PAYROLL CONTRIBUTIONS in force on 1 st January Contribution Employer (rate %) Social security contribution

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1 page Tax Newsletter No. 12 / 2005 Str. Brezoianu, Nr. 36, Sector 1, Bucuresti Tel: +40 (0) Tel: +40 (0) Fax:+40 (0) Contents: PAYROLL Contributions 2006 NEW software for payments and statements to the State Budget ACCOUNTING Regulations and 4th E.U. Directive ACCOUNTING Regulations and 7th EU Directive ORDER 2008 application for VAT refund INSTRUCTION 39 National Bank of Romania reference interest rate December 2005 Romania s adhesion to two CONVENTIONS Government DECISION 1766 minimum gross national salary guaranteed to be paid Government DECISION 1767 monthly State allowance for children LAW 371 amending the Labour Code ORDER 221 contribution to the public Health Insurance ORDINANCE 158 medical leave and social health insurance allowances LAW 380 social security budget 2006 DECISION 1768 data to be collected from labour books related to contributions made to public pension system in periods prior to 1st April 2001 ROVINIETA for 2006 Main EXCHANGE RATES at 2005 closing date JANUARY AGENDA PAYROLL CONTRIBUTIONS in force on 1 st January 2006 Contribution Employer (rate %) Social security contribution Medical leave contribution and health insurance allowance Work accidents and occupational disease fund New software for issuing bank transfers for the payment of social contributions and filing forms to the State Budget Starting 1 st January 2006, new software is introduced on the Ministry of Finance website for issuing bank transfers/ cash remittance for the payment of taxes to the State and filing forms to the State. This software has to be used from 3 rd January 2006 for issuing filing forms as well as for paying any tax to the State whatever the period it refers to. Consequently, all IBAN accounts of the State that collect the payments have been modified. ACCOUNTING REGULATIONS of 17 November 2005 (OMPF 1752, Official Gazette 1080) in accordance with 4 th E.U. Directive The present regulations approve the form and content of the yearly Financial Statements, accounting principles, evaluation rules as well as the rules for their preparation, approbation, audit and publication. They also approve the new chart of accounts in force on 1 st January 2006 for all the companies. The main changes are as follows: Accounts used to record impairment of assets changed their name from provisions to adjustments New accounts are introduced: 1065 Reserves for realized surplus from revaluation reserves 1176 Retained earnings due to the adoption of accounting regulations in accordance with 4 th EU Directive 131 Governmental investment subsidies 19.75% for normal working conditions 24.75% for particular working conditions 29.75% for special working conditions 0.75% 0,5% - 4% depending of CAEN code of main activity Employee (rate %) 9.5% Unemployment fund 2.5% 1% Healthy insurance fund 7% 6.5% Labour office commission 0.25% % Salary tax 16% Contributions for non employment of disabled persons (for employers with more than 75 employees) 4 minimum gross salaries (RON330) for each 100 employees

2 132 Non refundable loans considered as investment subsidies 133 Donations for investments 134 Plus at inventory count of non current assets 138 Other amounts received as investment subsidies 1515 Provisions for pension and similar liabilities 4418 Revenue tax 445 Subsidies are detailed in 4451 Governmental subsidies, 4452 Non refundable loans considered as investment subsidies, 4458 Other amounts received as investment subsidies New accounts replace previous ones: Account 502 Own shares and account 2677 Own shares non current assets are replaced by account 109 Own shares ; 4412 Deferred tax become account 1516 Provisions for taxes ; Accounts used to record financial non-current assets (261, 262, 263, 264 and 265) are replaced by account 261 Investments in subsidiaries, 263 Investments in associates and 265 Other long term investments ; Revenue accounts used to record returns from long term financial investments (from 7611 to 7617) are replaced by account 7611 Revenues from long term investments in subsidiaries and 7613 Revenues from long term investments in associates. To see comparative chart of accounts (only Romanian version) please access our website Preparation of the financial statements as at is made according to the size of the company as at : A company which, as at reporting date, exceeds 2 of the following three criteria: Total active Euro 3,650,000 Net turnover Euro 7,000,000 Average number of employees during the year 50 will prepare Financial Statements including: Balance sheet Income statement Change in equity Cash flow statement Disclosure notes A company which, at the reporting date, do not exceed 2 of the 3 above mentioned limits will prepare simplified Financial Statements comprising: Balance sheet (short) Income statement Disclosure notes page 2 