CONTRACT ENTR FR-TRA-00

Transcription

1 CONTRACT ENTR FR-TRA-00 IMPLEMENTED BY FOR DEMOLIN, BRULARD, BARTHELEMY COMMISSION EUROPEENNE - HOCHE - - DG ENTREPRISES - Study on Effects of Tax Systems on the Retention of Earnings and the Increase of Own Equity Jean ALBERT Team Leader - ANNEX ROMANIA - - COUNTRY REPORT - Submitted by Vlad CHIRIPUS Country Expert February 15,

2 ROMANIA Country Expert Vlad Chiripus (replaced to update the version of the report by Gabriel Sincu and Anamaria Acristini) Mazars Romania S.R.L 21 Tudor Arghezi St., 6th floor 2nd district Bucharest Romania Tel INTRODUCTION The trend recently imposed by the economic background, and in particular after Romania s EU accession which has deepened the competition that Romanian companies must face, is that of profit reinvestment. The information concerning undertakings listed on the Stock Exchange of Bucharest proves that the past few years the percentage of undertakings which reinvest profits in different ways: capital increase from their own resources, grant of free shares instead of dividends, grant of dividends under the value of returns, is constantly growing. Although the past few years the increase in the number of SME was significant on a one thousand 2

3 inhabitants basis, we rank on a mid position in a European hierarchy according to a study of the National Bank of Romania, although the value of granted loans has grown by 35% last year, only 13% of the SME turning to banks, stating that bank funding is still too expensive for them and the grant duration too long, which affects their competitiveness. Surveys of the National Council for Small and Medium-Size Enterprises points out that 77% of the SME prefer self funding, even if they can not mobilize as many resources as corporations do (loans granted to big corporations have increased by 10% last year compared to the 35% increase for SME loans). Thus, although with a different intensity, this trend of profit reinvestment shapes up as a general phenomenon of Romanian economy. 3

4 PART 1 GENERAL QUESTIONS 1. What are the main characteristics of the tax systems applicable on enterprises and business owners in your Country (corporate income tax, income tax, capital gains tax, other profit based taxes, capital based taxes, other taxes)? Taxable profits are calculated as the difference between the income obtained from any source and the expenses incurred in order to obtain income, in a fiscal year, out of which the non-taxable incomes are subtracted and to which non-deductible expenses are added 1. As a general rule, the standard companies are subject to a flat rate corporate/profits tax of 16% 2. In case of micro-companies the corporate tax is levied on their revenues and the applicable rates are of 2% in 2007, 2.5% in 2008 and 3% in In establishing taxable profits other elements similar to incomes and expenses are taken into account. In the case of taxpayers who perform international service activities, on the basis of the conventions signed by Romania, the incomes and expenses involved in providing them are taken into account when identifying the taxable profit, according to certain specialized norms established in accordance with the regulations in these conventions. The transactions between affiliated persons are performed in accordance with the principle of the free market price, according to which the transactions between affiliated persons are performed under the established or imposed conditions which must not be different from the commercial or financial relationships established 1 Art. 19 of the Tax Code 2 Art. 17 of the Tax Code 3 Art. 107 of the Tax Code 4

5 between independent enterprises 4. In establishing the profits of affiliated persons the principles regarding the transfer prices are taken into account. The following incomes are tax-free 5 in the calculation of taxable income: a)the dividends received form a Romanian legal person; b) the favorable differences in the value of securities, recorded as a result of incorporating reserves, benefits or premiums on bonds sold, with the legal entities that have participation shares, as well as the differences in the value of the long term financial investments, representing shares held within affiliated companies, securities and investments in terms of intangible assets and which are taxable on the date of their remittance free of charge, cession, withdrawal, liquidation of financial investments, as well as on the date equity is withdrawn by the legal entities where the participation shares are held; c) the incomes resulting from canceling the expenses that were not granted a deduction, the incomes resulting from the reduction in or cancellation of provisions that were not granted a deduction, as well as the incomes resulting from the recovery of non-deductible expenses; d) tax-free incomes, expressly stipulated in agreements and memoranda approved by laws. In order to calculate the taxable income, only the expenses incurred in order to obtain taxable income are considered deductible 6. The following are also expenses incurred in order to obtain taxable income 7 : the expenses incurred when purchasing packaging, for the period established by the taxpayer; the expenses incurred, according to the law, for labour protection and those incurred in preventing labour accidents and occupational diseases; the expenses representing the contributions to the insurance against labour accidents and occupational diseases, according to the law, and the expenses on the insurance premiums for the insurance against occupational risks; the expenses on advertising and publicity incurred in order to popularize the company, the products or services, on the basis of a contract in writing, as well as the costs associated with the production of the materials needed in the dissemination of advertising messages; travel and accommodation expenses in the country and abroad, incurred by employees and managers; the contribution to the mutual reserves fund guaranteeing the central institution of credit cooperatives; registration fees, subscriptions and mandatory contributions, regulated by the laws in force, as well as the contributions to the fund for the negotiation of the collective 4 Art. 11 of the Tax Code 5 Art. 20 of the Tax Code 6 Art. 21 of the Tax Code 7 Art. 21, para. (2) of the Tax Code 5

