Emergency Ordinance no. 102/2013 amending Law 571/2003 regarding the Fiscal Code and certain fiscal-financial measures – published in Official Gazette no. 703/15 November 2013
Fiscal Code Amendments
The amendments to the Fiscal Code introduced by Emergency Ordinance no. 102/2013 are applicable starting from 1 January 2014.
The main amendments to the Fiscal Code include the following:
Corporate income tax
Fiscal year different of calendar year
The taxpayers which have opted for a financial year different from the calendar year may opt for the fiscal year to correspond to the financial year. The first modified fiscal year includes also the period of the calendar year between 1 January and the day preceding the first day of the modified fiscal year.
The tax authorities have to be notified in this respect with at least 30 days before the beginning of the modified fiscal year.
The following types of income are included in the non-taxable income category:
- dividends received from foreign legal entities subject to corporate income tax or a similar tax, located in countries which are not members of the European Union and with which Romania has concluded a double tax treaty;
- capital gains derived from the sale/assignment of shares held in Romanian legal entities or in legal entities from countries with which Romania has concluded a double tax treaty;
- income derived from the liquidation of another Romanian legal entities or of foreign legal entities located in countries with which Romania has concluded a double tax treaty.
These provisions apply if the taxpayer holds for an uninterrupted period of 1 year, at least 10% of the share capital of the legal entity distributing the dividends or of the legal entity in which the shares sold/assigned are held or, respectively, of the legal entity which is subject to liquidation.
Holding period for tax exemption of dividend income
The uninterrupted holding period for the exemption of dividend income derived by Romanian legal entities/permanent establishments in Romania of foreign legal entities from Member States, parent companies, from their subsidiaries located in another Member States is reduced from 2 years to 1 year.
Dividend income derived by a Romanian legal entity from another Romanian legal entity are tax exempt if the recipient holds at least 10% of the share capital of the entity distributing the dividends for an uninterrupted period of at least 1 year (previously, there were no holding period requirements in this case).
Income of permanent establishments
Romanian permanent establishments of foreign legal entities resident in an European Union Member State or a state of the European Economic Area, which derive income from another European Union Member State or from a state of the European Economic Area, benefit under certain conditions of a fiscal credit for the tax paid in the state where the income included in the taxable income of the permanent establishment from Romania was derived.
This provision does not apply to Romanian permanent establishments of foreign legal entities residents in a state of the European Economic Area, other than a Member State of the European Union, if Romania does not have concluded with that state a legal instrument under which an exchange of information may be performed.
Tax credit for sponsorship/patronage/private scholarships
Amounts representing e.g., sponsorship/patronage/private scholarships which can not be deducted from the corporate income tax in the respective fiscal year (because they exceed the threshold provided for under the Fiscal Code) are carried forward for the following 7 consecutive years.
Interest expenses and net foreign exchange losses
Clarifications were brought with regard to the carry forward right of interest expenses and net foreign exchange losses in case of taxpayers that are entering into a restructuring process (mergers, spin-offs, detachment of a part of the patrimony).
Income from independent activities
Certain clarifications have been introduced concerning the deductible interest rate for loans, both in RON and foreign currencies.
For determining the salary tax applicable for both primary and secondary positions, the mandatory social charges due according to the law and to the European Union provisions or the agreements regarding the coordination of the social security systems in which Romania is a part of, may be deducted from the gross income.
Income from the demise of the use of goods
Certain clarifications have been introduced as regards the determination of the taxable base of the in kind income derived from the demise of agricultural goods, where the average prices of agricultural products change during the fiscal year in which the income is earned.
Taxpayers who obtain income from the demise of agricultural goods can no longer choose for their net income to be assessed under the real system.
The deductibility of the health fund contributions, stated under Title IX2 from the Fiscal Code, from the annual income obtained from the demise of the use of goods derived irrespective of the method applied for the computation of the net income (real system, income quota, flat rate expenses) has been introduced.
Income from agriculture, forestry and fisheries
Certain clarifications have been brought as regards the tax exemption for the income obtained by individuals/members of associations without legal personality from the cultivation of plants destinated to feeding animals.
Income from prizes and gambling
Clarifications regarding the income from prizes are introduced. Thus, advertising materials, flyers, samples, bonus points awarded with the purpose of stimulating sales are tax exempt.
The annual taxable income
The possibility to compensate the fiscal losses for income from forestry and fisheries is introduced as of the 1 January 2014.
A new article is introduced as regards the due date of the payment obligation assessed as a result of verifications initiated within the statute of limitation period in case of the annual income tax return.
International tax aspects
A new article is introduced as regards the assessment of the tax base for the taxable income of individuals resident within the European Union or European Economic Area, according to which they can benefit from the same deductions as Romanian resident individuals. The deductions are granted within the limit stipulated in the Romanian legislation, based on supporting documents if they are not deducted in the state of residency. This provision does not apply to individuals from European Economic Area countries, other than the ones resident in the European Union, with which Romania does not have concluded a legal instrument under which exchange of information may be performed.
Incomes obtained from abroad of similar nature to those which are tax exempt in Romania, have the same tax treatment.
Narrowing the scope of tax exemption
No withholding tax exemption applies for dividend income, interest and royalties derived from Romania by foreign legal entities located in the states which belong to the European Free Trade Association (Iceland, Liechtenstein and Norway).
Holding period for tax exemption of dividend income
Dividends paid by Romanian legal entities towards foreign legal entities from a Member State/permanent establishments of an enterprise from another Member State located in another Member State of the European Union are tax exempt if the foreign entity holds at least 10% of the share capital of the Romanian legal entity for an uninterrupted period of at least 1 year at the date of the dividend payment (the previous holding period was of 2 years). Other conditions have to be also met to benefit of this exemption.
For additional information, please contact: Venkatesh Srinivasan, Partner – Head of Tax and Legal
Ernst & Young SRL and E. Platis, C. Bazilescu LLLP
15-17 Dr. Ion Mihalache Street
Tower Building, 19th Floor
Sector 1, 011171, Bucharest, Romania
Tel: (40-21) 402 4000, Fax: (40-21) 310 7124
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