Picture this situation: your company in Cluj-Napoca distributes dividends to a shareholder resident in Germany, or you send an employee to work for a few months at a client in Austria. In both cases, a single stream of income suddenly becomes interesting to two different tax administrations. The state where the income arises and the state where the person is resident can each claim the right to tax it. Without clear rules, the result would be double taxation: the same income taxed twice.
This is exactly the problem that double taxation treaties solve. Romania has concluded such treaties with over 90 states, including all its major partner economies: Germany, Austria, Italy, the Netherlands, France, the United Kingdom and the United States. Each treaty is a bilateral agreement that sets out, income type by income type, which state has the right to tax and, where both retain a partial right, the mechanism by which the overlap is eliminated.
For the director of a foreign-owned company or for an investor operating across borders, understanding these rules is not an academic luxury but a matter of real money. Applied correctly, a treaty can reduce the tax withheld at source from the standard rate to a preferential rate, or guarantee that tax paid in one country is offset against tax due in the other. Applied incorrectly, or ignored, it leads to losses and complicated after-the-fact corrections.
What double taxation actually means
Double taxation arises when the same income or capital is taxed by two jurisdictions. In practice we distinguish two forms:
- Juridical double taxation — the same taxpayer is taxed on the same income in two states (for example, a person resident in Germany receiving dividends from a Romanian company).
- Economic double taxation — the same income is taxed twice, but in the hands of two different persons (classically: a company’s profit is taxed at company level, then again as a dividend at shareholder level).
Treaties deal mainly with juridical double taxation. They do not abolish taxes; they allocate them, setting out which state taxes first, up to what level, and what the other state must do to avoid the overlap.
How the treaty decides who taxes
Most Romanian treaties follow the OECD Model Convention, which makes them remarkably similar in structure. For each category of income there is a dedicated article allocating the taxing right between the state of residence and the state of source. Here is the logic for the most common income types:
| Type of income | Typical treaty rule |
|---|---|
| Dividends | Shared taxation: the source state withholds a capped rate at source (often 5% or 15%, depending on the shareholding), the balance is settled in the residence state. |
| Interest | Usually a reduced withholding rate capped by the treaty; some treaties provide an exemption. |
| Royalties | Reduced withholding rate, capped by the treaty. |
| Employment income | Taxed in the state where the work is actually performed, except for short assignments meeting the conditions of the “183-day rule”. |
| Business profits | Taxed in the state of residence, unless there is a permanent establishment in the source state. |
| Income from immovable property | Taxed in the state where the property is located. |
A note on the figures: the capped rates differ from one treaty to another and can be amended by protocols. The rates above are indicative for 2026; always check the rate in force in the text of the treaty applicable to your specific case.
The two methods of eliminating double taxation
When the treaty leaves both states a right to tax, the state of residence must eliminate the overlap using one of two methods:
- Credit method — the state of residence taxes worldwide income but allows the tax already paid in the other state to be deducted, up to the limit of the domestic tax attributable to that income. This is the method most frequently found in Romania’s treaties.
- Exemption method — the state of residence exempts income already taxed in the other state, though it may still take it into account when setting the progressive rate applicable to the rest of the income.
The difference has a concrete effect on the final amount paid, which is why classifying each item of income correctly and choosing the method provided by the applicable treaty are essential.
The tax residence certificate: the key to the whole mechanism
This is where many companies lose money out of pure formality. For the source state to apply the reduced treaty rate instead of the standard domestic rate, the recipient of the income must prove they are a tax resident of the other state. That proof is the tax residence certificate, issued by the tax authority of the state of residence.
The practical rule is simple and unforgiving: without a valid certificate at the time of payment, the standard rate under the Romanian Tax Code applies automatically, which is generally higher than the preferential rate. A few points to keep in mind:
- The certificate must be valid for the year in which the payment is made and presented to the payer before or at the time of payment.
- A valid original certificate can cover several payments made in the same year; the exact form and translation requirements should be checked case by case.
- If the certificate arrives late, under certain conditions a correction or refund of the difference can be requested, but the procedure is more cumbersome than getting it right from the start.
Managing these documents correctly, together with filing the related returns and keeping track of cross-border payments, is part of our accounting and tax advisory services.
Common situations at foreign-owned companies
Dividends to a shareholder in Germany or Austria
The Romanian company distributes profit to a non-resident shareholder. With a valid residence certificate, withholding is applied at the reduced treaty rate, and the tax withheld in Romania is then taken into account in the state of residence through the method provided by the treaty. Without a certificate, the full domestic rate applies.
Employee on a cross-border assignment
Where the salary is taxed depends on the length of presence, on who actually bears the salary cost, and on whether a permanent establishment exists. The 183-day rule is the starting point, but applying it requires care, especially when there are separate social security implications (form A1) alongside the tax ones.
Services, interest and royalties to the parent company
Payments to the foreign group — management services, interest on intra-group loans, royalties for licences — each fall under a distinct treaty article with their own thresholds and conditions. Correct analysis avoids both excessive withholding and the risk of being challenged during a tax audit.
What we do for you
Applying a double taxation treaty combines legal interpretation of the agreement with practical compliance: classifying the income, collecting the certificates, calculating the correct withholding, preparing the returns and, where needed, dealing with the tax authority. See how we can help with your company’s cross-border operations.
If you have income connected to two states and want the certainty of paying exactly what you should — no more, no less — contact us for an analysis of your specific situation.
Frequently asked questions
What happens if I do not have the tax residence certificate at the time of payment?
The standard withholding tax rate under the Romanian Tax Code applies automatically, which is generally higher than the reduced treaty rate. The difference can sometimes be corrected later, but the procedure is more complicated than applying the right rate from the start.
How many countries has Romania signed double taxation treaties with?
With over 90 states, including Germany, Austria, Italy, the Netherlands and most major economic partners. Each treaty has its own rates and conditions, so the applicable text should be checked for your specific case.
What is the difference between the credit method and the exemption method?
Under the credit method, the state of residence taxes worldwide income but deducts the tax already paid in the other state. Under the exemption method, income already taxed abroad is exempt in the state of residence. The applicable method is the one set out in the relevant treaty.
Does a treaty mean I pay no tax at all in Romania?
Not necessarily. A treaty allocates the taxing right between the two states and removes the double payment; it often results in a reduced withholding rate in Romania rather than a full exemption. It depends on the type of income and the treaty text.
Does the 183-day rule automatically exempt my salary from tax in the country where I work?
Not automatically. The exemption in the country of activity applies only if all the conditions of the employment income article are met cumulatively, including who bears the salary cost and whether a permanent establishment exists. Each assignment must be assessed individually.