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Dividends taxation in Romania – FAQ

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.

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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 as 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?

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).

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.

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.

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.

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 tax law provisions applicable for year 2020, the income tax due for the dividend income is established at the rate of 5% of the total gross income paid to the shareholder.

For dividends obtained during 2020, in addition to the 5% 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 or rental income) is at least equal to 12 minimum gross wages per economy. More exactly, for year 2020, this threshold is set at the level of 2,230 lei x 12 months, meaning 26,760 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 2020 will always be capped at 10% of 26,760 Lei – i.e., 2,670 Lei – even if the taxpayer’s income is much higher. For example, if the taxpayer generates dividend income and capital gains in the amount of 40,000 Lei during 2020, he will still have to pay 2,670 Lei per year as health insurance contribution.

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 5% income tax due on dividends must be done by the company paying the dividends. Thus, the company as payer of the income has the obligation to calculate, withhold the 5% income tax, and further declare and pay it to the Romanian tax authorities.

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 15 March of the year following the one during which the dividend income is derived (e.g., for 2020, the deadline is 15 March 2021).

For more details on the Romanian annual tax return you can also check or article: Romanian annual tax return – frequently asked questions.

This answer is only available to Premium Expat-Center subscribers. Details on the Premium account and how to activate it can be found here.

This answer is only available to Premium Expat-Center subscribers. Details on the Premium account and how to activate it can be found here.

Other types of income that are assimilated to dividends from a tax perspective are the following:

  • earnings obtained by individuals from holding equities in public investment funds, as defined by the relevant legislation in place;
  • 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.

Other resources:
Do you need assistance with the Romanian annual tax return filing? Need tax advise with regards to the taxation of any types of income in Romania?
Nothing easier. Use the contact form below to describe the assistance required. The best tax consultants will revert to you for further assistance.

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