The Romanian Government is presently trying to change the current Financial Code and issue a new Romanian Financial Code. The reasons for the changes appear to as much political as economic, and indeed a number of economists have criticized the Government for what they see as obvious electioneering. The reduction in certain taxes will certainly help initially the tax payers but in due course there will be a reckoning. The eventual cost to the country is being ignored as these changes are to provide that the ruling party can stay in power after the next election.
Despite the New Financial Code being discussed the Government is already starting to implement changes.
For example although nothing really to do with the new Financial Code, starting with 1 June 2015, non-resident taxpayers earning interest income from Romania are allowed to have applied to them the same tax treatment as resident taxpayers.
In fact the changes in the law result from a European Commission infringement procedure against Romania regarding the discriminatory treatment applied to non-resident legal entities as distinct from resident legal entities taxpayers. Under the previous legal provisions interest income earned by Romanian non-resident legal entities was subject to withholding tax on the gross income earned, without any possibility of deducting the related costs despite procedures allowing Romanian resident taxpayers to deduct the expenses related to interest income. It should be noted that the provisions relate only to the income interest earned by legal entities.
Under the new law, a non-resident taxpayer wishing to deduct expenses related to interest income can opt to register for profit tax purposes in Romania, either directly or through a tax agent. This will allow them to include any costs related to the interest income earned, thus resulting in only their net income being taxed. The amount of tax which has been already withheld at source will be deemed as an advance payment for profit tax. This option is available to Romanian non-resident legal entities residing in the European Union or European Economic Area member states with which Romania has concluded a Tax Treaty against Double Taxation or with which Romania has concluded information exchange agreements (i.e. Guernsey).
Non-resident taxpayers should carefully consider the advantages and disadvantages to their overall tax bill by choosing to declare and pay profit tax in Romania. Circumstances resulting in a tax loss in the residence country, without the possibility of claiming a withholding tax refund or tax exemptions to foreign interest income may prove beneficial.
Under the provisions of the new law, individual residents of European Union or European Economic Area member states (with which Romania has concluded treaty against double taxation or other information exchange agreements) obtaining income from independent activities in Romania may also opt to settle the tax withheld at source by declaring and paying income tax according to the rules applicable to resident individuals. Similar to the interest income opting for taxation according to the Romanian rules will allow the non-resident individuals to deduct expenses related to the income obtained from independent activities.
The above changes in the law result from the Romanian government adopting Emergency Ordinance no. 6/2015. These amendments will give uniformity across the board in relation to these matters so that all members of the European Union will have a uniform understanding of the relevant tax statutes.