TAXATION OF ENTERPRISES...

Transcription

1 CONTENTS CONTENTS TAXATION OF ENTERPRISES Corporate Income Tax The Estimation of the Taxable Profit Statement and Payment of Taxable Profit Transfer Pricing Tax Losses Foreign Tax Credit The Tax on Dividends TAXATION OF NON-RESIDENTS (Withholding Taxes) General Principles Permanent Establishment Withholding Taxes Capital Gains The Elimination of Double Taxation TAX FACILITIES MICRO-ENTERPRISE TAX The Definition of Micro-enterprises Taxation of Micro-enterprises Tax Base THE VALUE ADDED TAX (VAT): INCOME TAX FOR NATURAL PERSONS LOCAL TAXES SOCIAL SECURITY SISTEM Social Security Taxpayers Employee Contributions Employers Contributions TAX ON CONSTRUCTIONS Taxpayers Tax rate and taxable base

2 1. TAXATION OF ENTERPRISES 1.2 Corporate Income Tax Entities subject to Corporate Income Tax Romanian companies; Foreign companies operating in Romania through a permanent establishment; Non-resident foreign companies and natural persons carrying out their activity in Romania in a JV with or without legal personality; Foreign companies which derive revenues from or in connection with real estate transactions or transactions with shares of a Romanian company; Resident natural persons in partnership with Romanian legal entities, for revenues derived both in Romania and abroad, in a JV with or without legal personality; Legal persons with their registered office in Romania, and established under European legislation. Exempt Entities State institutions for their specific activity; Micro-enterprises; Romanian foundations formed as a result of a legacy; Religious denominations; Educational institutions; Homeowner associations; Guarantee fund for bank deposits, investors compensation fund, guarantee fund for private pensions; National Bank of Romania; 2

3 Non-profit organizations for their specific activities; for economic activities worth up to EUR 15,000 per annum or 10% of the total exempt income. The Fiscal Year The fiscal year is considered to be the calendar year; The accounting year is usually the calendar year, but, since 2009, certain categories of entities (Romanian branches of foreign companies, Romanian consolidated subsidiaries and subsidiaries of foreign companies) are allowed to set an accounting year that does not correspond to the calendar year if the financial year of the mother company differs from the calendar year; Establishing a financial reporting period different from the calendar year does not modify the period for which the corporate profit tax is calculated, namely the calendar year; Also, taxpayers who opted for a financial year different from the calendar year may opt for the fiscal year to correspond to the financial year. The Corporate Income Tax Rate The standard corporate income tax rate is 16%; The corporate income tax due by companies which carry out activities such as night bars, night clubs, casinos, discothèques or sport bets may not be less than 5% of the total income obtained from these activities; The representative offices of foreign companies must pay a tax equal to the RON equivalent of the amount of EUR 4.000, set for a fiscal year, at the exchange rate announced by the National Bank of Romania valid on the day when the payment of the tax is made to the State budget. The income tax rate applied to micro enterprises is of 3%. 3

4 1.3 The Estimation of the Taxable Profit Tax Base The taxable profit is calculated as the difference between the revenues from any source and expenses incurred in order to achieve the revenues, throughout a tax year, deducting non-taxable revenues, and adding non-deductible expenses. Tax exemption for reinvested profits Starting with the 1st of July 2014, the profit reinvested in technological equipment used for business purposes is exempt of tax. The technological equipment listed in this category comprise machinery, tools and working plant as included in subgroup 2.1 of the Catalogue for the classification and the useful life of fixed assets; Non-taxable Income Dividends received from a Romanian company; Dividends received from a foreign legal entity paying corporate income tax or a tax similar to the tax on profit, located in a third country, with which Romania has concluded a double taxation convention, if the Romanian legal person that receives dividends has held, by the date of their record according to the accounting reglementations, for an uninterrupted period of 1 year, a minimum of 10% of the share capital of the legal person that pays dividends. Positive value differences for equity interests, recorded as a result of the incorporation of reserves, benefits or issue premiums with legal persons where equity interests are held; Income from the annulment of expenses for which no deduction was granted, Income from the reduction or annulment of provisions for which no deduction was allowed Income from the recovery of non-deductible expenses Income from the return or annulment of interests and/or late payment penalties for which no deduction was granted; Income representing the annulment of the reserve for the contribution in kind to the capital of other legal persons. 4

