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Italy-Romania

17 October 2017

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Tax Treaty between Italy and Romania has Entered into Force

The new income tax treaty between Italy and Romania entered into force on 25 September 2017. The treaty, signed 25 April 2015, replaces the 1977 tax treaty between the two countries.

Taxes Covered

The treaty covers Italian personal income tax, corporate income tax, and regional tax on productive activities (IRAP). It covers Romanian tax on income and tax on profit.

Residence

If a company is considered resident in both Contracting States, the competent authorities will determine its residence for the purpose of the treaty through mutual agreement having regard to its place of effective management. If no agreement is reached, the company will not be entitled to claim any relief or exemption from tax provided for by the treaty.

Withholding Tax Rates

  • Dividends - 0% if the beneficial owner is a company that directly holds at least 10% of the paying company's capital on the date the dividends are paid and has done so or will have done so for an uninterrupted period of two years in which that date falls; otherwise 5%
  • Interest - 5%
  • Royalties- 5%

Limitation on Benefits

The provisions of Articles 10 (Dividends), 11 (Interest), and 12 (Royalties) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims, or other rights in respect of which the income is paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of the Articles.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2018. The 1977 tax treaty between the two countries will cease to have effect from the date the new treaty is in effect.

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