Change in equity and/or cash flow statement can be also prepared by option. The financial statements have to be accompanied by a representation letter of the directors responsible for the preparation of the financial statements to confirm that the financial statements are prepared in accordance with accounting regulations of the 4 th EU Directive. Financial statements have to be audited as per law. A company which prepares simplified annually financial statements will prepare financial statements in accordance with 4 th EU Directive if it meets, during two consecutive years, 2 of the 3 criteria mentioned above; A company which prepares financial statements in accordance with 4 th EU Directive will prepare simplified financial statements if it does not meet any more 2 of the 3 criteria during two consecutive years. ACCOUNTING REGULATIONS of 17 November 2005 (Order 1752, Official Gazette 1080) in accordance with 7 th EU Directive The present regulations approve the form and content of the yearly consolidated Financial Statements, as well as the rules for their preparation, approbation, audit and publication. A subsidiary is an entity under control of another company, named Parent Company. The parent company and its subsidiaries represent a group of entities. An entity has to prepare yearly consolidated Financial Statements and consolidated management report if it belongs to a group of entities and one of the following conditions is met: it has the majority of voting rights of shareholders or associates in another entity (subsidiary); it is a shareholder or associate of an entity and the majority of the members of the Board or management or supervision committee of the subsidiary, during the present and previous financial year or at the time of the preparation of the consolidated financial statements, were nominated as the result of exercising its voting rights; it is a shareholder or associate of a subsidiary and has the sole control of the majority of the voting rights based on an agreement concluded with the others shareholders or associates; it is a shareholder or associate of a subsidiary and

3 page 3 has a predominant influence on the subsidiary based on a contract concluded with the subsidiary or based on a provision of the constitutive deed, if the law in force for the subsidiary allows such contract or provision; the parent company has the power to exercise a predominant influence or control over the subsidiary; This Order applies to application for VAT refund starting with December 2005; It also applies to applications for VAT refund made by large taxpayers and unsettled at the date the Order is published. it is a shareholder or associate of a subsidiary and has the right to nominate or revoke the majority the members of the Board or management or supervision committee of the subsidiary; the parent company and subsidiary are managed globally by the parent company. A parent company is exempt to prepare yearly consolidated Financial Statements if, at reporting date, the entities that ought to be consolidated together do not exceed the limits of 2 of the following criteria, based on their most recent Financial Statements: Total active Euro 17,520,000 Net turnover Euro 35,040,000 Average number of employees during the year 250 The consolidated Financial Statements include consolidated balance sheet, consolidated income statement and disclosure notes. All these documents represent a whole. ORDER 75 issued on 16 December 2005 (Official Gazette 1175) which approves accounting Regulations in accordance with 4 th EU Directive for authorised entities, settled and monitored by Romanian National Securities Commission ORDER 3129 issued on 21 December 2005 (Official Gazette 1187) which approves accounting Regulations in accordance with European directives for insurance ORDER 2008 issued on 28 December 2005 (Official Gazette 1184) which amends OMPF 967/2005 regarding application for VAT refund For large taxpayers, refunds are made with an ulterior tax inspection which has to take place within 2 years after reimbursement approval date. For taxpayers who meet the provisions of Law 332/2001 regarding direct investments with significant impact on economy, the first application for VAT refund submitted after the investment registration is subject to a prior tax inspection. The next reimbursements are settled with ulterior fiscal control. For taxpayers set up according to GO16/2002 regarding partnership contracts public-private, the procedure is identical to the one applicable to taxpayers qualifying for Law 332/2001. INSTRUCTION 39 of the National Bank of Romania (NBR) issued on 2 December 2005 regarding the reference interest rate for December 2005 For December 2005, the NBR sets the reference interest rate at 7, 5% per annum. Romania s adhesion to the Common Transit CONVENTION (Order 150/2005) and the Convention on simplification measures for the trade of goods (Order 151/2005) These 2 conventions simplify