On 1 January 2016 a number of new Fiscal Code provisions will become effective in Romania. The amendments stem from two separate sources, the new Fiscal Code published on 10 September 2015 and a Government Ordinance published on 3 November 2015. The majority of the notable amendments were introduced by the new Fiscal Code published on 10 September 2015 (Law no. 227/2015) and include the following:
1. General provisions
- The anti-abuse rules provided by article 11 now include a definition of cross-border artificial transactions which provides much needed clarification as cross-border artificial transactions are excluded from the application of Double Tax Treaties;
- Other definitions, such as for royalty, the arm’s length principle, dividend, stock option plan, were introduced or amended impacting the related tax treatment.
2. Corporate income tax
- Revenues from dividends received from Romanian legal entities will be non-taxable; for dividends received from foreign legal entities, the existing conditions will continue to apply in order to be non-taxable (i.e. minimum shareholding of 10% for an uninterrupted period of at least one year);
- The tax exemption of reinvested profits will also apply to assets included in subgroup 2.2.9 from the Catalogue regarding the classification and useful life of fixed assets approved by Government Decision 2139/2004 (computers, software, etc.);
- The limit of deductibility for social expenses has been increased from 2% to 5% of the total salary fund;
- The percentage of the fiscal credit received for sponsorship expenses has been increased from 0.3% to 0.5%;
- The interest expense deductibility for loans in foreign currency from entities other than banks and financial institutions will be limited to 4% (the existing rate is 6%);
- The tax treatment of mergers, spin-offs, transfers of assets and acquisitions of shares between Romanian legal entities has been aligned with the EU Directive on mergers, spin-offs, asset transfers and exchange of shares.
3. Micro-enterprise income tax
- Companies performing exploration, development, or exploitation of oil and gas deposits are excluded from the micro-enterprise tax regime (and consequently, they will be allowed to recognize and carry forward fiscal losses to offset future taxable profits);
- A reduced income tax rate of 1% has been introduced for newly set up Romanian legal entities which have at least one employee, for the first 24 months from registration of the legal entity. The law also provides other requirements for the application of this reduced rate.
4. Income tax
- Non-resident individuals who fulfil the Romanian residency criteria in the Fiscal Code have the obligation to declare their income derived from any source, from Romania and from abroad, as of the date they become tax residents;
- A number of provisions regarding non-taxable income comparable to salary have been amended or introduced (for ex. use of company cars, gift tickets, voluntary health insurance premiums, etc.).
5. Social security contributions
- For income obtained as of 1 January 2017, the monthly calculation base for health insurance contributions will be capped at the level of 5 times the national monthly average gross salary;
- Investment income or income from other sources obtained starting 1 January 2017 will be subject to health insurance contribution even if the individuals obtain other types of income (e.g. salaries, pensions, freelancing activities).
6. Withholding tax
- Income from the reduction of share capital, other than that obtained from the restitution of the shareholder’s contribution to the share capital, has been included in the “income from liquidation”.
- The standard VAT rate will be reduced from 24% to 20% as of 1 January 2016 and to 19% as of 1 January 2017;
- The reverse-charge mechanism will also apply, to the supply of buildings, parts of buildings and plots of land which are subject to VAT;
- Taxpayers can recover VAT if their clients have commenced the insolvency procedure and have begun a reorganisation plan accepted and confirmed by a judicial ruling;
- If the supplier will not issue an invoice within the legal deadline in cases of annulment of a contract/granting of a price reduction, the beneficiary will have to issue an invoice for the adjustment of the VAT taxable base;
- The joint liability provisions have been removed.
8. Local taxes
- The building tax calculation method will depend on the designation of the buildings(residential or non-residential):
- non-residential buildings will be taxed between 0.2% and 1.3%;
- residential buildings will be taxed between 0.08% and 0.2%.
- If no revaluation was performed in the last three years, the increased building tax rate due by legal entities is 5%;
- Local authorities will have the authority to increase local taxes by 50% (the existing percentage is 20%).
9. Construction tax
- The tax on special constructions will be eliminated as of 1 January 2017.
Government Emergency Ordinance no. 50/2015, published on 3 November 2015, also providews some notable amendments:
- The dividends tax rate has been reduced from 16% to 5% for beneficiaries (both legal entities and individuals);
- The income threshold for qualifying as micro-company has been increased from EUR 65,000 to EUR 100,000;
- The VAT rate has been reduced to 9% for drinking water and water used for irrigation in agriculture.