In this article we provide answers to the most frequently asked questions about dividends taxation in Romania. The clarifications provided below are written by the best tax consultants and experts in company law matters.
Dividends taxation in Romania
As general rule, according to the Romanian legislation currently in force (art. 67 of the Companies Law no. 31/1990) the business profit of a company may be distributed to its shareholders in proportion to the number of shares they hold in that company. The part of the company’s profit which is distributed to a given shareholder is generally called dividend.
In the following, we will answer a number of important questions regarding dividend taxation in Romania. But first let’s understand what dividends are as per the Romanian legislation.
What are dividends?
As mentioned above, the persons (individuals or legal persons) who have the legal right to receive dividends from a company are the legal shareholders within that company. Dividends are the share which a shareholder is entitled to receive from the value of the profit that the company records at the end of the quarter or at the end of the year in its financial statements (interim or annual financial statements).
As per Romanian law, the amount of dividends due to each shareholder must be determined according to the number as well as the specific type of shares held by each shareholder in the company.
Usually dividends are paid in cash, but they can also be issued in kind – most often in the form of additional equity (e.g., new shares) in the company. We recommend getting a good understanding of the Romanian tax regime applicable to dividends, so you can take the best decisions regarding the cash flow both at the level of the company, and at the level of the shareholders receiving the dividend income.
What is the Romanian legal framework governing the payment of dividends?
The payment of dividends is regulated in the Romanian legislation by Law no. 31/1990, known also as the Company Law. In addition, for companies listed on the Romanian Stock Exchange Market (i.e., Bucharest Stock Exchange, or BVB), the Law no. 297/2004 on the capital market also applies.
It is important to know that, unlike Romanian state-owned companies which, according to the applicable laws (i.e., provisions of Ordinance 64/2001) have the legal obligation to distribute more than half of the net profit in the form of dividends, private companies are not required by law to distribute dividends to their shareholders. Therefore, in the privately owned companies the decision remains entirely with the shareholders themselves, or with the board of directors, as the case may be.
How are dividends distributed and calculated?
Both the value and the form of dividends paid by a Romanian company are established via the general meeting of shareholders of that company, or by the board of directors, as the case may be. Nevertheless, this can be done only after the financial statements for the financial period ended (quarter or annual) is approved.
One can never pay dividends during a financial period. If the payment of dividends to shareholders is significantly delayed after its approval, then the paying company may become liable to pay interest to the beneficiaries of the dividends.
It is prohibited to distribute dividends from fictitious accounting profits, or when the company incurs a loss during the respective financial period.
Dividends are initially calculated from the entire accounting profit and are afterwards distributed to the company’s shareholders according to the percentage value of the shares that each of them holds within the company. For example, if a shareholder holds 40% of the total company shares, then he should receive the same 40% of the amount of dividends to be paid.
How does dividends taxation in Romania work?
From the Romanian tax perspective, dividends are deemed taxable income at the level of the beneficiary. Thus, for any dividend payment there is also an obligation to pay tax and declare this income to the Romanian tax authorities. The Romanian tax legislation in force (art. 91 of the Romanian Tax Code – i.e., Law no. 227/2015) includes dividend income in the category of investment income.
According to the tax law provisions currently in force, the income tax due for the dividend income is established at the rate of 8% of the total gross income paid to the shareholder.
What other taxes are due for dividends obtained by an individual shareholder?
For dividend income, in addition to the 8% income tax, only one tax is due. More exactly, this is the mandatory health insurance contribution (CASS).
However, CASS is only due if the total value of dividends, aggregated with any types of income, other than salary (if applicable), derived during the same year (such as income from capital gains, interest income, rental income, income from freelancing, pension income, or other) is at least equal to 6 minimum gross wages per economy. More exactly, for year 2023, this threshold is set at the level of 3,000 lei x 6, meaning 18,000 lei per year.
Therefore, if the annual revenue derived from types of income other than salary reaches this threshold, then the individual also owes CASS. This tax is calculated at a rate of 10% of the threshold amount, regardless of whether the value of the income exceeds that threshold.
More specifically, CASS due for 2023 will always be capped at 10% of one of the following thresholds:
- 18,000 lei (6 minimum national salaries), or
- 36,000 lei (12 minimum national salaries), or
- 72,000 lei (24 minimum national salaries).