formalities in goods trade between its signatories (Romania, EU Member States and AELS Island, Norway, Switzerland) by introducing a common transit system and a single administrative document that could be used as an export, transit or import document, upon case. The two Conventions apply in Romania starting from 1 st January GOVERNMENT DECISION 1766 issued on 22 December 2005 (Official Gazette 1182) sets the minimum gross national salary guaranteed to be paid The minimum gross national salary for 2006 is set at RON 330 per month. GOVERNMENT DECISION 1767 issued on 22 December 2005 (Official Gazette 1182) sets the monthly State allowance for children Starting from 1 st January 2006, the monthly State allowance is set to RON 24 per child. LAW 371 issued on 22 December 2005 (Official Gazette 1147) to approve GEO 65/2005 amending the Labour Code The employer s duty to inform the selected persons for employment or the employee is considered fulfilled at the time the labour contract or addendum is signed. During or at the end of the probationary period, either party may terminate the employment agreement upon giving written notice; The employer has to periodically inform employees on

4 the organisation financial position, except for sensitive or classified information, if such disclosure may be detrimental to the company; The maximum working hours allowed by law, including overtime, can be extended to 48 hours per week provided that the weekly average number of hours for a 3 month reference period, does not exceed 48 hours per week. ORDER 221 issued on 28 November 2005 to approve Norms regarding contribution to the public Health Insurance Gross salary which represents the basis for computation of the employer 7% contribution is defined as follows: total of amounts used by natural or legal persons for the payment of salaries or incomes assimilated to salaries as defined per tax legislation; The monthly contribution applies to salaries or incomes assimilated to salaries received by an insured person in cash or in kind and which are liable to tax, including allowances for medical leave. Foreigners and stateless persons who request extensions of their temporary residence permits for Romania are liable to contribute 6.5% of the taxable gross income obtained in Romania. If they do not obtain such incomes in Romania, they will owe a monthly contribution of 6.5% of the minimum gross national salary (RON330). The contributions for the persons in medical leave, maternity leave, medical leave to take care of a sick child or to breed a child are computed using the following formula: For indemnities corresponding to the number of days which are not supported by the public insurance budget, the calculation and the contribution payment are to be made by the employer by applying the rate of Minimum gross basic salary x 2 x 6.5% x number of working days of incapacity when the indemnity is supported by the public insurance budget Number of working days in the month for which the calculation is made 7 % and of 6.5 % to these amounts. For persons in leave for maternity risk and do not have other taxable revenues, the monthly contribution is computed by applying the rate of 6.5% to the amount of the minimum gross wage. The employer has to file monthly (electronic format and paper) at the health insurance institutions, the lists with all the names of the persons insured and the liabilities to be paid to the National Fund for Health Insurance at the latest 25 days after the end of the period contributions are due. page 4 ORDINANCE 158 issued on 17 November 2005 (Official Gazette 1074/ ) regarding medical leave and social health insurance allowances Starting from 1 January 2006, the rate for public social security contribution, due by the employer decreases by 0.75%; Starting from the same date, the employer will pay a social contribution for medical leave and medical allowance (as defined hereafter) of 0.75% calculated at the salary total gross income defined by the Order 221 issued on 28 November 2005( as presented above); The medical leaves and allowances to which insured persons are entitled, are: Medical leave and allowance for temporary work incapacity, caused to illness or by accidents except accidents at work; Medical leave and allowance for preventing illness and for recovering; Maternity leave and allowance; Medical leave and allowance to care for a sick child; Medical leave and allowance for maternal risk The right to the medical leave and social health insurance allowances are conditioned to the payment of the heath insurance contribution; The minimum payment contribution period is 6 months within the last 12 months prior to the date of start of medical leave; Periods when the insured person is on medical leave or benefits from allowances are as per the provisions of the present Ordinance are regarded as contribution periods as well as the periods when the insured person benefits from an invalidity pension or attends day classes at the university followed by graduation. The allowance for temporary work incapacity of work is supported by the employer according to the number of employees: Up to 20 employees, from the 1 st day until the 7-th day of the work incapacity; From 21 to 100 employees, from the 1 st day until the 12-th day of the work incapacity;

