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Bulgaria: Bulgaria and Romania ratify double tax treaty

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Petar Varbanov

Bulgaria and Romania recently ratified a new tax treaty which was signed on April 24 2015. The treaty will replace the one signed in 1995 and extends the existing relief for cross-border dividend, interest and royalty payments. It also introduces stricter anti-avoidance measures and provides for a new mutual assistance procedure for tax collection.

The treaty provides for these withholding tax reliefs:

Dividends

Dividends may be taxed up to 5% of the gross amount paid (the existing treaty provides for a 10% rate on dividends in cases of participations of more than 25% in the distributing entity; 15% rate in all other cases).

No relief will be available in cases of deemed dividend / hidden profit distributions.

Interest

The standard relief under the new treaty is limited to 5% of the interest income (15% provided by the previous treaty). Full relief may be available in cases where the beneficiary is a government authority.

Royalties

The new treaty defines a 5% withholding tax on royalties (previously 15%).

Capital gains

No relief will be available on capital gains tax from alienation of shares in cases where 50% or more of the value of that company's share is derived from real estate.

Irrespective of the treaty however, in specific circumstances, there may be other ways to relieve withholding tax under EU rules and domestic rules of both Romania and Bulgaria.

Permanent establishment

A permanent establishment (PE) will be deemed to be created if a construction site/project exists for a period longer than 12 months. The previous agreement defined a duration of more than nine months as the condition for creation of a PE.

Mutual assistance and anti-avoidance measures

The treaty will facilitate the mutual assistance procedures between the revenue authorities of Bulgaria and Romania. It is expected that the treaty will improve the joint efforts regarding the collection of taxes of all kinds as well as interest, penalties and costs.

Petar Varbanov (petar.varbanov@eurofast.eu)

Eurofast Bulgaria Office

Tel: +359 2 988 69 75

Website: www.eurofast.eu

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