The profit tax of only 16% is encouraging multinationals doing business in Romania to let their profits be subject to taxes in this country, or even try transferring price schemes to move profits from other countries where taxes are higher to Romania.
“We”re thinking of relocating our headquarters to Romania. And that is because of the lower taxes,” says Stefan Renkert, general manager of Coneco, a German energy consultancy firm.
The company based in Germany has a branch in Romania and is contemplating the possibility of turning this branch into its headquarters, and the German unit into a branch.
“First of all, it”s about payroll taxes. Why pay some 40% in Germany when I can be an employee in Romania and pay only 16% tax. It”s not only about salaries, though. The lower tax advantage maintains for dividends, as well,” Renkert says. “It is only logical that with such a low profit tax, companies would become interested in the local profit taxation, especially if they invest here. Romania offers the conditions to become a regional hub, where multinationals operating in the region could transfer some functions because it is more profitable. The never-ending problem here is the cost of social contributions,” Mihaela Mitroi, tax partner with PricewaterhouseCoopers says.
The German investors in Romania pay a 5% dividend tax by virtue of the double taxation agreements, unlike Romanian investors who pay 16% on dividends as of this year.
Consultancies also say that the introduction of the 16% flat tax, one of the lowest taxation levels in Europe, has changed the perception of foreign companies about investments in Romania.
“A few years ago foreign investors would ask what they could do to avoid paying taxes in Romania. Now the question almost everybody is asking is what they have to do to pay their taxes in Romania,” says Corneliu Teaha, manager of the Teaha Management Consulting firm. The companies that have branches in several countries can use a series of tricks to register accounting profits in the countries with low taxes or even in tax havens where taxes are minimal.
“Seeing how much is being invested, we can think that the low tax is playing a part in this. There are companies with operations in the region that are more interested to place their capital in Romania, but we cannot speak of a phenomenon of profit transfer from other markets to Romania,” says Nicolae Done, tax partner with KPMG.
Some of the countries in the first wave of EU accession such as Poland and Hungary have been accused of engaging in fiscal dumping, that is trying to attract investments through lower taxes, while offsetting the budget revenue decline with the post-accession funds from the EU budget. Tax level is, after all, the main argument the Romanian authorities have in their bid to attract more foreign investments.
“The tax decline has undoubtedly led to an increase in the interest of the foreign investors,” stated Darius Mesca, state secretary with the Ministry of Economy and Trade during a conference for attracting foreign investors held at the Industrial Fair in Hanover.