Double taxation can be a significant concern for individuals and businesses operating in both Romania and Belgium. To avoid such situations, Romania and Belgium have signed a Double Taxation Agreement (DTA) that aims to prevent income from being taxed twice — once in Romania and once in Belgium. Below, I’ll provide an overview of how double taxation is handled between these two countries in 2024:

Overview of the DTA Double taxation agreement between Belgium and Romania

The Double taxation agreement between Romania and Belgium is designed to allocate taxing rights between the two countries and provide relief to taxpayers who might otherwise be subject to double taxation. The current DTA is based on the OECD Model Tax Convention, and covers various types of income, including business profits, employment income, dividends, interest, royalties, and capital gains.

Key Provisions of the DTA double taxation agreement between Belgium and Romania

  1. Residence:
    • A person (individual or company) is considered a resident of the country where they are domiciled, have a permanent home, or conduct their primary economic activities.
    • In cases where residency is disputed, tie-breaker rules such as the location of a permanent home, center of vital interests, or habitual residence are used.
  2. Dividends:
    • Dividends paid by a company in Romania to a Belgian resident are generally taxed in Romania at a reduced withholding tax rate of 5%, provided the Belgian company holds at least 10% of the shares in the Romanian company for at least one year.
    • Belgian tax treatment: The dividends may also be taxed in Belgium, but a foreign tax credit or exemption may be available to avoid double taxation.
  3. Interest:
    • Interest payments from a Romanian entity to a Belgian resident are generally subject to a reduced withholding tax rate of 5% in Romania, provided certain conditions are met.
    • If the interest is subject to tax in Belgium, a tax credit is usually granted for the Romanian withholding tax paid.
  4. Royalties:
    • Royalties paid from Romania to a Belgian resident are taxed at a reduced rate of 3% in Romania under the DTA.
    • Belgium may also tax these royalties but typically provides relief through a foreign tax credit.
  5. Capital Gains:
    • Generally, capital gains from the sale of movable property (e.g., shares) are taxed only in the country of residence of the seller.
    • However, capital gains from the sale of immovable property (real estate) are taxed in the country where the property is located.
  6. Employment Income:
    • Salaries, wages, and other similar income earned by a resident of Belgium from employment in Romania are usually taxed in Romania if the work is performed there. However, if the employee spends less than 183 days in Romania within a 12-month period, and the employer is not a Romanian entity, the income may be taxed only in Belgium.
  7. Elimination of Double Taxation:
    • Both Romania and Belgium use the credit method to eliminate double taxation:
      • Belgium: Grants a tax credit for taxes paid in Romania on income that is taxable in both countries.
      • Romania: Provides a similar credit for taxes paid in Belgium.

Example of How the DTA double taxation agreement between Belgium and Romania Works

Let’s say a Belgian resident receives dividends from a Romanian company in which they hold shares:

  • The Romanian company withholds tax at 5% on the dividends paid to the Belgian shareholder.
  • The Belgian shareholder will declare the dividend income in Belgium, where it may be taxed again at the domestic rate.
  • However, the Belgian tax authorities will grant a foreign tax credit for the 5% Romanian withholding tax already paid, thereby reducing the overall tax liability.

Additional Considerations

  • Permanent Establishment (PE): A business operating in both Romania and Belgium may be subject to tax in the country where it has a permanent establishment (branch, office, etc.).
  • Social Security Contributions: The DTA generally does not cover social security, but there is an EU regulation to coordinate social security systems and avoid double contributions for cross-border workers.

Recent Updates (as of 2024)

  • Both Romania and Belgium are increasingly aligning their tax policies with EU directives to address issues such as base erosion and profit shifting (BEPS) and cross-border tax transparency.
  • The EU’s DAC7 (Directive on Administrative Cooperation) mandates new reporting obligations for digital platforms, which can affect companies operating across borders.

Practical Recommendations for Investors in Romania

To optimize tax liabilities and ensure compliance, it’s advisable for individuals and businesses with activities in both countries to:

  1. Keep detailed records of income, taxes withheld, and credits claimed.
  2. Leverage the benefits of the DTA to avoid double taxation.

By understanding and properly applying the provisions of the DTA between Romania and Belgium, taxpayers can minimize their tax burden and avoid complications.

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