6 employment agreement; expenses on the occupational training and education of the employees; expenses on marketing, market research, promotion on existing or new markets, participation to fairs and exhibitions, business missions, publishing one s own newsletters; expenses on research, as well as expenses on development that do not meet the requirements in order to be assimilated to intangible assets from an accounting point of view; the expenses on the improvement in management, information systems, input, maintenance and improvement in quality management systems, obtaining certificates in accordance with quality standards; expenses for environment protection and the preservation of resources; registration fees, subscriptions and contributions to the chambers of commerce and industry, unions and owners organizations; the losses incurred when writing off bad debts. The following expenses have limited deductibility 8 : protocol expenses, up to a limit of 2% applied to the difference resulting from the overall taxable incomes and the overall expenses associated with the taxable incomes, other than the protocol expenses and the expenses on the corporate tax; the whole amount of the expenses on travel allowances granted to employees for trips in Romania and abroad, up to 2.5 times the legal level established for public institutions; social expenses, up to 2%, applied to the value of the expenses on the employees wages (maternity benefits, funeral benefits, sickness benefits for serious or incurable diseases and prostheses, as well as the expenses on the proper operation of certain activities or units administered by the taxpayer; kindergartens, day cares, health services granted in the case of occupational diseases and labour accidents before the person is taken to hospital, museums, libraries, canteens, sports facilities, clubs, apartment buildings for single persons, as well as the schools they administer, day care tickets, gifts in cash or in kind granted to minors and to male employees, gifts in cash or in kind granted to female employees; the cost for treatment and relaxation services, including transport, for their own employees and for the families thereof, the financial support for the employees who suffered losses in their households and the contribution to the intervention funds of the miners occupational association, aid for children in schools and foster homes); perishables; expenses representing restaurant tickets granted by employers; expenses on liabilities and reserves (limited); expenses on interests and the differences in exchange rates (limited); amortization (limited); expenses incurred, on behalf of an employee, in the optional pension schemes, up to an amount representing the RON equivalent of 200 in a 8 Art. 21, para. (3) of the Tax Code 6

7 fiscal year for each participant; expenses on voluntary health insurance premiums up to an amount representing the RON equivalent of 200 in a fiscal year for each participant; expenses on the operation, maintenance and repair of company apartments for employees, located in the same town with the headquarters or where the company has subsidiaries, deductible up to the limit corresponding to the built surfaces stipulated in the housing law, which is fiscally increased by 10%; expenses on the operation, maintenance and repair associated with the headquarters located on the private property of a natural person, also given personal use, deductible up to the limit of the corresponding surfaces made available for the company according to the contracts signed to this end; expenses on the operation, maintenance and repair associated with the company vehicles used by top managers and with the administration of the legal person, deductible up to at most one vehicle per natural person with such duties. The following expenses are not deductible 9 : the taxpayer s own expenses on the corporation tax, including those that represent the differences from previous years or from the current year, as well as the gains or income taxes paid abroad; the interests/surcharges for late payments, fines, forfeitures and penalties for late payments by the Romanian authorities, according to the legal provisions; expenses regarding the goods such as stocks or tangible assets missing from the inventory or damaged, non-deductible, for which no insurance contracts were signed, as well as the associated value added tax; expenses on the value added tax associated with the goods given to employees under the form of benefits in kind, if their value was not taxed at the source; expenses incurred in favour of shareholders or associates, other than those generated by payments for the goods delivered to or services performed for the taxpayer, at the market price for these goods or services; expenses recorded in accounting, which are not based on any vouchers, according to the law, which would account for the performance of the operation or accounting input; expenses recorded by agricultural enterprises, set up according to the law, on the right to use the agricultural land brought in by the associated member, above the distribution quota of the production obtained through using it, stipulated in the articles of incorporation or association; expenses due to the unfavourable differences in the values of securities in legal entities where securities are already held, as well as the unfavourable differences in the values associated with bonds issued on a long term, except for those determined by the sale/cession thereof; expenses associated with 9 Art. 21, para. (4) of the Tax Code 7