5 Non-taxable income explicitly stipulated in contracts and memoranda; Income from the sale/transfer of shares held in a Romanian legal entity or a foreign legal entity located in a state with which Romania has concluded a double taxation convention, if by the date of sale/transfer included the taxpayer has held for an uninterrupted period of one year a minimum of 10% of the share capital of the legal person. Not covered by these provisions are the incomes derived from the sale/ transfer of shares held in a Romanian legal entity by a legal entity resident in a country with which Romania has not concluded a double taxation convention; Income from the postponed corporate income tax appointed and registered by taxpayers that apply accounting regulations pursuant to the International Financial Reporting Standards. Income represented by the fair value s adjustment of property investments/biological assets, as a consequence of an ulterior assessment using a model based on the fair value by tax payers that apply accounting regulations pursuant to the International Financial Reporting Standards. Income from the liquidation of another Romanian legal person or a foreign entity located in a state with which Romania has concluded a double taxation convention, if according to the law, by the date when the liquidation operation begins, the taxpayer has held for an uninterrupted period of one year a minimum of 10% of the share capital of the legal person undergoing the liquidation process. Expenses Type Expenses are divided into three categories: deductible expenses, limited deductibility expenses and non-deductible expenses. Fully Deductible Expenses The general rule is that deductible expenses are only the ones incurred for the achievement of taxable income, including those provisioned by the law in force. Here are some examples of deductible expenses: Expenses for the purchase of packaging; Expenses incurred for labour protection and expenses incurred for the prevention of labour accidents and occupational diseases; 5

6 Expenses representing contributions to the insurance against labour accidents and occupational diseases and expenses with insurance premiums for the insurance of professional risks; Advertising and publicity expenses incurred for promoting company products or services under a written contract, as well as costs associated with producing materials for the dissemination of advertising messages, including goods that are granted as part of advertising campaigns as samples, for product testing and demonstrations at the points of sale, and other goods and services provided in order to stimulate sales; Transport and accommodation expenses within the country and abroad, incurred for employees and administrators, as well as other natural persons related to them; Contribution to the mutual guarantee reserve of the central house of credit cooperatives; Expenses for training and professional improvement of hired staff; Expenses for marketing, market research, promotion on existing or new markets, expenses for attending fairs and exhibitions, business missions and for the publication of information materials; Research and development expenses which do not comply with the conditions required in order to be recognized as intangible assets from an accounting point of view; Expenses for improving the management, information systems, introduction, maintenance and improvement of quality management systems, for obtaining certifications in accordance with quality standards; Expenses for environmental protection and resource conservation; Losses arising from the removal from record of uncollected receivables, provided that: the debtors' bankruptcy procedure was closed under a court decision; the debtor died and the claim could not be recovered from the successors; the debtor is dissolved, in case of a limited liability company with a single-member, or liquidated, without successors or the debtor encounters major financial difficulties which affect the assets and liabilities thereof; Expenses incurred in relation to fines, interest, penalties or increases due under commercial contracts; 6

7 Expenditures for environmental protection and resource conservation; Registration fees, mandatory charges and contributions, governed by the legislation in force, as well as contributions to the fund designed for the negotiation of the collective labour agreement; Registration fees, subscriptions and contributions payable to the Chambers of Commerce and Industry, trade unions and employers unions. Expenses for the evaluation/reevaluation of tangible fixed assets pertaining to the state s public domain or to the territorial and administrative divisions, held in concession/administration, expenses performed at the request of the manager of the institution holding the property right; Expenses for the registration in the Real Estate Register or in the Real Estate Advertising Books, of the state s/the territorial and administrative divisions right of ownership over the public assets held in concession/ administration, expenses performed at the request of the manager of the institution holding the property right; Expenses incurred as a consequence of the refundment of subventions received from national or international authorities; Expenses with benefits granted to employees as equity instruments cash-settled at the factual time of the benefit s grant, if they are taxed according to the rules regarding the income tax. Limited Deductibility Expenses Entertainment expenses up to the limit of 2% of the difference between total taxable income and total expenses related to the taxable income, other than entertainment expenses and corporate income tax expenses; Social expenses are deductible up to the limit of 2% of salary expenses; Perishables, within the limits established by specialized bodies of the central administration together with specialized institutions, with the approval of the Ministry of Public Finance; Expenses representing meal tickets granted by employers; 7

