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New changes to the tax code

Monitorul Oficial al Romaniei No.703 / 15 November 2013 has published Government Emergency Ordinance No.102 / 14 November 2013, which amends and supplements Law No.571 / 2003, regarding the Tax Code, and regulates financial and tax measures.

The amendments to Law No.571 / 2003, regarding the Tax Code, refer, inter alia, to the following aspects:

Title I – General Provisions

– A new tax is introduced, i.e. the tax on construction.

Title II – Profit Tax

The major changes to this section regard the following:

1.    Earnings obtained by holding companies, which are not subject to taxation:

–  Earnings from the sale / assignment of securities held in a Romanian or a foreign legal entity;

–  Earnings from the liquidation of another Romanian or foreign legal entity;

–  Dividends received from a foreign legal entity established in a Non-EU Member State, under specific conditions, as compared to the dividends received from a Romanian legal entity.  Such specific conditions refer, among others, to:

  • the foreign legal entity should be established in a State with which Romania has concluded the Convention for the Avoidance of Double Taxation;
  • the respective legal entity should hold at least 10% of the share capital of the Romanian or foreign legal entity for an uninterrupted period of one (1) year.

2.    Introduction of the option to choose a tax year different from the calendar year:

–  Taxpayers the financial year of which differs from the calendar year may choose to have their tax year correspond to the financial year.

–  Several provisions establishing rules for the formulation of said option, the declaration and payment of tax are set forth with regard to the taxpayers having their tax year different from the calendar year.

3.    Other important changes related to profit tax, in effect from 1 January 2014, cover the following:

–  Similar to the provisions mentioned at point (1) hereinabove, in the case of dividends received from other EU Member States, the shareholding condition is one (1) year (as to two (2) years at present).

–  Provisions are introduced with regard to interest expenses and net foreign exchange losses which may be carried forward by the taxpayers ceasing their existence through merger or division, or by taxpayers that do not cease existing after undergoing severance.

–  The possibility is provided for sponsorship expenses that cannot be deducted from the profit tax in the year in which they were recorded to be carried forward and be recovered within a seven (7)-year time interval.

–  Provisions are introduced in respect to the granting of tax credit for the tax paid by a permanent establishment in Romania of a foreign legal entity that is a resident of a European Union Member State or of a State belonging to the European Economic Area.

Title III – Income Tax

New provisions are set forth with reference to the tax on the income obtained by non-resident natural persons performing dependent activities in Romania:

–  when the calculation basis is determined for the taxable income obtained in Romania by natural persons who are resident of a European Union Member State or of a State pertaining to the European Economic Area, such persons shall benefit from the same deductions as resident natural persons do;

–  said deductions shall be granted within the limits established by the Romanian relevant legislation in force;

–  the aforementioned provisions shall not apply to natural entities residing in a State with which Romania has not entered into a legal instrument by virtue of which information can be exchanged.

As regards the income obtained from abroad, which is similar in nature to the non-taxable income achieved in Romania, the same tax treatment shall be applied as to that applicable to the income obtained in Romania.

New provisions clarify the deductibility of expenses made by persons obtaining income from independent activities:

–  On determining the withholding tax on salary income, the contributions paid on employees’ behalf to optional pension schemes by authorised entities established in EU Member States or in a State of the European Economic Area shall be deductible up to the RON equivalent of EUR 400 for every participant in one tax year.

The income tax brackets set per surface area unit (hectare) / animal head / bee colony have been amended.

Title IV1 – Tax on Microenterprises’ Income

Companies operating in the consultancy and management industries included, which record more than 80% of their total income from other activities shall apply the tax regimen of microenterprises.   If, in one tax year, the income obtained from consultancy and management exceeds 20% of the total income, the microenterprise shall become a profit tax payer.

The categories of income taken into account upon the determination of the tax base for microenterprises’ income have also been amended.

Title V – Tax on Non-residents’ Income from Romania

Starting 1 January 2014, the tax exemption for dividends, interest and royalties provided under the Directives transposed into the national legislation shall apply in relation to EU Member States.  Until now, the provisions of such Directives were applied in the case of both EU Member States and EFTA States.