8 tax-free incomes; expenses on the contributions paid above the established limits or which are not regulated by laws; expenses on insurance premiums paid by the employer, on behalf of the employee, which are not included in the employee s salary incomes; other salary expenses and/or salary-like expenses, which the employee is not taxed for; expenses on management, consultancy, assistance services and other services, the necessity of which can not be accounted for by the taxpayer, for the performed activities, and for which no agreements are signed; expenses on the insurance premiums that are not associated with the taxpayer s assets, as well as those that are not related to the company s purpose, except for those regarding goods that are bank guarantees for credits used in performing the activity for which the taxpayer has a license or those used within certain rental or leasing contracts, according to contract provisions; losses incurred when writing off uncertain or litigated debts, not recovered yet, for the uncovered part of the liabilities, as well as the losses incurred when writing off uncertain or litigated debts, not recovered yet; expenses on sponsorships and/or patronage and expenses regarding private schoolarships, granted in compliance with the law; expenses recorded in accounting, based on a document issued by an inactive taxpayer whose fiscal registration certificate was suspended based on the order given by the President of the National Fiscal Administration Agency; expenses on taxes and subscriptions to non-governmental organizations or occupational associations that are connected with the activity performed by the taxpayers and which amount of more than the RON equivalent of 4000 per year. The taxpayer is entitled to the deduction of reserves and provisions as follows 10 : the legal reserve is deductible up to 5% applied to the accounting profit, before calculating the corporate tax, from which the tax-free incomes are deducted and to which the expenses associated with these tax-free incomes are added, until it reaches a fifth of the subscribed and disbursed part of the equity or of the patrimony, if applicable, in compliance with the organization and operation laws; the provisions for good performance guarantees granted to the clients; provisions up to a limit of 20% starting on January 1, 2004, 25% starting on January 1, 2005, 30% starting on January 1, 2006, off the value of the clients debts, incurred by the taxpayers and which meet cumulatively the following requirements: they are recorded after January 1, 2004, they have been outstanding for more than 270 days since maturity, they are not guaranteed by another person, they are to be paid by a 10 Art. 22 of the Tax Code 8

9 person who is not associated with the taxpayer and they were included in the taxpayer s tax-free incomes; specific liabilities, established in compliance with the organization and operation rules, by the credit institutions, non-banking financial institutions recorded in the General Register of the National Bank of Romania, as well as the specific liabilities set by other similar legal persons; the technical reserves made by insurance companies, except for the equalization reserve; risk provisions for the operations on the financial market, set in compliance with the regulations of the National Securities Commission; the provisions created within the limit of 100% of the value of the clients debts, recorded by the taxpayer, and which meet cumulatively the following requirements: they are recorded after January , the debt is held by a legal person undergoing bankruptcy procedure, based on a court decision confirming this situation, which are not guaranteed by another person, which are to be paid by a person who is not associated with the taxpayer and were included in the taxpayer s taxable income; liabilities for closing and the subsequent monitoring of waste warehouses, made by taxpayers who perform waste warehousing activities, up to the limit of the amount of money established through the project for the closure and monitoring the warehouse, corresponding to the percentage of the warehousing charges; liabilities made by airlines in Romania in order to cover the maintenance and repair expenses of the planes and spare parts, in accordance with the plane maintenance programs, accordingly approved by the Romanian Civil Aeronautic Authority. Expenses on interest 11 are entirely deductible if the capital debt level is lower than or equal to three (the capital debt level is calculated as a ratio between the borrowed capital with the reimbursement deadline of one year and one s own capital, as a mean of the values at the beginning of the year and at the end of the period for which the gains profit is calculated, and borrowed capital means the total amount of credits and loans with the reimbursement deadline of one year, in compliance with the contract provisions). The expenses related to the purchase, production, creation, assembly, installation or improvement of amortizable fixed assets are recovered from a fiscal point of view by deducting the amortization 12. The amortization of the goods that are the object of a leasing contract is made by the user, in the case of financial leasing, and by the tenant in the case of operational leasing. In the case of financial 11 Art.23 of the Tax Code 12 Art. 24 of the Tax Code 9

10 leasing, the user deducts the interest, and in the case of operational leasing the tenant deducts the rent (the leasing installment). The annual depreciation, established in the corporate tax statement, is recovered from the taxable profits made in the next 5 consecutive years. In the case of an association that is not a legal person, the incomes and expenses recorded are assigned to each associate, in accordance with the shares in the association Corporate Income What are the general principles for the computation of taxable profits? For purposes of the corporate income tax 14, the first thing what should be determined is whether the company has its place of business in Romania or it derives taxable income from Romania via a permanent establishment. Taxable profits are calculated as the difference between the income obtained from any source and the expenses incurred in order to obtain income, in a fiscal year, out of which the non-taxable incomes are subtracted and to which non-deductible expenses are added. As a general rule the standard companies are subject to a flat rate corporate/profits tax of 16%. In case of micro-companies the corporate tax is levied on their revenues and the applicable rates are of 2% in 2007, 2.5% in 2008 and 3% in In establishing taxable profits other elements similar to incomes and expenses are taken into account. In the case of taxpayers who perform international service activities, on the basis of the conventions signed by Romania, the incomes and expenses involved in providing them are taken into account when identifying the taxable 13 Art. 28 of the Tax Code 14 Art. 13 of the Tax Code 10