8 Expenses for provisions and reserves, under certain specific conditions; Expenses for interest and exchange rate differences based on the National Bank of Romania s interest reference rate and on the companies indebtedness rate ; Expenses on amortisation and, specific to vehicles having certain characteristics, the amortisation is limited to lei /month. Expenses concerning optional pensions are deductible for the employer up to the limit of EUR 400 per person a year and voluntary health insurance premiums, up to the limit of EUR 250 per person a year; Fees and contributions paid to non-governmental organizations and professional associations related to the taxpayer s activity are deductible up to the limit of EUR 4,000 a year; Expenses for the operation, maintenance and repair of company accomodation houses located in the city where the company s headquarters are or where the company has secondary offices, deductible up to the limit corresponding to built surfaces according to the Housing Law no. 114/1996, republished and subsequently amended, fiscally increased by 10%; Expenses for the operation, maintenance and repair related to headquarters located in the private property of a natural person, used for personal purposes, deductible up to the limit corresponding to surfaces available to the company on the basis of contracts concluded between parties for this purpose; Expenses for the operation, maintenance and repairs of vehicles used by persons in management and administration positions within the legal person are the deductible for no more than one car per person with such duties. Non-deductible Expenses Expenses related to corporate income tax in Romania and the tax on income earned abroad; Expenses for taxes not withheld at source on behalf of non-resident natural and legal persons, for income obtained in Romania, as well as expenses for the delayed corporate income tax incurred by taxpayers who apply accounting regulations consistent with International Financial Reporting Standards; 8

9 Interest/delay increases, fines, seizures and late payment penalties payable to Romanian/foreign authorities; Expenses related to stocks or tangible assets found to be missing or degraded, and nonattributable, for which insurance contracts were not concluded; Expenses incurred in favour of shareholders or partners, other than those resulting from payments for goods delivered or services rendered to the taxpayer, at the market price for such goods or services; Value Added Tax expenses related to goods granted to employees in the form of benefits in kind, if their value has not been subject to the withholding tax. Expenses incurred by agricultural enterprises, incorporated under the law, for the right to use the agricultural land brought by the associates, exceeding the distribution quota of the production resulting from its use, stipulated in the company or association act. Expenses for non-taxable income; Expenses which are not based on documentary evidence; Expenses for the payment of contributions above the established limits or which are not regulated by the law; Expenses for insurance premiums paid by the employer on behalf of the employee, which are not included in the employee s wages. Salary and/or similar expenses, which are not taxed to the employee; Expenses for management, consultancy, assistance or other services, for which taxpayers cannot justify their necessity of performance for the purpose of the activities carried out by them and for which no contracts were concluded; Insurance premium expenses which do not concern the assets of the Company; Losses incurred at deregistration of receivables which are uncertain or in litigation, uncollected, for the part not covered by provisions, as well as losses incurred at deregistration of receivables which are uncertain or in litigation, uncollected, in situations other than those required by law. 9

10 Sponsorship and/or patronage expenses and expenses related to private scholarships are non-deductible, but for which tax credit is given up to either 0.3% of the turnover or 20% of the due corporate income tax, whichever is the lowest; Expenses registered in accountancy, based on documents issued by inactive taxpayers Expenses representing the depreciation value of fixed assets, if, as a result of performing a re-evaluation, there is a decrease in their value; 50 % of expenses made with motor vehicles held or used by the company, that are not used exclusively for the purpose of the economic activity, with a weight of under 3,500 kg and no more than nine passenger seats (including the driver), except: o o o o o Vehicles used exclusively for emmergency situations, security and protection or courier; Vehicles used by sales and acquisitions agents Vehicles used to people s paid transport, including taxis Vehicles used for paid rendering of services, including rental to other persons or for training as part of driving schools. Vehicles used as commodity for commercial purpose. Expenses for benefits granted to employees as equity instruments settled with shares; Expenses registered in accountancy, regardless of their kind, subsequently prooved to be linked to corruption facts; Fiscal regulations applicable to fiduciary contracts concluded within the regulations of the new Civil Code came into force as of October Fiscal regulations for companies that apply accounting regulations consistent with the International Financial Reporting Standards came into force as of Statement and Payment of Taxable Profit As a general rule, the statement and payment of taxable profit should be done quarterly, until the 25th, inclusive, of the first month following the end of the I-III trimesters. The completion and payment of the corporate income tax shall be done until March, 25th of the year following the one for which the tax is computed; 10

