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Holdings turn to profit in Romania after specific legislation changed
The number of holdings and companies that do the management of subsidiaries registered in Romania (CAEN codes 642 and 701) increased by 11% in the last four years, from 429 in 2014 to 478 in 2018. Moreover, the cumulated profits of holding companies reached RON 343 million (EUR 72 mln) in 2018, compared to losses of RON 180 million (EUR 39 mln) in 2014, according to public data. A holding company holds a controlling ownership interest in other companies and manages them without actively engaging in business.
The positive evolution was driven by the introduction of a special tax regime for holdings in Romania, in 2014, and the lower tax on dividends (5% down from 16%) introduced with the new tax code in 2016, according to local fiscal consultancy firm Taxhouse.
“We noted that after 2015, some active investment funds on the Romanian market, as well as many medium and small investors began to set up Romanian holding companies for holding and managing Romanian subsidiaries and investments in various areas. Moreover, we have seen that in practice there were also many investors who preferred to reorganize their investments in Romania from entities established initially in Cyprus or the Netherlands through Romanian holding companies, renouncing the holding structures in foreign jurisdictions traditionally recognized for the holding regime,” said Adrian Deaconu, Director of Taxhouse.
“The reasons for these reorganizations were related both to the introduction of favorable Romanian tax legislation, but also to the economic substance required in foreign entities and to the high operating costs related to them,” he added.
Romania introduced a special tax regime for holdings in 2014, according to which companies of this type registered in the country enjoy, under specific conditions, a similar tax treatment to holdings registered in other EU countries with favorable taxation, such as the Netherlands, Luxembourg, Ireland, Cyprus, and Austria. This tax framework includes facilities such as the non-taxation of capital gains arising from the sale of shares in Romanian companies or shares in companies from states that have concluded conventions for the avoidance of double taxation with Romania if the seller meets the minimum holding conditions. It is also possible to obtain a reduced taxation (or even a non-taxation) of the dividends received from outside Romania as well as for those paid to non-residents, either under the conventions for the avoidance of double taxation or according to the European Directive on the common system of taxation applicable in the case of parent companies and subsidiaries in different member states under certain conditions, according to Deaconu.