Major Withholding Tax Reductions Effective from 2026
January 2026
Romania and the United Kingdom have entered into force a new Convention for the Elimination of Double Taxation, replacing the treaty in force since 1975.
The new treaty, signed on 13 November 2024 and effective from 23 December 2025, aligns with OECD and BEPS standards and introduces significant withholding tax (WHT) relief for cross-border transactions.
At a Glance – Key Benefits
✔ Lower WHT on dividends, interest and royalties
✔ Expanded 0% exemptions for qualifying group structures
✔ Modernised permanent establishment and anti-abuse rules
✔ Improved cash flow for Romania–UK investments
Withholding Tax Reductions – What You Need to Know
Dividends
- Old treaty (1975)
- 10% (minimum 25% holding)
- 15% in other cases
- New treaty (2024)
- 5% standard rate
- 0% rate for:
- qualifying shareholdings of at least 10% held for a minimum of one year
- recognised pension funds, as defined by the treaty
Interest
- Old treaty: 10%
- New treaty:
- 3% standard rate
- 0% rate for interest paid to:
- associated enterprises (minimum 25% direct holding for at least two years)
- banks and certain qualifying financial institutions
Royalties
- Old treaty: 10%–15%
- New treaty:
- ▪ 3% standard rate
- ▪ 0% rate for royalties paid between associated enterprises meeting the 25% holding and two-year holding period requirements
Practical Note
The new WHT rates apply from 1 January 2026 in Romania and, in the UK, in accordance with the relevant tax periods and domestic legislation.
As UK domestic law does not impose withholding tax on dividends, the treaty’s dividend WHT benefits primarily apply to Romania-sourced payments to UK residents.
Permanent Establishment & Anti-Abuse Rules
The treaty modernises the permanent establishment framework by:
- Aligning the construction site threshold to 12 months, in line with the OECD Model
- Introducing BEPS Action 7 anti-fragmentation rules
- Strengthening anti-abuse provisions for fiscally transparent and hybrid entities
These changes increase tax certainty but also require closer review of operating and project structures.
Double Taxation Relief
- Updated relief mechanisms in line with OECD standards
- Clearer profit attribution rules for permanent establishments, aligned with the OECD 2010 Report
Entry into Force
Romania
- Applicable from 1 January 2026
United Kingdom
- Applicable from January or April 2026, depending on the category of tax
Business Impact
For Romanian and UK groups, the new treaty may result in:
- Reduced withholding tax leakage
- Improved group cash flow for dividends, financing and IP payments
- Greater alignment with international tax best practices
Reduced rates and exemptions apply only if treaty conditions are met, including holding thresholds, minimum holding periods and beneficial ownership requirements.
How Baker Tilly Romania Can Support You
Baker Tilly Romania assists clients with:
- Assessing eligibility for reduced WHT rates and exemptions
- Preparing tax opinions and supporting documentation
- Reviewing and optimising Romania–UK cross-border structures
Contact us to explore how the new Romania–UK tax treaty can benefit your business.