11 As an exception, non-profit organizations and companies deriving the majority of their income from cereal crop, industrial plant growing and potato crop, fruit growing and wine growing, are required to declare and pay the annual corporate income tax until the 25th of February, inclusive, of the following year. Starting with January 1st 2013, companies may choose to declare and pay the annual profit tax with quarterly advanced payments; the chosen option is compulsory for at least 2 consecutive tax years. 1.5 Transfer Pricing Transactions between affiliated companies should observe the arm s length principle; If transfer prices are not set in accordance with this principle, the Romanian tax authorities have the right to adjust the incomes or expenses of the taxpayer, so as to reflect the corresponding market value; Companies engaged in transactions with affiliated companies are under the obligation to prepare and provide the Romanian tax authorities with a transfer pricing documentation file, upon the request and within the time limit set by authorities; The failure to provide the transfer pricing documentation file or the presentation of an incomplete file might trigger a fine of 12,000 to 14,000 lei (EUR 3,000 to 3,300) and the estimation of the transfer prices made by tax authorities. 1.6 Tax Losses Starting with 2009, the annual tax loss shall be recovered from taxable profits obtained throughout the following 7 consecutive years; In case of reorganisation operations, the recovery of tax losses is allowed proportional to transferred assets and liabilities. For foreign legal persons, loss carry-forward only applies in the case of income and expenses related to the permanent establishment in Romania. External tax losses incurred by a permanent establishment situated in a state that is not an UE or EFTA member or a state with which Romania has not concluded a Double Taxation Convention are deductible only from the income obtained by the respective permanent establishment. 11

12 Unrecovered external tax losses are carried forward and retrievable in the next 5 subsequent years. 1.7 Foreign Tax Credit Tax paid abroad, either directly or indirectly by withholding and transfer by another person, shall be deducted from the corporate income tax payable in Romania and may not exceed the corporate income tax rate valid in Romania - 16%; The tax credit is granted only from the corporate income tax estimated for the year during which the tax has been paid abroad. The tax paid in a foreign state shall be deducted if the provisions of the Double Taxation Convention concluded between Romania and such foreign state apply and if the Romanian legal entity submits the related documentation. 1.8 The Tax on Dividends Dividends paid by a Romanian company to another Romanian company are subject to a dividend tax of 16%; The tax shall not apply in the case of dividends paid by a Romanian legal person to another legal person if, by the time of payment of dividends, the recipient of the dividends has held at least 10% of the equity interest of the other legal person, for a period of one full year by the date of the payment thereof, included (applicable since January 1 st, 2014); As of January 1st, 2014 dividends received by a Romanian legal person, mother company, from one of its subsidiaries residing in a EU Member State shall not be taxed if the legal person pays corporate income tax and holds at least 10% of the share capital of the subsidiary for at least 1 full year. As of January 1st, 2014 dividends received by permanent establishments located in Romania of foreign legal persons from other EU member states, mother-companies, which are distributed by their subsidiaries located in Member States shall not be taxed if the foreign legal person cumulatively complies with the following conditions: 1. It is set up according to the law; 12

13 2. In agreement with the member state tax legislation, it is considered to be resident of that member state and under a double taxation convention concluded with a third state, it is not considered to be resident for tax purposes outside the European Union; 3. In agreement with the tax legislation of a member state and without the possibility to opt or to be exempt, it pays corporate income tax or a tax similar to that; 4. It holds at least 10% of the share capital of the legal person located in another member state, which distributes the dividends; 5. By the date when the permanent establishment from Romania recognizes the income from dividends, the foreign legal person has held the minimum share stipulated at par. 4 above, for an uninterrupted period of at least 1 year. The amounts distributed as dividends are exempt from taxation if they are invested in the same company or in the share capital of another Romanian legal person in order to preserve and create jobs for the development of the activity of the Romanian company in question. 2. TAXATION OF NON-RESIDENTS (Withholding Taxes) 2.1 General Principles Non-residents are required to pay tax on the income derived from Romania; Foreign entities are subject to taxation if a branch, a permanent establishment or a representative office is established or if they come into the scope of the withholding tax for the income derived from Romania; The tax payable by non-residents for the taxable income earned in Romania shall be paid to the State budget by the payers of income - residents or permanent establishments. 2.2 Permanent Establishment A permanent establishment is not a legal person, but is subject to taxation in Romania and is defined as the venue where the entire or part of the activity of a non-resident company is carried out, directly or through a dependent agent. The taxable profit of a permanent establishment is determined in agreement with the general rules applicable for the computation of the taxable profit. As of July 1st, 2013, the foreign legal person which operates in Romania through several permanent establishments is under the obligation to make one of these locations a 13

