(Ordinance no. 8/2013 published in the Official Gazette no. 54 / 23 January 2013)
The Ordinance brings a series of amendments to the Fiscal Code with regard to the corporate income tax, personal income tax, microenterprises income tax, withholding tax, VAT, excise duties and social contributions, as well as to the Fiscal Procedure Code.
The changes will enter into force starting with 1 February 2013, except for the provisions regarding the level of the excise duty for cigarettes, which will enter into force starting with 1 April 2013.
Among the most important amendments, we present the following:
It is specified that the transactions classified as artificial (as defined by the Fiscal Code) will not benefit from the provisions of the double tax treaties.
Corporate income tax
The tax ledger will have to reflect all taxable income and related expenses, for the fiscal year in question.
Research and development expenses
The additional deduction allowed for research and development expenses has been increased from 20% to 50% of the expenses eligible for these activities.
Retained earnings from updating with the inflation rate as per IAS 29 for taxpayers who apply IFRS
Amendments are brought regarding the fiscal treatment of the retained earnings resulted from the update with the inflation rate of the value of the depreciable fixed assets and land.
Expenses related to acts of corruption
Expenses booked and subsequently proven to be associated with acts of corruption are non-deductible.
Non-deductible interest for contracts with deferred payment
Interest expenses established in compliance with IFRS for fixed assets/intangible assets/inventory acquired based on deferred payment agreements are non-deductible.
A number of provisions regarding biological assets have been introduced, as regards their fiscal value, revaluation, tax depreciation, etc.
Tax amortization of intangible assets
Intangible assets with an indefinite operational life will not be amortized for tax purposes.
Limited deductibility for depreciation of vehicles
Deductible expenses related to the fiscal depreciation of vehicles having no more than 9 seats are limited to RON 1,500 /month.
Tax due by foreign legal entities
In case a foreign legal entity derives income from real estate and from the sale or alienation of participation titles held in a Romanian legal entity, where the buyer is a Romanian legal entity or a permanent establishment of a foreign legal entity registered for tax purposes, even though the obligation to compute, withhold, declare and pay the corporate income tax stays with the buyer, the foreign entity will have the obligation to register for tax purposes in Romania, submit the annual corporate income tax return and pay the tax as per art. 35 of the Fiscal Code.
Taxation of micro-enterprises
Starting with 1 February 2013 the system for taxation of micro-enterprises is no longer optional, but mandatory for the taxpayers that meet the conditions provided by the law. The level of annual income up to which a Romanian legal entity is considered a micro-enterprise was reduced from EUR 100,000 to EUR 65,000.
One of the conditions for a Romanian legal entity to be considered a micro-enterprise was removed, namely the one requiring a number of employees between 1 and 9.
The corporate income tax payers that meet, as of 31 December 2012, the conditions required in order to apply the system for taxation of micro-enterprises, will mandatorily apply it starting with 1 February 2013 and will notify the tax authorities by 25 March 2013. The corporate income tax return for January 2013 will be also submitted by this date. The taxpayers that opted for this system based on the legal provisions valid until 1 February 2013 will apply this tax regime in 2013, except for the case when, during 2013, the cap of EUR 65,000 is exceeded.
Taxation of income from services rendered
Besides the income earned by non-residents from services rendered in Romania, the income derived from services rendered abroad become taxable in Romania, regardless of their nature (with the exception of international transport services and the ancillary services).
Tax rate applicable in cases where there is no legal instrument for the exchange of information
The tax rate applicable to certain types of income (i.e. dividends, interest, royalties, commissions, income from services and independent professions) is 50% of the gross income if the income is paid to a state which has not concluded a legal instrument for the exchange of information with Romania.
The taxable base for supplies of goods/services between related parties
For supplies of goods/services between related parties, the taxable basis is the market value when:
the consideration obtained is less than the market value and the recipient does not have a full deduction right;
the consideration obtained is less than the market value and the supplier does not have full deduction right and the supply is VAT exempted without deduction right;
the consideration obtained is higher than the market value and the supplier does not have full deduction right.
Transactions exempt without deduction right
The granting of rights in rem over an immovable property, e.g. beneficial interest right and superficies right, becomes transaction exempt without deduction right.
