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Romania-Austria

7 October 2008

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Treaty between Romania and Austria – details

Details of the newincome and capital tax treaty and protocol between Romania and Austria , signed on 30 March 2005, have become available. The treaty was concluded in the German, Romanian, and English languages, each text having equal authenticity. In the case of divergence, however, the English text prevails. The treaty generally follows the OECD Model Convention.

The maximum rates of withholding tax are:

-   5% on dividends in general and 0% if the beneficial owner is a company holding directly at least 25% of the capital of the company paying the dividends;
-   3% on interest (the rate is reduced to 0% as long as Austria under its national legislation, levies no withholding tax on interest paid to a resident of Romania) subject to exceptions for: (i) loans made for a period of more than 2 years; (ii) sale on credit of any industrial, commercial or scientific equipment; (iii) cases where the payer or the recipient of the interest is the government of a contracting state itself, a local authority or an administrative/territorial unit thereof or the central bank of a contracting state; and (iv) loans granted, approved, guaranteed of insured by the government of a contracting state, the central bank of a contracting state or any financial institution owned or controlled by the government of a contracting state;
-   3% on royalties; and
-   for service fees (managerial and technical), there are no provisions
Deviations from the OECD Model include the following:
-   the treaty contains Art. 14 on "Independent personal services";
-   Art. 17 (Artistes and sportsmen). Non-profit qualifying cultural or sports exchanges are exempt from source taxation. This applies also to legal entities, which carry on orchestras, theatres, ballet groups as well as members of such cultural entities if those are qualifying non-profit entities;
-   Art. 18 (Pensions and annuities). Pensions and other similar payments made under the social security legislation of a contracting state are taxable only in that state; and
-   no article on assistance in collection of taxes is included in the treaty

Austria generally provides for the exemption-with-progression method to avoid double taxation. For passive income, Austria provides for the ordinary credit method. Nevertheless, dividends paid to an Austrian parent company holding at least 10% participation in a Romanian subsidiary are exempt from tax in Austria.

Romania generally provides for the ordinary credit method to avoid double taxation.

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