Double taxation presents a crucial challenge for entities operating across Romania and Belgium. To address this issue, both nations have established a Double Taxation Agreement (DTA) that effectively prevents income from being subject to taxation in both jurisdictions simultaneously. Let's explore how this agreement functions between these two countries in 2024:

Overview of the Double Taxation Agreement (DTA) between Romania and Belgium

The bilateral DTA between Romania and Belgium establishes a framework for distributing taxation rights and offering relief to taxpayers who might face double taxation. Following the OECD Model Tax Convention, this comprehensive agreement encompasses various income categories, including profits from business operations, employment earnings, dividend payments, interest income, royalty fees, and gains from capital investments.

Key provisions of the DTA

1. Residence:
   • Residential status is determined based on where an individual or company maintains their domicile, permanent residence, or primary business activities.
   • When residence status is contested, resolution relies on specific criteria such as permanent home location, vital interest centers, or regular place of residence.
2. Dividends:
   • When Romanian companies distribute dividends to Belgian residents, a reduced 5% withholding tax applies in Romania, provided the Belgian entity maintains at least 10% ownership for a minimum one-year period.
   • Belgian taxation: While dividends may be taxed in Belgium, mechanisms like foreign tax credits or exemptions prevent double taxation.
3. Interest:
   • Interest payments from Romanian sources to Belgian residents typically face a reduced 5% withholding tax in Romania, subject to specific requirements.
   • For interest taxed in Belgium, credit is generally available against Romanian withholding tax payments.
4. Royalties:
   • Royalty payments from Romania to Belgian residents incur a reduced 3% tax rate under the agreement.
   • While Belgium maintains taxation rights, relief is typically provided through foreign tax credits.
5. Capital Gains:
   • For movable property transactions (including shares), taxation generally occurs only in the seller's country of residence.
   • Gains from immovable property transactions are taxed in the property's location country.
6. Employment Income:
   • Income from employment, including wages, salaries, and similar compensation earned by Belgian residents from.

employment activities in Romania typically falls under Romanian taxation when the work is performed within Romania. However, if a Belgian resident's stay in Romania remains under 183 days within any 12-month period, and their employer isn't a Romanian entity, the income is exclusively taxable in Belgium.

Elimination of double taxation:

• Romania and Belgium both implement the credit method to prevent double taxation:
  • Belgium: Provides tax credits for Romanian taxes paid on income subject to taxation in both jurisdictions.
  • Romania: Extends equivalent credits for taxes paid in Belgium.

Example of how the DTA works

Consider a scenario where a Belgian resident receives dividend income from their shareholding in a Romanian company:

• The Romanian company applies a 5% withholding tax on dividend payments to the Belgian shareholder.
• The Belgian shareholder must declare this dividend income in Belgium, where it may face additional taxation.
• The Belgian tax authorities then provide a foreign tax credit equivalent to the 5% Romanian withholding tax, effectively reducing the overall tax burden.

Additional considerations

• Permanent Establishment (PE): Businesses operating across both countries may face taxation in the jurisdiction where they maintain a permanent establishment (such as offices or branches).
• Social Security Contributions: While the DTA doesn't typically address social security matters, EU regulations coordinate these systems to prevent dual contributions for cross-border workers.

Recent updates (as of 2024)

• Both nations continue to harmonize their tax policies with EU directives, particularly addressing BEPS concerns and enhancing cross-border tax transparency.
• The implementation of EU's DAC7 introduces new reporting requirements for digital platforms operating across borders.

Practical recommendations

For optimal tax management and compliance, individuals and businesses operating between these countries should:

1. Maintain comprehensive records of income, tax withholdings, and claimed credits.
2. Effectively utilize DTA provisions to minimize double taxation.

Through proper understanding and application of the Romania-Belgium DTA provisions, taxpayers can successfully reduce their tax obligations while maintaining compliance with both jurisdictions' requirements.

minimize their tax burden and avoid complications.

Visit our blog on Roemenië  WEBSITE: https://investromania.wpcomstaging.com/.

NEWSLETTER : Subscribe on LinkedIn https://www.linkedin.com/build-relation/newsletter-follow?entityUrn=7187022985290031105