For stolen goods (including capital goods), the taxable person will adjust the VAT initially deducted, however they will have the right to cancel the adjustment when the theft is legally proven through a final court ruling.
Erroneous registration/deregistration in/from the Register of taxable persons that apply the VAT cash-in system
In case of erroneous registration by the tax authorities, the taxable person in question applies the normal tax system between the date of registration and the date of error correction, in terms of both the collection and deduction of VAT. However, the taxable person will not be sanctioned in case it applies the VAT cash-in system over the above-mentioned period.
In case of erroneous de-registration by the tax authorities, the taxable person in question applies the VAT cash-in system between the date of de-registration and the date of error correction, in terms of both the collection and deduction of VAT. However, the taxable person will not be sanctioned in case it applies the normal system over the above-mentioned period.
In the above-mentioned situations, the beneficiary that does not apply the VAT cash-in system will exercise its deduction right according to the normal tax system.
Non-harmonised excise duties
Beer, beer base from a mix with non-alcoholic beverages and also fermented beverages, other than beer and wine, which fulfil the specific requirements of the Fiscal Code were introduced in the list of products which are subject to non-harmonised excise duties.
The amendments to the Fiscal Code include specific provisions regarding the taxation regime of these products, including the level of excise duty, the obligations of excise duty payers, the chargeability and payment of the excise duty. The value of the excise duties are of EUR 10/hl for beer, respectively EUR 25/hl for fermented beverages other than beer and wine.
The value of the excise duty for beer was increased from EUR 0.748/hl/1 Plato degree to EUR 0.8228/hl/1 Plato degree.
The progressive increase of the excise duty for cigarettes, planned for the 2013-2018 period, will be made annually starting with 1 April of the respective year.
Salary assimilated income subject to taxation will also include the following:
- amounts that exceed 2.5 times the level set for the public institutions personnel, for the allowance received by the employees during delegation and secondment in another locality, within the country and abroad, for business purposes, as well as any other amounts of the same nature. The amounts granted within this limit, as well as those received for travel and accommodation expenses shall not be subject to taxation;
- interests granted in connection with wages and salary differences, as well as their updates with the inflation rate, determined on the basis of final and irrevocable court rulings. The income tax due on this income shall be calculated and withheld at the payment date and wired to the state budget by the 25th of the month following the payment.
Further on, salary income paid by or on behalf of an employer who is a resident in Romania or has a permanent establishment in Romania becomes taxable in Romania solely if Romania is entitled to taxation.
Relevant tax provisions have been correlated and, as such, the tax rules applicable to dividends will also be applied to income assimilated to dividends, representing amounts paid by a legal entity for goods or services provided to a participant in the legal entity, if the payment is made by the company for the personal benefit of the participant.
Income from agricultural activities, forestry and fisheries
Income from forestry and fisheries are brought within the scope of taxable income, along with income from agricultural activities they will be subject to 16% income tax.
Income from forestry and fisheries, income from agricultural activities earned by exploiting the products in a different state than the natural one, and also that for which income quotas have not been set, will be taxed similarly to the income from independent activities.
The limits within which the income will not be taxable have been set. In this category are also included the income earned by individuals from the exploitation of products in natural form collected/captured from the wild flora and fauna.
The income tax on income from agricultural activities is calculated by applying the 16% rate on the annual income calculated based on the income quotas. The annual income tax is paid to the State Budget in 2 equal amounts (25 October, 15 December).
Mandatory Social Contributions
Employers from states that do not fall under the EU regulations regarding the coordination of social security system or from countries with which Romania did not sign social security agreements/conventions and which are liable to social contributions for their employees, have also the obligation to send to the competent tax authority information regarding the agreement concluded with the employees.
In the absence of agreements, the above mentioned employers have a monthly obligation to calculate, withhold, pay and declare the relevant social contributions, as well as to submit the form 112. In case the employer does not fulfill these obligations, the individuals that derive salary income from these employers will submit the 112 statement, will pay the individual social charges while the company’s social contributions will stay with the employer.
Details on the declaration and calculation of social contributions are set for the individuals deriving taxable income from agricultural activities, forestry and fisheries.
By Venkatesh Srinivasan, Partner – Head of Tax and Legal, Ernst & Young Romania
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