Starting with the 1st of January 2018, the dividends will be taxed 5%.
This is the same percent that was in the precedent law regulations, despite the fact that the first intention of the government was to eliminate these taxes completely).
Additionally, those individuals whom have obtained during 2017 incomes from dividends and other sources (independent activities, renting fees etc) equal to at least 12 minimum gross wagers will need to pay 10% to the health contributions.
So, the tax per dividends is calculated 5% from the total gross value of the dividends. Our lawyers in Romania can provide complete details on the calculation method.
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The general dividends regime in Romania
No change, from 2017.
Still, during 2017 year, the social contribution for health (CASS) was not mandatory if at the moment of cashing the dividends, the individual was already insured at the health system, for example by being an employee.
Therefore, the 5.5% health contribution was mandatory to pay for the maximum dividends amount only if the individual had no other incomes. Personalized assistance in this matter can be provided upon request by the experts at our law firm in Romania.
Let’s see an example for a better understanding:
Our Romanian lawyers present a simple example below:
For 100.000 lei income from dividends, in 2017, an individual that was not insured in the health system, should have paid 5% tax for dividends and 5.5% CASS, a total amount of 10.500 lei.
If the individual was already an employee, he would have paid only 5% dividends taxes, meaning 5.000 lei.
In 2018, the individual will pay all taxed no matter if he has other incomes or not, but the calculus basis will be limited by the value of 12 minimum gross wagers.
Therefore, for the same amounts, an individual will pay in 2018 5% dividends tax, meaning 5.000 lei and 10% CASS taxes, meaning 2.280 lei, a total amount of 7.280 lei.
For other examples, or personalized assistance, please reach out to the tax experts at our Romanian law firm.
Even though the taxes might be higher starting with 2018, this measure might have a positive effect for enterprises.
By deciding not to cash out the net profit of the dividends, the management of the company may decide to use the money for future economic activities or for covering losses from the past years.
This amount might also be used for capital repayment, interest payment, commissions or other costs generated by external loans.
In conclusion, by not cashing out the profits from dividends, business owners can set the investment projects in which the cash surplus can be placed in: expanding or modernizing the activity through refurbishment, creating new jobs or developing new economical activities.
If the net profit is not distributed to dividend payment or the constitution of financial sources for future investments, it can have other destinations, such as those listed below by our Romanian lawyers:
- Setting up legal reserves
- The creation of other reserves representing fiscal facilities provided by the law
- Covering accounting losses from previous years
- Allowing employees to participate in profit, in the case of national companies and commercial enterprises with full or majority state capital, as well as autonomous regimes that meet certain condition
Changes to the taxation regime
The year 2020 does not bring too many changes regarding the way of taxing those who receive money from dividends. They must pay in addition to the income tax and the CASS, according to the fiscal code, under certain conditions. These income obtained from the dividend are classified in the category of investment income and special rules must be observed when dividing them.
Although it is rumored and discussed since the years since the elimination of the 5% tax from the collection of dividends, it is present in 2020, in the fiscal code being mentioned that all the income collected in the form of dividends, or those collected from defined securities of the legislation on the matter to collective investment bodies are imposed with a share of 5% of their amount, the tax being the final one.
This tax on dividends should be calculated, withheld and then sent to the state by companies that pay dividends to individuals or other companies. The tax must be declared by the form 100 and paid until the 25th of the month following the one in which the dividends are paid. If there were dividends or gains from equity securities that were distributed but not yet paid to shareholders / investors or associates by the end of the year in which the financial statements were approved, the dividend tax must be paid by January 25 of the following year. as it appears from the Fiscal Code.
Regarding CASS, it must be paid by the natural persons who expect that in 2020 they will receive dividend income equal to or greater than 12 gross minimum wages, that is the ceiling of 26,760 lei, considering that the minimum wage has reached 2,230 lei. in 2020. Thus, in the totalization of the dividends, the amounts collected starting with 2019, but also the estimates for 2020 are taken into account, the natural persons who estimate that they will receive dividends in 2020 being obliged to submit the declaration until March 15, 2019 (if the legal ceiling is exceeded). Our Romanian lawyers can provide more details.
CASS represents 10% of the amount obtained from dividends, if the ceiling of 26,760 lei is reached, so 2,676 lei per year will be due. If the profit of the company allows, the dividends can be divided even quarterly, not only annually, based on the interim financial statements. If annual distribution is chosen, then the annual financial situation will be taken into account. Thus, based on a general meeting of the associates, a deadline for the quarterly payment of dividends can be established, and then at the end of the year, the differences of amounts will be regularized (in maximum 60 days from the approval of the annual financial statements). Based on quarterly dividends, the profit sharing will be faster than the annual ones.
Contact our lawyers in Romania for more information.
For the previous version of this article, check out Dividends tax (withholding) in a Romanian company 2016.