The health insurance contribution must be calculated on one of the above listed thresholds, even if the taxpayer’s income is much higher. For example, if the taxpayer generates dividend income and capital gains in the amount of 50,000 Lei during 2023, he will still have to pay 10% of 36,000 lei, meaning 3,600 lei per year as health insurance contribution.
How should the dividends received from a Romanian company be declared for tax purposes?
In the case of dividends received from a Romanian company, according to the Romanian Tax Code’s provisions, both the calculation and payment of the income tax due on dividends must be done by the company paying the dividends.
The income tax that must be withheld and paid by the company is 8%. Thus, the company as payer of the income has the obligation to calculate, withhold the 8% income tax, and further declare and pay it to the Romanian tax authorities on behalf of the beneficiary.
This must be done by preparing and filing the tax form 100 (“Tax return on payment obligations to the state budget”). The form can be completed and submitted electronically (with electronic signature, by qualified digital certificate).
With regard to the declaration and payment of the health insurance due by individuals, if the ceiling described above is reached, this obligation always stays with the individual receiving the income. The obligation must be fulfilled by the individual through the annual tax return (“Declarația unică”).
The annual tax return can be submitted both physically (directly at the local tax office – ANAF, or via post) and electronically. The submission in electronic form can be done through the Virtual Private Space (on the ANAF’s website), as well as through the e-guvernare.ro portal, with the help of electronic signature (based on qualified digital certificate).
The official deadline for submitting the annual tax return is 25 May of the year following the one during which the dividend income is derived (e.g., for 2023, the deadline is 25 May 2024).
How should the dividends received from abroad be declared for tax purposes in Romania?
If the dividends are obtained from a company resident abroad, the obligation to declare the income to the tax authorities rests entirely with the beneficiary individual, tax resident of Romania.
Specifically, both for the payment of the income tax due and for the payment of CASS (if applicable) the declaration must be done only by the individual receiving the income, the paying company having no tax reporting liabilities.
The tax reporting obligation must be fulfilled by means of the same annual tax return (“Declarația unică”), under the same conditions and terms already described above.
An important aspect in the case of dividends obtained from abroad is the correct application of the avoidance of double taxation. Specifically, the double tax avoidance must be applied in accordance with the tax treaty signed between Romania and the state of residence of the dividend-paying company.
Generally, in situations where income is taxed in the source state, as per the applicable tax treaty the individual beneficiary of the income has the right to recognize (through the tax return) the amount of income tax already withheld in the other state and deduct it from the amount of income tax due in Romania.
As foreign individual living in Romania, do I have to pay taxes on dividends?
Even if you are a foreign national, you may have the obligation to declare the dividend income in Romania, depending on your tax residency status.
More exactly, if you are deemed a Romanian tax resident, you will have to report to Romanian tax authorities all income that you derive, from all countries. This includes also the dividends that you may derive, both from Romanian companies, or from any foreign companies.
The status of your tax residency must be officially assessed and established by the local Romanian tax office. More precisely, after you reach a presence of 183 days of stay in Romania, you have the obligation to submit to the local tax office a application file for tax residency assessment. Based on the information and documents you provide to the tax authorities, they will officially assess if you are a tax resident of Romania, or a tax non-resident.
If you are deemed a tax resident, you will have the obligation to report all your dividend income in Romania (dividends received both from Romanian companies and from foreign companies). As non-resident, you will have the obligation to report for tax purposes only the dividends you receive from Romanian companies (if you reach the health fund contribution threshold).
If I pay health insurance contribution on salary income, do I still owe this contribution for the dividend income?
Even if your employer deducts and pays health insurance contribution for your salary income, if the dividend income reaches the minimum ceiling described above, you still have the obligation to declare and pay the health insurance for the dividend income as well.
For 2023, this obligation is established implicitly through the provisions of the Romanian Tax Code, without any other applicable exception. Therefore, the payment of the CASS is mandatory regardless of whether you also have the status of employee or not.
What other types of income can be considered dividends and taxed as such?
Other types of income that are assimilated to dividends from a tax perspective are the following:
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- earnings obtained by individuals from holding equities in public investment funds, as defined by the relevant legislation in place;
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- income in cash or in kind distributed by agricultural companies having legal personality to a participant in that company as a consequence of holding its shares.
