Romania has announced the full suspension of its Double Taxation Avoidance Agreement (DTA) with the Russian Federation, effective from October 14, 2024. The agreement, originally signed in Moscow in 1993, was designed to eliminate the risk of double taxation on income and capital for residents of both countries. However, Romania’s decision to suspend the treaty follows Russia’s earlier move in 2023 to partially suspend several key provisions.
Why Did Romania Suspend the Agreement?
This step comes as a response to Russia’s suspension of essential articles of the agreement in August 2023, including those governing taxation of business profits, dividends, capital gains, and income from international transport, among others. Romania’s Ministry of Finance determined that with these provisions inoperative, the remaining parts of the treaty were effectively unenforceable.
The suspension was formalized through a Memorandum approved in August 2024 and later published by the Ministry of Foreign Affairs. According to Romanian officials, the agreement will remain suspended until Russia resumes the full application of the treaty.
What Does This Mean for Taxpayers?
The suspension has significant implications for both Romanian and Russian residents engaged in cross-border trade and investment:
- No More Tax Coordination: Romanian authorities (including ANAF) will no longer apply the treaty’s rules on allocating taxation rights for income and capital.
- Withholding Taxes Uncapped: Provisions that previously capped withholding taxes on passive income, such as dividends, royalties, and interest, will no longer apply.
- Certification Halted: Certificates of tax paid in Romania by Russian residents and tax residency certificates for Romanian residents will no longer be issued under the treaty.
Broader Context
The suspension is part of a broader cooling in economic and political ties between the two nations. While such treaties typically facilitate smoother cross-border investments and provide certainty for taxpayers, their suspension can lead to increased compliance burdens and potential tax disputes.
Looking Ahead
Taxpayers in both countries should prepare for potential changes to their tax liabilities and consult with advisors to navigate this new landscape. The treaty suspension will remain in place until Russia officially notifies Romania of its intent to restore the agreement’s provisions.
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