5 Over 100 employees, from the 1 st until the 17-th day of work incapacity. The allowance for work incapacity is supported afterwards by the National Fund for Health Insurance. The basis for the computation of medical allowances as per the present Ordinance is the average of the monthly income during the last 6 months on which the health contribution for medical leave and allowance apply during the 12 months which represent the contribution period; Monthly gross allowance is obtained by applying a percentage of 75% to this calculation basis; Percentage is 100% in case of tuberculosis, HIV, cancer, infectious and contagious diseases type A as well as emergency medical surgery; The gross allowance in case of reduction of working hours is equal to the difference between the set calculation basis and the gross income earned by the employee under reduced work time without exceeding 25% of the calculation basis, this allowance being fully supported by the National Fund for Health Insurance; The allowance for prior and post childbirth is granted for a period of 126 days, including 42 mandatory calendar days after the child is born. The gross allowance is set by applying the percentage of 85% to the calculation basis and is fully supported by the National Fund for Health Insurance; The medical leave to care for a sick child cannot exceed 45 calendar days per year, unless the child disease is an infectious and contagious disease, cancer, or he is immobilised in plaster or goes through surgery. The gross allowance is set by applying the percentage of 85% to the calculation basis and is fully supported by the National Fund for Health Insurance; The medical leave for maternity risk is not conditioned to a contribution period. The gross allowance is set by applying the percentage of 75% to the calculation basis and is fully supported by the National Fund for Health Insurance; The medical certificate has to be presented to the payer of the indemnity at the latest 5 days after the day the medical leave starts; The health insurance contribution is not due on the allowances ruled by the present Ordinance; The period when the insured person benefits from an allowance here above mentioned is regarded as a contribution period in the public retirement system, these allowances being subject to pension contribution. This social insurance contribution is calculated by applying the rate set by the Law on social insurance budget (see below) to the amount of the gross minimum base salary on economy and is deducted from the gross amount of allowance computed as per the present Ordinance and paid to the public social insurance budget; Starting from 1 st January 2006, the payment of the allowances ruled by Law 19/2000 ceases; In 60 days from the date the present Ordinance is published on the Official Gazette, norms for application will be issued (i.e. no later than 28 January 2006). page 5 LAW 380 issued on 15 December 2005 (Official Gazette 1150) for social security budget for 2006 in force starting with 1 st January 2006 Starting from 1 st January 2006, the social security contribution rates due by the employer become: for normal working conditions 30%; for particular working conditions 35%; for special working conditions 40% The social security contribution rate due by an employee is 9.5% indifferent of the working conditions; The gross average salary taken into account in the scope of computing the capped social security contribution for 2006 amounts RON 1,077 per month. Death in service benefits are set for: Insured person at RON 1,077; An insured person s family member at RON 538. DECISION 1768 issued on 22 December 2005 (Official Gazette 1183) regarding data to be collected from labour books related to contributions made to public pension system in periods prior to 1 st April 2001 In order to fill in the contributions made to public pension system for contribution periods, the labour books, held by natural or legal entities, have to be submitted to local retirement Institutions; Labour books have to be filled in with all the records prior to 1 st April 2001 and certified by the authorities in charge; Labour books has to be accompanied by a copy of the identity card disclosing the person s numerical code; After registration, the labour books will be returned to the holders; The procedures to implement this Decision, the agenda for the take over-hand over and any other necessary operation to complete this task will be established by an Order to be issued by the Ministry of Labour, Social Solidarity and Family. ROVINIETA for 2006 Starting from 1 st January 2006 Rovinieta (fee for circulation on Romanian national roads) can be acquired. The fee can be paid fully or in instalments. In order to pay the tax, the vehicle owners natural