The condition for a 10% holding of the share capital of a Romanian legal entity shall be one (1) year (as to the formerly set 2 (two) years).

Title VI – Value Added Tax

*  Tax base for the supply of goods and provision of services inside the country

According to the new provisions, the cost of insurance, when the lessor itself insures the item that is subject of a lease agreement and then charges such cost to the lessee, shall not be included in the VAT base.

*  Adjustment of the tax base and of VAT

–          changes are brought to the adjustment of the VAT base (i.e. when contracts referring to supply of goods / provision of services are rescinded), as well as to the cases in which taxable persons are obligated to adjust the VAT (e.g. when no evidence is provided under probative documents issued by judicial bodies for stolen goods);

–          capital goods the purchase of which is subject to a 50% limitation on the right to deduct the tax related to the purchase, intra-Community acquisition, importation, renting or lease of vehicles, when such vehicles are not used exclusively for economic purposes, shall be exempt from the adjustment of deductible VAT.

*  VAT Refund

Taxable persons that are not established in Romania, are not registered and are not obligated to register for VAT purposes in Romania, having the right to claim VAT refund on the importation and acquisition of goods / services performed in Romania, shall no longer be required to provide evidence of VAT payment.

Title VII – Excise Duties

Starting 1 January 2014, the sale of cigarettes by natural persons at a price lower than the declared retail price shall be deemed a contravention.

The sales bonus plan shall not be applicable to excisable products (processed tobacco, alcoholic beverages other than beer and wine) bearing fiscal markings.  When such products are sold at discount, their price may not be lower than the costs incurred for the production, importation or sale of excisable products to which value added tax and excise duty add.

An exceptional rule has been established with regard to the rate of exchange used for the conversion of excise duties expressed in EUR / unit of measure into RON, applicable in the case in which the rate of exchange set for the first working day of October last year is lower than the rate of exchange established on the first working day of October the year preceding last year.

Starting 1 January 2014, the level of excise duties on the products specified below shall be higher:

Excisable Product Current Level Level as of 1 January 2014
Leaded Gasoline EUR 547.00 / tonne EUR 637.91 / tonne
EUR 421.19 / 1000 l EUR 491.19 / 1000 l
Unleaded Gasoline EUR 467.00 / tonne EUR 557.91 / tonne
EUR 359.59 / 1000 l EUR 429.59 / 1000 l
Diesel Oil EUR 391.00 / tonne EUR 473.85 / tonne
EUR 330.395 / 1000 l EUR 400.395 / 1000 l
Kerosene used as engine fuel EUR 469.89 / tonne EUR 557.39 / tonne
EUR 375.91 / 1000 l EUR 445.91 / 1000 l

 Title IX3 – Tax on Construction

The tax on construction shall be paid by:

–  Romanian legal entities, excepting public institutions, national research and development institutes, associations, foundations and other non-lucrative legal entities;

–  foreign legal entities carrying on their business through a permanent establishment in Romania;

–  foreign legal entities that have their registered office in Romania and are established in compliance with the European legislation;

–  the beneficiary of construction, in the case of finance lease, and by the lessor, in the case of operating lease.

Tax shall be paid for class I construction, as evidenced in the List of Fixed Assets grouped by classes and normal useful life, except for the buildings on which tax is paid in accordance with Title IX of the Tax Code.

This tax shall be calculated by applying the 1.5% rate to the carrying value of the respective construction, as recorded in the account books on 31 December the previous year; certain exceptions are mentioned in this respect.

When the taxable profit is calculated, the expense related to the tax on construction shall be deductible.

The tax on construction shall be calculated and declared by the 25th of May, included, in the year in which it should be paid, and shall be paid in two equal instalments, i.e. by the 25th of May and the 25th of September, respectively.

The above-referenced Ordinance also contains provisions regarding taxpayers that have ceased existing and taxpayers that have been established in the course of this year.

TAX ALERT by Mazars Consulting / MAZARS ROMANIA

* Note: You may find Romanian, German and French versions of the newsletter in Mazars’ archive

* TAX ALERT contains a selection of the latest major issues occurred in the Romanian legislative framework, is intended only to provide information and, hence, shall not be deemed to provide professional advice or consultancy.  Therefore, we assume no responsibility in this respect.

 

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