Tax aspects when buying a business in Romania

General Tax M&A introduction when buying a Romanian business

Tax aspects are of high importance when buying a business in Romania. Our people in Romania are tax experts in general and have good insights into the tax aspects when you acquire a company in Romania. Here we mention some aspects to tax in general and the tax framework that applies to M&A transactions in Romania. Our local people can also tell you about aspects that you need to consider when acquiring a company and setting up your tax structure in Romania. Tax-efficient acquisition structuring is important to prevent possible tax claims after the acquisition date.

General summary of the main taxes that apply in Romania:

  • Standard Corporate Tax: fixed rate of 16%
  • Tax for representative offices: annual flat tax of EUR 4K
  • Standard Individual Tax: flat rate of 16%
  • Standard Withholding Tax: 16% (the WHT rates may be reduced by double taxation treaties or EU Directives)
  • Tax on capital gains from transfers of securities: 16%
  • Standard VAT rate: 24% (reduced VAT rates: 9% and 5%)
  • Tax on micro-enterprises (turnover < EUR 65K) 3% of the turnover

Relief from double-taxation for resident taxpayers may be provided by way of a tax treaty. Romania has concluded Double Taxation Avoidance Treaties with more than 80 countries around the world (please see the list below). Most of these treaties are based upon the OECD Model Tax Convention on Income and Capital.

Tax items in share and asset deals in Romania

In a share deal in Romania the buyer takes over all liabilities, including tax liabilities, of the seller which is similar as in most other countries. Hence, the buyer should perform a detailed due diligence. In a share deal no VAT applies, as transfers of shares are exempt from a VAT perspective. The value of the shares for tax purposes is the acquisition price paid by the buyer. In the case of a future business sale the tax value of the shares is used to determine the capital gains tax owed. In any share deal the buyer should implement a flexible structure. This is important to obtain efficient flows of dividends, borrowings, interest payments, royalties, and management services. A good tax structure is also important to protect from possible implications for a future business sale.

In an asset deal the situation is different and a buyer does not take over the seller’s pre-closing financial and tax liabilities. For tax purposes a buyer of Romanian assets has to follow the useful life of depreciable assets that are established by the government. Within this range the taxpayer has the option to choose any period. In an asset deal, the buyer can recover the acquisition price of the depreciable assets during their remaining useful life. Often the assets transferred are subject to 24% VAT (which can be reimbursed to the buyer, which may prove to be a lengthy and administrative process). If the asset deal qualifies as a transfer of a going concern, no VAT should apply because transfer of a going concern falls outside of the Romanian VAT scope.