11 profit, according to certain specialized norms established in accordance with the regulations in these conventions. The transactions between affiliated persons are performed in accordance with the principle of the free market price ( arm s length ), according to which the transactions between affiliated persons are performed under the established or imposed conditions which must not be different from the commercial or financial relationships established between independent enterprises. In establishing the profits of affiliated persons the principles regarding the transfer prices are taken into account What are the main differences between the tax balance sheet and commercial balance sheet? The Romanian legislation does not recognize the specific notion of a tax balance sheet. However, for practical purposes (in general for group reporting purposes), companies may also draft tax balance sheets. The main differences refer to: Value of the fixed assets for fiscal purposes, the net value of the fixed assets is obtained by deducting the fiscal depreciation, while for accounting purposes it is obtained by deducting the accounting depreciation. The fiscal and accounting depreciation may differ; Net liabilities and receivables not all provisions set up for accounting purposes are also deductible for profit tax purposes. However, please note that the commercial balance sheet drafted in compliance with the legal accounting norms is the one that is officially handed in to the fiscal bodies and used as such in the company s current commercial and financial activity. 11

12 What are the most important adjustments for the computation of taxable profits/taxable gains on the base of accounting profits? The following incomes are tax-free in the calculation of taxable income 15 : a) the dividends received form a Romanian legal person; b) the favorable differences in the value of securities, recorded as a result of incorporating reserves, benefits or premiums on bonds sold, with the legal entities that have participation shares, as well as the differences in the value of the long term financial investments, representing shares held within affiliated companies, securities and investments in terms of intangible assets and which are taxable on the date of their remittance free of charge, cession, withdrawal, liquidation of financial investments, as well as on the date equity is withdrawn by the legal entities where the participation shares are held; c) the incomes resulting from canceling the expenses that were not granted a deduction, the incomes resulting from the reduction in or cancellation of provisions that were not granted a deduction, as well as the incomes resulting from the recovery of non-deductible expenses; d) tax-free incomes, expressly stipulated in agreements and memoranda approved by laws. In order to calculate the taxable income, only the expenses incurred in order to obtain taxable income are considered deductible 16. The following are also expenses incurred in order to obtain taxable income 17 : 15 Art. 20 of the Romanian Tax Code 16 Art. 21, para. (1) of the Romanian Tax Code 17 Art. 21, para. (2) of the Romanian Tax Code 12

13 the expenses incurred when purchasing packaging, for the period established by the taxpayer; the expenses incurred, according to the law, for labour protection and those incurred in preventing labour accidents and occupational diseases; the expenses representing the contributions to the insurance against labour accidents and occupational diseases, according to the law, and the expenses on the insurance premiums for the insurance against occupational risks; the expenses on advertising and publicity incurred in order to popularize the company, the products or services, on the basis of a contract in writing, as well as the costs associated with the production of the materials needed in the dissemination of advertising messages; travel and accommodation expenses in the country and abroad, incurred by employees and managers (starting with 2008, expenses incurred by other persons will also be deductible for profit tax purposes. Additional clarifications are expected as to explaining the persons for which such expenses will be deemed as deductible); the contribution to the mutual reserves fund guaranteeing the central institution of credit cooperatives; registration fees, subscriptions and mandatory contributions, regulated by the laws in force, as well as the contributions to the fund for the negotiation of the collective employment agreement; expenses on the occupational training and education of the employees; expenses on marketing, market research, promotion on existing or new markets, participation to fairs and exhibitions, business missions, publishing one s own newsletters; expenses on research, as well as expenses on development that do not meet the requirements in order to be assimilated to intangible assets from an accounting point of view; the expenses on the improvement in management, information systems, input, maintenance and improvement in quality 13

14 management systems, obtaining certificates in accordance with quality standards; expenses for environment protection and the preservation of resources; registration fees, subscriptions and contributions to the chambers of commerce and industry, unions and owners organizations; the losses incurred when writing off bad debts, provided that certain criteria are met. The following expenses have limited deductibility 18 : protocol expenses, up to a limit of 2% applied to the difference resulting from the overall taxable incomes and the overall expenses associated with the taxable incomes, other than the protocol expenses and the expenses on the corporate tax; expenses on travel allowances granted to employees for trips in Romania and abroad, up to 2.5 times the legal level established for public institutions; social expenses, up to 2%, applied to the value of the expenses on the employees wages (maternity benefits, funeral benefits, sickness benefits for serious or incurable diseases and prostheses, as well as the expenses on the proper operation of certain activities or units administered by the taxpayer; kindergartens, day cares, health services granted in the case of occupational diseases and labour accidents before the person is taken to hospital, museums, libraries, canteens, sports facilities, clubs, apartment buildings for single persons, as well as the schools they administer, day care tickets, gifts in cash or in kind granted to minors and to male employees, gifts in cash or in kind granted to female employees; the cost for treatment and relaxation services, including transport, for their own employees and for the families thereof, the financial support for the employees who suffered losses in their households and the contribution to the intervention funds of the miners occupational association, aid for children in schools and foster homes); 18 Art. 21, para. (3) of the Romanian Tax Code 14