14 permanent establishment designated to fulfil its obligations in Romania. The incomes and expenses of permanent establishments belonging to the same foreign legal person are cumulated on the level of the designated permanent establishment. The taxable profit of a permanent establishment is determined taking into account only the income and expenses ascribed to it. 2.3 Withholding Taxes Taxable Income Non-residents are under the obligation to pay withholding tax at a rate of 16% for income obtained in Romania, such as: Dividends; Interest; Royalties; Commissions; Income from sport and entertainment activities held in Romania, whether the income is picked up by the person who effectively participates in such activities or by other persons; Income representing compensation received by non-residents that have the quality of administrator, founder or member of the Board of Directors of a Romanian legal entity; Income from the performance outside Romania of management services, consultancy in any domain, marketing services, technical assistance, research and design in any field, advertising and publicity of any kind, as well as services performed by lawyers, engineers, architects, notaries public, accountants, auditors; Income from services carried out in Romania irrespective of their nature; Income from independent professional practice carried out in Romania; Income from pensions received from the social security budget or state budget if the monthly pension exceeds lei; Income from prizes earned at contests organised in Romania; 14

15 Income from gambling earned in Romania, obtained for each game of chance from the same organizer in the same day; Income derived by non-residents from the liquidation of a Romanian legal entity; Income derived from the transfer of the fiduciary patrimonial mass from the fiduciary to the non-resident beneficiary whithin the fiduciary operation. Exceptions The provisions of 2011/96/EU Directive on the common system of taxation applicable to parent companies and their subsidiaries (Parent-Subsidiary Directive) and of 2003/49/EC Directive on a common system of taxation applicable to payments of interest and royalties performed between associated companies from different Member States, are also applicable in Romania, as follows: o o Dividends paid by a Romanian company to a company residing in one of the EU Member States are exempt of withholding tax if the recipient of the dividends has held a minimum of 10% of the shares of the Romanian company for an uninterrupted period of at least one year, ending on the date of payment of dividends; Interest and royalties paid by a Romanian company to a company residing in one EU Member State are exempt of payment of the withholding tax if the recipient of the interest and royalties has held a minimum of 25% of the shares of the Romanian company for an uninterrupted period of at least two years by the date of payment of the interest or royalties. In order to enforce the provisions above, non-residents must provide the income payer with a tax residence certificate, as well as a statutory declaration on the compliance with the conditions provided by European directives. Exemptions The following categories of income obtained in Romania by non-residents are exempt from the payment of withholding tax: Interest related to public debt instruments in RON and in foreign currency, revenues from transactions with derivative instruments used in the management operations of risks associated to public debts and revenues from the trade of State bonds and debentures issued by local authorities, in RON and in foreign currency, on the domestic and foreign 15

16 capital market, as well as interest related to instruments issued by the National Bank of Romania for monetary policy purposes and revenues from the trade of securities issued by the National Bank of Romania; Income from international transport and auxiliary services; Prizes granted to non-resident natural persons participating to national or international artistic, cultural and sport contests financed with public funds; Prizes granted to non-resident students and pupils participating to contests financed with public funds; The income of foreign legal persons which carry out consultancy activities in Romania under free funding agreements. Income of non-resident natural persons derived from the participation to a game of chance held in another state, whose gain fond is derived from Romania too; Interest and/or dividends paid to pension funds. 2.4 Capital Gains Capital gains obtained by non-residents from the sale of real estate properties located in Romania or from the sale of shares held in Romanian companies shall be taxed in Romania at a rate of 16%; In certain situations, more favourable conditions of Double Taxation Conventions shall apply. Incomes obtained by non-residents on foreign capital markets from the transfer of equity interests held in a Romanian legal entity, as well as from the transfer of securities issued by Romanian residents are not subject to taxation in Romania. 2.5 The Elimination of Double Taxation The tax rate applicable to the taxable income obtained by non-residents in Romania is represented by the most favourable rate provided by the domestic law, EU law or the double taxation conventions; 16

