well as the related VAT. However, these losses are deductible under certain conditions, such as losses regarding goods that exceeded their validity term or passed their expiration date according to the law or that were qualitatively degraded, if their destruction can be proved accordingly.
• Romanian and foreign corporate income tax (however, a tax credit is allowed for taxes paid in other countries based on the provisions of a double tax treaty between Romania and the foreign state).
• Sponsorship expenses (a tax credit is allowed for sponsorship expenses on meeting certain conditions [see Section B]).
• Expenses incurred for the benefit of shareholders or associates, other than payments for goods and services at market value.
• Expenses related to non-taxable income.
The deductibility of car expenses not falling under the full deductibility criteria provided under the Romanian tax law is limited to 50% for certain cars not exclusively used for business purposes.
Taxpayers applying International Financial Reporting Standards. Taxpayers applying International Financial Reporting Standards (IFRS), such as banks and listed companies, must also take specific tax rules into consideration in determining the corporate income tax.
Inventories. Under Romanian law, inventories of raw materials and merchandise are valued at purchase cost, while inventories of finished goods and work-in-progress are valued at production cost. On the write-off of the inventories, the valuation is calculated
Relief for losses. The annual tax loss realized starting with 2024, or amended tax year starting in 2024, is recovered at a rate of 70% of taxable profits obtained in the next five consecutive years. Annual tax losses related to the years prior to 2024, remaining to be recovered on 31 December 2023, will be recovered within a limit of 70% of the related taxable profits, during the remaining period of recovery from the seven consecutive years following the year of recording the respective losses.
Losses may not be carried back.
Groups of companies. The Romanian law provides financial accounting rules for the consolidation of companies under certain circumstances. In addition, a tax consolidation system for corporate income tax has been established and can be applied starting with the 2022 fiscal year, provided that certain conditions are met (among others, a direct or indirect holding of at least 75%).
Tax consolidation is also available for foreign legal entities that have several permanent establishments in Romania. As a result, the taxable profits of one permanent establishment may be offset against the tax losses of another permanent establishment.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax
Value-added tax; certain enterprises, products and services are exempt, including banks, financial intermediaries and insurance companies
Standard rate 19
Special rates for certain goods and services 5/9
Special consumption (excise) taxes; imposed, for example, on energy products, beverages, cigarettes and coffee; taxes are imposed at specified amounts per unit on certain products (for example, alcohol) and at percentage rates for other products Various
Local taxes on land, buildings, cars, certain authorizations and other items Various
E. Miscellaneous matters
Foreign-exchange controls. The Romanian currency is the leu (RON). Regulation 4/2005, as amended, governs the foreignexchange regime in Romania.
In Romania, transactions between resident companies or between resident companies and resident individuals must be made in local currency, with certain exceptions. Transactions between residents and nonresidents can be made in domestic as well as in foreign currency. In the free-trade zones (see Section B), transactions between residents can also be performed in foreign currency.
Residents and nonresidents may open foreign-currency accounts in Romanian banks or foreign banks authorized to operate in Romania. Residents are allowed to open accounts in banks located abroad. Romanian legal entities may hold and use hard currency deposited with authorized banks.
(a) The lower rate applies if the beneficiary of dividends is a company owning at least 25% of the capital of the payer.
(b) The lower rate applies if the beneficiary of dividends is a company owning at least 10% of the capital of the payer.
(c) The rate is 0% if the indebtedness on which the interest is paid is guaranteed, insured, or financed by the other state or by a financial institution that is a resident of the other state.
(d) The 0% rate applies if the beneficial owner of the dividends is one of the following:
• The government of a contracting state
• The governmental institution or entity of a contracting state
• A company that is resident in a contracting state and that has at least 25% of its capital owned directly or indirectly by the government or governmental institutions of either contracting state
(e) The 5% rate applies to royalties paid for patents, brands, designs and models and know-how.
(f) The 2.5% rate applies to royalties relating to computer software or industrial equipment.
(hh) The withholding tax rate is 0% for interest and royalties if both of the following conditions are satisfied:
• The beneficial owner of the interest or royalties is a legal person resident in an EU Member State or a permanent establishment of an entity resident in such a state.
• The beneficial owner of the interest or royalties holds at least 25% of the value or number of participation titles in the Romanian entity for an uninterrupted period of at least two years that ends on the date of payment of the interest or royalties.
(ii) The 0% rate applies to dividends paid to the government or political subdivisions, local authorities or administrative territorial units. The 0% rate also applies to majority state-owned companies (at least 51%) if the minority shareholders are residents of that state.
(jj) The 0% rate applies if the beneficial owner of the dividends is one of the following:
• The government of a contracting state
• A governmental institution or entity of a contracting state
(kk) The 0% rate applies if any of the following circumstances exists:
• The payer of the income from debt-claims is the government of a contracting state or an administrative-territorial unit or an administrative subdivision or a local authority thereof.
• The income from debt-claims is paid to the government of the other contracting state or administrative-territorial unit, or an administrative subdivision or local authority thereof, or an agency or instrumentality (including a financial institution) wholly owned by the other contracting state or administrative-territorial unit, or an administrative subdivision or local authority thereof.
• The income from debt-claims is paid to any other agency or instrumentality (including a financial institution) with respect to loans made in application of an agreement between the governments of the contracting states.
• The income from debt-claims is paid on loans granted, insured or guaranteed by a public institution for purposes of promoting exports.
(ll) A withholding tax exemption for dividends applies if either of the following circumstances exists:
• The dividends are paid to a company (other than a partnership) that holds directly at least 25% of the capital of the company paying the dividends.
• The beneficial owner of the dividends is the government of the contracting state or a governmental institution or entity of a contracting state.
(mm) The withholding tax exemption for interest applies if either of the following circumstances exists:
• The interest is paid to related parties (that is, direct parent or sister companies) that have a shareholding of 25% or more.
• The loan is secured by a governmental institution.
(nn) The 0% rate applies if any of the following circumstances exist:
• The beneficial owner is the government, an administrative subdivision, a local authority or an administrative-territorial unit.
• The beneficial owner is a bank owned by the government, an administrative subdivision, a local authority or an administrative-territorial unit.
• The loan is guaranteed, assured or financed by a bank entirely owned by the government.
(oo) This treaty currently applies to Montenegro and Serbia.
(pp) The 0% rate applies if the interest is derived and beneficially owned by the following:
• The government, an administrative territorial unit, a political subdivision, a local authority or an administrative-territorial unit
• In the case of Romania, by the National Bank of Romania or the ExportImport Bank of Romania
• In the case of India, by the Reserve Bank of India, the Export-Import Bank of India or the National Housing Bank
• Any other institution that may be agreed to through an exchange of letters between the competent authorities
(qq) The treaty provides for an exemption for interest in the following circumstances:
• Interest arising in the United Arab Emirates and paid to the Government of Romania or to any of its financial institutions is exempt from United Arab Emirates tax.
• Interest arising in Romania and paid to the government of the United Arab Emirates or its financial institutions is exempt from Romanian tax.
• Interest arising from institutions the capital of which is wholly or partially owned by the Government of Romania or the Government of the United Arab Emirates exempt from tax in the respective contracting states.