15 perishables; expenses representing lunch tickets granted by employers; expenses on liabilities and reserves (limited); expenses on interests and the differences in exchange rates (limited only for loans obtained from non-financial institutions); amortization (limited); expenses incurred, on behalf of an employee, in the optional pension schemes, up to an amount representing the RON equivalent of 200 in a fiscal year for each participant; expenses on voluntary health insurance premiums up to an amount representing the RON equivalent of 200 in a fiscal year for each participant; expenses on the operation, maintenance and repair of company apartments for employees, located in the same town with the headquarters or where the company has subsidiaries, deductible up to the limit corresponding to the built surfaces stipulated in the housing law, increased by up to10% for fiscal purposes; expenses on the operation, maintenance and repair associated with the headquarters located on the private property of a natural person, also given personal use, deductible up to the limit of the corresponding surfaces made available for the company according to the contracts signed to this end; expenses on the operation, maintenance and repair associated with the company vehicles used by top managers and with the administration of the legal person, deductible up to at most one vehicle per natural person with such duties. The following expenses are not deductible 19 : the taxpayer s own expenses on the corporation tax, including those that represent the differences from previous years or from the current year, as well as the gains or income taxes paid abroad; the interests/surcharges for late payments, fines, forfeitures and penalties for late payments by the Romanian authorities, according to the legal provisions; 19 Art. 21, para.(4) of the Romanian Tax Code 15

16 expenses regarding the goods such as stocks or tangible assets missing from the inventory or damaged, non-deductible, for which no insurance contracts were signed, as well as the associated value added tax; expenses on the value added tax associated with the goods given to employees under the form of benefits in kind, if their value was not taxed at the source; expenses incurred in favour of shareholders or associates, other than those generated by payments for the goods delivered to or services performed for the taxpayer, at the market price for these goods or services; expenses recorded in accounting, which are not based on any vouchers, according to the law, which would account for the performance of the operation or accounting input; expenses recorded by agricultural enterprises, set up according to the law, on the right to use the agricultural land brought in by the associated member, above the distribution quota of the production obtained through using it, stipulated in the articles of incorporation or association; expenses due to the unfavourable differences in the values of securities in legal entities where securities are already held, as well as the unfavourable differences in the values associated with bonds issued on a long term, except for those determined by the sale/cession thereof; expenses associated with tax-free incomes; expenses on the contributions paid above the established limits or which are not regulated by laws; expenses on insurance premiums paid by the employer, on behalf of the employee, which are not included in the employee s salary incomes; other salary expenses and/or salary-like expenses, which the employee is not taxed for; expenses on management, consultancy, assistance services and other services, the necessity of which can not be accounted for by the taxpayer, for the performed activities, and for which no agreements are signed; expenses on the insurance premiums that are not associated with the taxpayer s assets, as well as those that are not related to the company s 16

17 purpose, except for those regarding goods that are bank guarantees for credits used in performing the activity for which the taxpayer has a license or those used within certain rental or leasing contracts, according to contract provisions; losses incurred when writing off uncertain or litigated debts, not recovered yet, for the uncovered part of the liabilities, as well as the losses incurred when writing off uncertain or litigated debts, not recovered yet; expenses on sponsorships and/or patronage and expenses regarding private schoolarships, granted in compliance with the law; expenses recorded in accounting, based on a document issued by an inactive taxpayer whose fiscal registration certificate was suspended based on the order given by the President of the National Fiscal Administration Agency; expenses on taxes and subscriptions to non-governmental organizations or occupational associations that are connected with the activity performed by the taxpayers and which amount of more than the RON equivalent of 4000 per year. The taxpayer is entitled to the deduction of reserves and provisions as follows 20 : the legal reserve is deductible up to 5% applied to the accounting profit, before calculating the corporate tax, from which the taxfree incomes are deducted and to which the expenses associated with these tax-free incomes are added, until it reaches a fifth of the subscribed and disbursed part of the equity or of the patrimony, if applicable, in compliance with the organization and operation laws; provisions for good performance guarantees granted to the clients; provisions set up to a limit of 20% starting on January 1, 2004, 25% starting on January 1, 2005, 30% starting on January 1, 2006, off the value of the receivables, incurred by the taxpayers and which meet cumulatively the following requirements: they are recorded after January 1, 2004, they have been outstanding for more than 270 days 20 Art. 22 of the Romanian Tax Code 17

