The New Tax Code
Monitorul Oficial al Romaniei, Part I, No 688 of 10 September 2015 has published Law No 227/2015 regarding the Tax Code.
The major amendments contained in the new Tax Code:
1. Title I – General Provisions
The following terms are defined: centre of vital interests; flow-through entity (FTE), also known as pass- through entity or fiscally transparent entity, with or without legal personality; place of effective management; the fair market value (FMV) principle; withholding tax (WHT);compulsory social security contributions withheld at source.The definitions of “dividend” and “royalty” are amended and supplemented.
The adjustments performed by tax authorities in respect to: non-lucrative operations; reclassification of a transaction so as to reflect its economic substance; contrived cross-border transactions; transactions between affiliates infringing the FMV principle shall apply with a view to determining direct taxes.In handling issues that fall within the scope of the value added tax (VAT) law, tax authorities shall duly take into consideration the jurisprudence of the Court of Justice of the European Union.
2. Title II – Profit Tax
The category of taxpayers that are obligated to pay tax on profit shall also include foreign legal entities having the place of effective management in Romania.The taxpayers choosing to have a tax year differing from the calendar year shall communicate such choice to the tax authority within a 15-day term of the date on which their tax year begins or of the date on which they have registered in such capacity.
The manner in which errors should be rectified shall be correlated with the accounting treatment.Exemption of the tax on reinvested profit shall also apply to the assets falling under class 2.2.9 of the Catalogue of fixed assets classification and useful lives.
Non-taxable income shall include:
• the dividends received from a Romanian legal entity, to which the condition for the holding of at least 10% of the share capital of the legal entity distributing the dividends for an uninterrupted period of one (1) year no longer applies; and
• increases in value, resulting from the revaluation of fixed assets, land and intangible assets, offsetting expenses with previous decreases in the value of the same assets,
Deductible expenses are considered the expenses made for the running of business.The method for the calculation of deductible business entertainment expenses, i.e. the tax-deductible legal reserve, has been simplified.Social expenses shall be deductible up to 5% of the value of salaries expense.The level of tax credit for sponsorships has been raised from 0.3% to 0.5% of the turnover (the other conditions remain unchanged).
The expenses related to management, consultancy, assistance and other services provided by an entity based in a state with which Romania has signed no legal instrument on the exchange of information that is also qualified as artificial shall be deemed non-deductible.
In the case of foreign currency loans, the effective annual interest rate which should be taken into account when compounding the deductible interest expense shall be 4%.
The provisions referring to the deduction of interest expenses shall not apply to the interest expense included in the acquisition cost or the production cost of an asset that undergoes a long manufacturing cycle time.
New provisions are set forth with regard to the determination of the tax result by permanent establishments.
Regarding prepayments in the 4th quarter of the year, the taxpayers that apply the annual system, i.e. make quarterly prepayments, shall declare and pay the profit tax they due by the 25th of December of the respective year.
Starting 1 January 2017, the tax rate applicable to dividends shall be 5%.
3. Title III –Microenterprise Income Tax
Romanian legal entities performing exploration, development, oil and natural gas exploitation activities shall not fall within the scope of Title III.Newly established Romanian legal entities having at least one (1) employee and being set up to operate for more than 48 months by shareholders that have owned no shares in any other legal entities shall pay a 1%-rated tax in the first 24 months from the date of their establishment.
Any communication regarding entry into / exit from the system shall be made until the 31st of March, included.
4. Title IV – Income Tax
Income from independent activities
• Social expenses are 5% deductible (previously, they were 2% deductible).
• For the determination of the net income deriving from intellectual property rights, from the creation of monumental works of art included, the related expenses are 40% deductible (previously, they were 20% deductible).
• Provisions are introduced with regard to the computation of the tax on the allowances granted to administrators, directors, managers during their business travels in the country and abroad.
•The categories of non-taxable income are expanded.
Income from usufruct: related expenses are 40% deductible (previously, they were 25% deductible)
Income from investments
• The tax treatment of the income derived from investments is clarified.
• Starting 1 January 2017, the tax rate applicable to dividends shall be 5%.
Income from other sources
• The list of the categories of income obtained from other sources has been updated.
5. Title V – Mandatory Social Security Contributions
The structure of this Title has been amended.
The income from independent activities is included in the category of income that is subject to the social security contribution (CAS), even if taxpayers obtain salary income.The CAS payable by natural entities who achieve income from independent activities shall be 10.5%. Taxpayers may choose the overall rate of 26.3%.
The social health insurance contribution (CASS), i.e. the individual contribution rate, shall also apply, starting 1 January 2017, to the income from investments at a specific ceiling.
6. Title VI – Tax on Non-residents’ Income
The income obtained outside Romania from services such as marketing, technical assistance, research and design in any field of activity, advertising and publicity, as well as services provided by lawyers, engineers, architects, notaries public, accountants and auditors no longer falls within the scope of this Title.
Starting 1 January 2017, the tax rate on dividends shall be 5%.
Rules are introduced for the taxation of the income achieved from Romania by non-resident associations / entities.
7. Title VII – VAT
The standard VAT rate shall be 20%. The standard VAT rate in effect from 1 January 2017 shall be 19%.
The reduced VAT rate of 5% shall also apply to other categories of goods / services.
The ceiling on the houses delivered as part of the social policy shall be RON 450,000.
Simplified measures (provided that both the supplier and the beneficiary are registered for VAT purposes) shall also apply for:
• the delivery of buildings, parts of a building and any plots of land, which is subject to the tax treatment stipulated by law or chosen by the parties involved;
• the delivery of cellular phones, PC tablets, consoles(computing and video games), laptops (for these categories of goods, simplified measures shall apply until the 31st of December 2018, included).
8. Title IX – Local Taxes
The tax on buildings shall be computed in consideration of their destination.
The tax on buildings / land / means of transportations hall be paid in the respective tax year by the entity owning such assets at the 31st of December in the previous year. Such tax shall no longer be computed per year segments.
The tax on the land appurtenant to a building shall no longer be exempted.
The local council may increase the tax on the farmland on which no operation has been performed for two (2) consecutive years by up to 500%.
The local council may increase the tax on uncared-for buildings and land situated inside town by up to 500%.
Natural and legal entities shall file certain declarations with the local public authorities until the 26th of February 2016, so that such authorities may establish the local taxes for the 2016 tax year.
9. Title X – Tax on Construction
The provisions contained in this Title shall apply until 31 December 2016, included.
The provisions of Law 227/2015 shall enter into force on 1 January 2016, except for the specific mentions made hereinabove.
Provisions Regarding the Bookkeeping Methods of Reflecting the Main Operations Related to Merger, Division, Dissolution and Liquidation of Companies
Monitorul Oficial al Romaniei, Part I, No 711 of 22 September 2015 has published Order 897/2015 of the Minister of Public Finance, approving of the Methodological Norms for the reflection in accounting of the main operations related to the merger, division, dissolution and liquidation of companies, as well as to the withdrawal or exclusion of shareholders.
The provisions of Order 897/2015 have become effective as of 22 September 2015 when the provisions of Order 1376/2004 of the Minister of Public Finance are abrogated, under which the Methodological Norms were approved for the reflection in accounting of the main operations related to the merger, division, dissolution and liquidation of companies, and to the withdrawal or exclusion of shareholders, as well as for the tax treatment of such operations.