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Dividends tax (withholding) in a Romanian company 2016

For the updated version of this article, please check DIVIDENDS TAX ROMANIAN COMPANY

How can dividends be explained more precisely and what is the Romanian law governing their distribution in a Romanian company?

Dividends represent the share of profit that is paid to each associate according to their contribution. Basically, the dividend is a part of the profit that a company makes which belongs to the persons who invested in it. As we explained, this part may fluctuate depending on the value of the investment.

The law governing dividends and their distribution within a company in Romania is Law no. 31/1990 on companies and our Romanian lawyers can provide complete details about this law.

The law also determines the profits from which dividends may be designated in Romania.

What are the ways in which the distribution of dividends in a company in Romania can be realized?

Pursuant to the aforesaid law, dividends are distributed to shareholders in proportion to their share of participation in the share capital, unless the articles of association provide otherwise.

Regarding the length of time in which the dividends have to be distributed, the law regulates that dividends will be paid within the period of time which is prescribed by the general meeting of shareholders or by special laws. In any of these situations, the dividends will be paid no later than 6 months starting from the date of approval of the annual financial statements for the year ended.

It is useful to know that in the case dividends have been granted under certain irregularities, they will be returned if it can be proved that the associates receiving them had knowledge of the irregularities or should have had knowledge regarding them. Our lawyers in Romania can provide more details.

The directors of a company are the persons who will be held liable solidly against the company on what concerns the real existence of the paid dividends.

Are interest payments relevant in case of tardiness regarding the company’s obligation to grant dividends?

Yes. The law provides that, if dividends are not paid within 6 months starting from the date on which the annual financial statements for the year ended were approved, the company owes penalty interests after this period of time and under the Romanian law on this matter. Our lawyers in Romania can provide updated information on the penalties. The sole requirement is that the articles of incorporation or judgment of the general meeting of shareholders which approved the financial statement for the financial year ended do not have a higher interest rate set.

We can observe here that the legislator wishes to protect the associates of a Romanian company so that in case the company is late in fulfilling its obligations regarding the payment of dividends, the interest charged will be the largest set by the law, either it’s the one set by the articles of incorporation of the company, or that established by the law regarding the remunerative statutory interest and penalties for monetary obligations.

What happens in case I decide to trade my dividends to another person? 

In this situation, the dividends due after the date of the transmission of the shares belong to the assignee, unless the parties have agreed otherwise. If you wish to proceed with this step, our Romanian lawyers can assist.

What is the tax that applies to dividends obtained in Romania? Do the new Tax Code changes bring any effects on them?

Yes, indeed this year’s changes to the Tax Code apply to the dividends in Romania, as well.

The new legal provisions presented in the new Tax Code of Romania provide that dividends paid by a company, a Romanian legal entity to another Romanian legal entity will be taxed with a percentage of 16%. Investors who wish to know more about the changes can reach out to the experts at our Romanian law firm.

It is important to note that the tax on dividends can not become applicable in case the person who collects dividends from the affiliated company holds more than 10% of the share capital at the company for a period exceeding one year.

Starting with January 1st, 2017, the tax on dividends will become 5%. This decrease in the tax on dividends aims to improve the business climate for investors, making Romanian a great place for foreign investors to place their investments. Moreover, in 2017, the dividend income will be included in the scope of individual health contribution payment and the basis of calculation may not be greater than 5 times the average gross salary per economy.

The lawyers within the law firm Darie, Manea & Associates have extensive experience in commercial law, this experience being represented by a pregnant baggage of legal information, complete and updated, that help our clients receive the best solutions to their problems, whichever they may be. Do not hesitate to contact our law firm in Romania for legal advice on this matter!