18 since maturity, they are not guaranteed by another person, they are to be paid by a person who is not associated with the taxpayer and they were included in the taxpayer s tax-free incomes; specific provisions, established in compliance with the organization and operation rules, by the credit institutions, non-banking financial institutions recorded in the General Register of the National Bank of Romania, as well as the specific provisions set by other similar legal persons; technical reserves set up by insurance companies, except for the equalization reserve; risk provisions for the operations on the financial market, set up in compliance with the regulations of the National Securities Commission; provisions set up for up to 100% of the value of the receivables, recorded by the taxpayer, and which meet cumulatively the following requirements: they are recorded after January , the debt is held by a legal person undergoing bankruptcy procedure, based on a court decision confirming this situation, which are not guaranteed by another person, which are to be paid by a person who is not associated with the taxpayer and were included in the taxpayer s taxable income; liabilities for closing and the subsequent monitoring of waste warehouses, made by taxpayers who perform waste warehousing activities, up to the limit of the amount of money established through the project for the closure and monitoring the warehouse, corresponding to the percentage of the warehousing charges; liabilities made by airline companies in Romania in order to cover the maintenance and repair expenses of the planes and spare parts, in accordance with the plane maintenance programs, accordingly approved by the Romanian Civil Aeronautic Authority. Expenses on interests 21 are fully deductible if the debt to equity ratio is lower than or equal to three (the debt to equity ratio is calculated as a ratio between the borrowed capital with the reimbursement 21 Art. 23 of the Romanian Tax Code 18

19 deadline of one year and one s own capital, as amean average of the values at the beginning of the year and at the end of the period for which the gains profit is calculated, and borrowed capital means the total amount of credits and loans with the reimbursement deadline of one year, in compliance with the contract provisions). The expenses related to the purchase, production, creation, assembly, installation or improvement of amortizable fixed assets 22 are recovered from a fiscal point of view by deducing the amortization. The amortization of the goods that are the object of a leasing contract is made by the user, in the case of financial leasing, and by the tenant in the case of operational leasing. In the case of financial leasing, the user deducts the interest, and in the case of operational leasing the tenant deducts the rent (the leasing installment). The fiscal loss, established in the profit tax statement, may be carried forward and offset against the taxable profits made in the next 5 consecutive years 23. In the case of an association that is not a legal person, the incomes and expenses recorded are assigned to each associate, in accordance with the shares in the association Income What are the general principles of income taxation of business owners on business income, wages, distributed earnings, interest on loans and capital gain (sale of shares)? We have taken into account two situations, as follows: 22 Art. 24 of the Romanian Tax Code 23 Art. 26 of the Romanian Tax Code 24 Art. 28, para. (1) of the Romanian Tax Code 19

20 business owners who are legal entities; business owners who are natural persons. (i) Payments made to undertakings 1. Payment of dividends In the first category, we have the situation in which an undertaking pays dividends to an associate/shareholder which is, in its turn, an undertaking, therefore, the case of an undertaking owned by another undertaking. The general rule is that a Romanian legal person who pays dividends to a Romanian legal person must retain, declare and pay the dividend tax, retained for the state budget 25. The dividend tax is established by applying a tax quota of 10% on the gross dividend paid to a Romanian legal person. The above mentioned provisions do not apply in the case of dividends paid by a Romanian legal person to another Romanian legal person if the beneficiary of the dividends holds at least 15%, 10% respectively starting with 2009, of the shares thereof on the date dividends are paid, for a period of 2 full years until they are paid (i.e. following the introduction of the Parent-Subsidiary Directive in the Romanian law). The dividend tax quota mentioned before is applied to the amounts of money distributed to the open investment funds. 2. Permanent establishments The foreign legal entities that operate by means of permanent establishments in Romania must pay the corporation tax on the taxable income which is assignable to the permanent establishment 26. The taxable income is calculated under the following conditions: only the incomes assignable to the permanent establishment are included in the taxable incomes; only the expenses incurred in order to obtain these incomes are included in the deductible expenses. 25 Art. 20 and 20 1 of the Romanian Tax Code 26 Art. 13 and art. 29 of the Romanian Tax Code 20

21 3. Income from real estate and sale/cession of shares 27 The foreign legal entities who obtain incomes from real estate located in Romania or from the sale/cession of shares held within a Romanian legal person must pay the profit tax for the taxable profit associated with these incomes. The incomes from real estate located in Romania include the following: incomes from renting or leasing the real estate located in Romania; the gains from the sale/cession of ownership or any other legal rights over the real estate located in Romania; the gains from the sale/cession of shares held within a legal person, if at least 50% of the fixed assets value of the legal person is, whether directly, or by means of several legal entities, real estate located in Romania; the incomes obtained from the use of the natural resources located in Romania, including the gains from the sale/cession of any right associated to these natural resources. Any foreign legal person that obtains incomes from some real estate located in Romania or from the sale/cession of shares held in a Romanian legal person must pay profit tax. The profit tax rate that applies to the taxable profit, in all the situations mentioned above, is of 16%. (ii) Individual taxation In the second category, namely business owner who is a natural person, we speak about the following incomes of a natural person which fall into the domain of income tax, namely: incomes from independent activities; incomes from salaries; incomes from leasing goods; incomes from investments; incomes from pensions; incomes from agricultural activities; incomes from prizes and gambling; incomes from the transfer of real estate; incomes from other sources. The tax quota is of 16% and is applied to the taxable income corresponding to each source in each category for the calculation of taxes, for incomes from: independent activities; salaries; leasing goods; investments; pensions; agricultural activities; prizes; other 27 Art. 30 of the Romanian Tax Code 21

