Romanian bilateral investments are expected to gain ground after the Romanian parliament approved a law ratifying the Convention for the Avoidance of Double Taxation signed between Romania and Saudi Arabia in April this year, Deloitte, among the region's leading professional services firms, said. Deloitte Middle East International Tax Services Center Managing Director Ali Kazimi said “this anticipated increase is expected as a result of the reduced withholding tax rates on dividends, interest and royalties provided by the recently signed double tax treaty between Romania and Saudi Arabia.” “Another benefit of this convention is that it has provided clear timelines for triggering a permanent establishment, especially with respect to services provided on the ground in a contracting state.” In the current tax framework, and under Saudi Arabian tax legislation, withholding tax rates on payments to non-residents range from 0 percent to 20 percent, depending on the type of payment made, and the relationship between the payer and recipient (i.e. whether the two parties are related). Moreover, management fees are typically subject to 20 percent withholding tax, interest, dividends, rent, technical or consulting services are subject to 5 percent withholding tax while royalties and payments in respect of services paid to the head office or any related companies are typically subject to withholding tax at a rate of 15 percent. Under Romanian local legislation, dividends, interest and royalties paid to non-residents from Romania are subject to withholding tax at a rate of 16 percent. The convention stresses that withholding tax rates should range between 5 percent and 10 percent. It states that the income from debt claims and dividend payments should be subject to a 5 percent withholding tax rate. However, income from debt claims and dividends should be exempt from withholding tax in a contracting state if paid by the government or anyone related to it, an administrative or local authority of the other contracting state, or an agency or institution wholly owned by the government of the other contracting state. In addition, the convention highlights that royalty payments should be subject to a maximum withholding tax rate of 10 percent. It also stipulates that construction sites, assembly and installation projects and related activities carried out for a period of less than nine months in addition to services (including consultancy services) carried out for a period of less than six months in any 12 months period, should not create a permanent establishment. The convention will enter into force on the first day of the second month following the two states exchanging ratification instruments.