6 persons have to present the identity card and registration card of the vehicle, in copy or in original, customs duty documents for vehicles temporarily registered and their own identity card; For companies, the Trade Register certificate is requested in addition to the above. For leased or rent vehicles, a power of attorney from leasing company or owner is also needed. Main EXCHANGE RATES at 2005 closing date JANUARY AGENDA Everyday - do not forget: 1 EUR = RON 1 USD = RON 1 GBP = RON 1 CHF = RON to fill in the petty cash register (or to print the electronic version) to fill in the purchase ledger and the sales ledger At month end - do not forget: to fill in the journal ledger to organize stock count of the assets if case the enterprise does not use permanent inventory system to issue the last invoices for the month of December (the rule of 5 days does not apply at month end neither for services) During the month - do not forget: That Tuesday 10 January is last day to submit: Return on collection of hotel tax That Tuesday 10 January is last day to pay: Hotel tax Tax on advertising service That Monday 16 January is last day for: Permanent employees who had salary incomes other than those derived from main labour contract or other revenues from independent activities or rentals and wish to benefit from the legal deductions have to inform in writing, the employer in order to avoid the regularisation of their tax statement no.1 (FF1); That Wednesday 25 January is last day to submit: State budget liability return for December 2005 (code 100) VAT return (code 300) Social security statement Unemployment fund statement page 6 Special VAT return for VAT non payers (code 301) Statement for income obtained from abroad by natural persons who perform an activity in Romania and by Romanian citizens who are employees of diplomatic missions and consular posts accredited in Romania (code 224) Environmental Fund Statement That Wednesday 25 January is last day to pay: Excises Tax on crude oil and natural gas from internal production Withholding tax on non residents income VAT Salary tax Corporate tax for Quarter IV 2005 (an amount equal to corporate tax paid for Quarter III 2005 is due by taxpayers who do not close their fiscal year 2005 until 15 February 2006) Tax on income from independent activities, withheld at source Tax on income from dividends Tax on income from interests Tax on income from investments Tax on income from pensions Tax on income from premium and gambling Tax on income from other sources Social security contribution Unemployment fund Health fund Work accidents and occupational diseases fund Contributions for non employment of disabled persons Environmental fund Gambling tax That Tuesday 31 January is last day to pay: The commission for holding and filling in the Labour books for the month of December. All the companies which have to pay tax on buildings, tax on land or tax on vehicles have to calculate the related tax and submit a statement to local authorities at the latest on 31 January of the year for which the tax is due. File Request to be taxed on net revenue under real regime together with Statement of estimated revenue from independent activities or/and rentals in order to be taxed under this regime based on revenue level. All forms mentioned above can be downloaded from the Ministry of Public Finance web-site:

7 page 7 Str. Brezoianu, Nr. 36, Sector 1, Bucuresti Phone: + 40 (0) Phone: + 40 (0) Fax: +40 (0) office@apex-team.ro Site: APEX team includes qualified professionals able to provide full range of accounting and payroll services. Our consultants are ready to share the knowledge and experience they have gained working in Romania as consultants in one of the Big 4 international companies, having as clients many international companies acting in a wide range of industries. The team includes chartered accountants (Romanian Chartered Accountants Body and also ACCA) specialized in assistance of the accounting function of companies, as well as a team specialized in payroll administration on behalf of the client. We provide full range of accounting services, payroll services, local tax compliance and tax advice, services tailored to your company needs: Start up services Organization of the accounting function ACCOUNTING AND PAYROLL EXPERT TEAM Bookkeeping Recurrent accounting assistance Accounting and tax advice «on line» Payroll computation and additional services Assistance in implementation of information systems Training The above information is a short summary of recently published information and is not intended to be advice on any particular matter. APEX Team International disclaims liability to any person in respect of anything done in reliance of the contents of these publications APEX APEX Team Team International