22 sources. The taxable period is the fiscal year corresponding to the calendar year. The following categories of incomes are relevant for the objective of this survey: a) The incomes from independent activities 28 include commercial incomes, incomes from independent occupations and incomes from royalties, obtained individually and/or under a form of association, including related activities. The incomes from the taxpayers commercial acts, performance of services and performance of a job are considered commercial incomes. The incomes from independent occupations are incomes obtained by performing the occupations of medical doctor, lawyer, notary, financial auditor, fiscal consultant, expert accountant, certified accountant, securities investment consultant, architect or other regulated occupations, performed independently, in compliance with the law. The incomes from the use, of any kind, of the royalties result from patents, drawings and designs, samples, trademarks and commercial brands, technical procedures, know-how, royalties and related rights and other similar ones. The net income from independent activities is calculates, as a general rule, as the difference between the gross income and the deductible expenses incurred in obtaining the income. b) The incomes from salaries 29 are represented by all the incomes in cash and/or kind obtained by a physical person that performs an activity based on an individual work contract or a statute especially stipulated by the law, irrespective of the period to which it refers, the name of the incomes or the form under which they are granted, including the temporary work incapacity benefits. For tax purposes, the following are assimilated to salaries: the pay from the activities performed in association with a position of public authority, established by the law, 28 Art. 46 of the Romanian Tax Code 29 Art of the Romanian Tax Code 22

23 the pay from the activities performed in association with a top position within the legal entities with no lucrative purpose, the soldiers rights to a monthly pay, salaries, bonuses, prizes, benefits and other rights of the military personnel, granted in compliance with the law, the gross monthly payment, as well as the amount from the net profit, due to the managers of national companies/enterprises, undertakings where the state or a local public administration authority is the majority shareholder, as well as the utility companies, the amounts of money received by the founding members of the undertaking created by public subscription, the amounts of money receive by the representatives in the shareholders general meeting, in the board of directors, in the management board and in the auditors committee, the amounts received by the representatives in tripartite bodies, according to the law, the monthly payment of the sole trader, at the level of the value written in the social insurance statement, the amount granted by non-profit organizations and other entities that do not pay profit tax, above the limit of 2.5 times the legal level established for the payment received for the period of delegation and transfer to another town, in the country and abroad, on business, for the employees in public institutions, the payment for the administrators as well as the amount from the net profit for the managers of undertakings according to the articles of incorporation or established by the shareholders general meeting as well as other amounts of money or benefits under the form of salaries or similar to them. The beneficiaries of incomes from salaries owe a monthly, final tax which is calculated and retained from the source by the ones who generate the incomes. The monthly tax is calculated as follows: at the place where the basic position is found, by applying the 16% quota to the calculation basis in terms of difference between the net salary income, calculated by deducting the monthly mandatory contributions from the gross income, of the personal deduction granted for that month, of the union subscription paid for that month and of the 23

24 contributions to the optional pension funds, so that the year level does not exceed the RON equivalent of 200; for the incomes obtained in the other cases, by applying the 16% quota to the calculation basis in terms of difference between the gross income and the mandatory contributions associated with each position that generates them. c) The incomes from leasing goods 30 are incomes, in cash and/or in kind, deriving from the lease of goods and real estate, obtained by the owner, beneficent owner or other legal owner, other than the incomes from independent activities. The gross income is represented by all the amounts in cash and/or the cash equivalent of incomes in kind and it is established on the basis of the rent or lease stipulated in the contract signed by the parties for each fiscal year, irrespective of the moment when the rent or lease are cashed in. The gross income is increased in accordance with the value of the expenses that, according to the legal provisions, are incurred by the owner, the beneficent owner or another legal owner, if they are made by the other party to the contract. The gross income from the lease of goods is established by deducting the expenses incurred by applying the 25% quota on the gross income from the gross income. By exception to this rule, the taxpayers may opt for the calculation of the net income from leasing the goods in real system, based on the data in single entry bookkeeping. d) The incomes from investments 31 include: dividends, taxable incomes from interests, gains form the transfer of bonds (bonds are any types of securities, shares in an open investment fund or other financial instrument, thus classified by the National Securities Commission, including derived financial instruments, as well as the equity), on the basis of a contract, as well as any other similar operations and incomes from the liquidation or the dissolution without liquidation of a legal person. Mainly, the incomes from interests to current/checking accounts and the incomes from the interests 30 Art of the Romanian Tax Code 24

