On 18 March 2016, Romania ratified four double tax treaties (“DTT”) with Italy, United Arab Emirates, Norway and Bulgaria, which as of May 2016 have all been ratified by the corresponding country. The DTTs provide the following withholding tax relief (for details on the DTT with Bulgaria please click here to read our previous article):
Italy: Exempt if the beneficial owner is a company holding at least 10% of the capital of the company paying the dividends for an uninterrupted period of two years. In all other cases, the gross amount is taxed at 5%.
United Arab Emirates: Taxed up to 3% of the gross amount. Exempt if the beneficial owner is the government or a company in which either the government or a government institution holds the capital directly or indirectly (at least 25%).
Norway: Taxed up to 5% of the gross amount if the beneficial owner is a company holding at least 10% of the capital of the company paying the dividends. In other cases, the gross amount is taxed at 10%. In certain cases involving government authorities, the treaty provides for tax relief.
Italy, Norway: Taxed up to 5% of the gross amount. Exemptions are available in certain situations involving the government, local authorities, etc.
United Arab Emirates: Taxed up to 3% of the gross amount. Exemptions apply in certain situations involving the government or its financial institutions.
Italy, Norway: Taxed up to 5% of the gross amount.
United Arab Emirates: Taxed up to 3% of the gross amount.
- Capital gains
Italy: No capital gains tax relief from alienation of shares where the value of that company’s shares derives 50% or more from real estate.
United Arab Emirates: Gains from the alienation of shares of companies listed on an approved stock market are taxable only in the state of residence. For all other share or bond transfers the gain will be taxable only in the seller’s country of residence.
Norway: No capital gains tax relief from alienation of shares in a company whose assets consist wholly or principally of immovable property.
- Permanent Establishment
In all three DTTs a building site, construction or installation project constitutes a permanent establishment if it exists for longer than 12 months.
- Elimination of double taxation
Romania and Italy apply the credit method, whilst United Arab Emirates applies the credit and debit methods and Norway applies the credit and exempt-with-progression method.
As the ratification process has been finalised and official exchange of diplomatic notes between the countries involved is underway, the treaties are expected to enter into force this year and apply to transactions occurring on or after 1 January 2017.