25 associated with state and municipal bonds are tax-free. The gain/loss from the transfer of securities, other than the shares in open investments funds and equity, represent the positive/negative difference between the sale price and the purchasing price according to types of securities, minus the costs associated with the transaction, if the case be. In the case of the transactions with shares bought at a preferential price, within the stock options plan system, the gains are calculated as the difference between the sale price and the preferential purchasing price, minus the costs associated with the transaction. In case of the transfer of ownership of the shares in open investment funds, the gains are calculated as the positive difference between the redemption price and the purchasing/subscription price. The redemption price is the price that is rightfully given to the investor upon his withdrawal from the fund. The purchasing/subscription price is the price paid by the investor as natural person when purchasing the share. In the case of the transfer of ownership over equity, the gains from the sale of equity is calculated as the positive difference between the sale price and the nominal value/purchasing price. Starting with the second transaction, the nominal value will be replaced with the purchasing price, which also includes the expenses on the commissions ant taxes associated with the transaction and other similar expenses with documents in proof. The net annual gains are calculated as the difference between the gains and the losses recorded during that year, as a result of transacting securities, other than the equity and securities in the case of closed companies. The incomes obtained under the form of gains from futures foreign currency selling-purchasing operations, based on contracts, as well as any other types of operations of this kind represent the positive differences in exchange rates resulting from these operations, at the moment the operation is completed and recorded in the client s account. The net annual gains are calculated as the difference between the gains and losses recorded during that year from such operations. The taxable income obtained from the 31 Art of the Romanian Tax Code and point of the Application Norms of the Tax Code 25

26 liquidation of a legal person represents the supplementary distributions in cash or in kind beyond the contribution to the equity of the benefiting natural person. The incomes under the form of dividends, including the amounts received as a result of holding shares in closed investment funds, are taxed by 16% of their full amount. The legal entities must calculate and retain the dividend tax when paying the dividends to shareholders or associates. The deadline for tax payment is the 25th of the month following the one in which the payment is made. In the case of distributed dividends, which were not paid to the shareholders or associates by the end of the year in which the annual financial records were approved, the dividend tax is paid by December 31 of the respective year. The incomes under the form of interests to: created deposit accounts, acquired savings instruments, signed civil contracts, starting with January 1, 2007, are taxed by a 16% quota of their full amount. For the incomes under the form of interests, the tax is calculated and retained by those paying such incomes at the moment they are recorded in the owner s current account or the deposit account, respectively at the moment they are redeemed, in the case of savings financial instruments. In the case of the amounts of money received as interest to the loans granted on the basis of civil contracts, the calculation of the due tax is made at the moment the interest is paid. For the created deposit accounts, acquired financial savings instruments, signed civil contracts, current/checking accounts created before January 1, 2007, but whose maturity is after January 1, 2007, in calculating the tax on incomes from interests the tax quota at the moment they were created is applied. The calculation, retaining and payment of the tax on incomes from interests, other than those previously described, are made as follows: the gains from the transfer of securities, other than the equity and securities in the case of closed enterprises, are taxed by a 1% quota, the retained tax representing the advance payment of the due annual 26

27 tax. The obligation to calculate, retain and pay the tax representing the advance payment is associated with the intermediaries, the investment administration companies in case the shares in the open investment funds are redeemed or any other taxpayers, as the case be, in each transaction. The due annual tax is established by the competent fiscal body as follows: by applying the 16% quota to the annual net gains of each taxpayer, for the securities sold or redeemed, in the case of shares in open investment funds, starting with January 1, 2007, during a period shorter than 365 days from their acquisition; by applying the 1% quota to the annual net gains of each taxpayer, for the securities sold or redeemed, in the case of the shares in open investment funds, starting with January 1, 2007, for a period longer that 365 days from their acquisition. In the case of the gains from the transfer of securities, in the case of closed enterprises, and from the transfer of equity, the obligation to calculate, retain and pay the tax is with the beneficiary. Calculating and retaining the tax by the beneficiary are made at the moment the transaction is closed, based on the contract signed by the parties. The tax is calculated by applying the 16% quota to the gains, at each transaction, the tax being final. The transfer the ownership to securities or equity must be recorded in the trade register and/or in the associates /shareholders register, as the case be, an operation that cannot be performed without the proof of tax payment to the state budget. The gains from futures foreign currency selling-purchasing operations, based on contract, as well as from other similar operations, other than those with financial instruments transacted on markets authorized and supervised by the National Securities Commission, are taxed by a 1% quota per each transaction, the retained tax being the advance payment of the due annual tax. The obligation to calculate, retain and pay the tax is with the intermediaries or other income payers, as the case may be. The taxable income obtained from the liquidation of dissolution without liquidation of a legal person by the shareholders/associates as natural persons is taxed by a 16% quota, the tax being final. The obligation to calculate, retain and pay the tax is with the legal person. The losses incurred from the transactions with equity and securities, in the case of closed enterprises, are not 27