17 The provisions of the double taxation conventions shall apply when a tax residence certificate is provided, both in original and translated and notarised, by the non-resident beneficiary of the income at the time of its earning; The failure to provide the tax residence certificate at the time of payment implies the application of internal legislation provisions; The tax residence certificate provided for a given fiscal year is also valid for the next 60 calendar days of the next year unless the residence conditions change. 3. TAX FACILITIES An additional deduction is granted when calculating the taxable profit, amounting to 50%, for research and development expenses which meet the conditions stipulated by the law; The accelerated depreciation is allowed for technological equipment, i.e. machines, tools and equipment, as well as for computers and their peripherals - a deduction of 50% from the fiscal value of the assets during the first year of use, while the remaining value may be depreciated linearly along the expected remaining useful life; As of 2009, distributed dividends are exempt from the tax payment if they are invested in the same company or in the equity stock of another Romanian legal person in order to preserve and to create jobs for the development of the activity of the Romanian company in question. Note: So far, the procedure for the enforcement of the above-mentioned provisions concerning reinvested dividends has not been issued. The profit reinvested in the production and/or acquisition of technological equipment (machinery, tools and working plant), as included in subgroup 2.1 of the Catalogue for the classification and the useful life of fixed assets, used for business purposes is exempt of tax (for more details please check section 1.3). 4. MICRO-ENTERPRISE TAX 4.1 The Definition of Micro-enterprises They derive income from activities other than: banking activities, activities in the field of insurance and reinsurance, on capital market or in gambling; 17

18 They derive income from activities other than consultancy and management activities, at a rate of over 80% from the total income; They derived income which has not exceeded the RON equivalent of EUR 65,000; The share capital thereof is not held by state or local authorities; They are not in the process liquidation lodged with the Trade Registry or to judicial court, according to the law. 4.2 Taxation of Micro-enterprises The fiscal year of a micro-enterprise is the calendar year and the tax rate for the income of micro-enterprises is 3%. 4.3 Tax Base The tax base associated with the income tax of micro-enterprises is the income derived from any source, minus: Income associated with the cost of product stocks; Income associated with the costs of ongoing services; Income from the production of tangible and intangible fixed assets; Income from operating subsidies; Income from provisions and adjustments for impairment or loss of value; Income arising from the refund or cancellation of interest and/or delay penalties, which were non-deductible expenses in calculating the taxable profit; Income from compensations from insurance/reinsurance companies, for damages caused to stock assets or tangible assets. 5. THE VALUE ADDED TAX (VAT): The standard rate is 24%; 18

19 The reduced rate is 9% for certain services and goods; The rate of 5% is for the sale of buildings provided certain conditions are met; As a general rule, the taxable period is the calendar month. For taxable persons registered for VAT purposes whose turnover at the end of the previous year did not exceed EUR 100,000 and which, during the previous year, did not carry out any or several intra-community acquisitions, the tax period is the calendar quarter; The rules for determining the place of delivery of goods and of provision of services (and therefore the place for the VAT taxation) are fully in line with the EU Directive 112/2006 and the EU legislation on VAT; A specific treatment shall apply for intra-community transactions with goods and services; No VAT shall apply for the transfer of a business; Factoring and receivable recovery operations shall be subject to VAT; Special conditions apply to small enterprises, travel agencies, second-hand goods, works of art, collection pieces and antiques, for investment gold and for electronic, telecommunication, radio or TV services provided by taxable persons not located in the European Union, or by taxable persons located in the European Union, but in a Member State other than the Member State of consumption; In certain conditions, it is possible for certain companies to form a tax group for VAT purposes; Starting with August 1 st, 2010, taxable persons and non-taxable legal entities carrying out intra-community trade in goods and services are required to register with the "Register of Intra-community Operators". Certain specific rules on the registration for VAT purposes and the cancellation of the registration for VAT purposes are applicable, in this regard companies being labeled in the Register of taxable persons registered for VAT purposes or the Register of taxable persons whose registration for VAT purposes according to Art.153 has been cancelled ; In 2013 the system regarding the chargeability of the VAT upon collection was mandatory for companies whose turnover for the previous calendar year did not exceed the limit of RON

20 Starting with January 1 st, 2014, the applicability of the system described above is optional. In 2013 came into force The Register of taxable persons that apply the VAT upon collection system. Starting with January 1 st 2013 the norms regarding invoicing are in agreement with the provisions of the 2010/45/EU Directive which amends the CE 112/2006 Directive regarding the invoicing norms; The threshold for microenterprises (non-taxable persons) is of RON ( EUR) 6. INCOME TAX FOR NATURAL PERSONS The flat tax for most types of income earned by natural persons is of 16%; Romanian natural persons domiciled in Romania must pay income tax for the income obtained both in Romania and in other countries; Non-resident natural persons (foreigners) must pay income tax for the income obtained both in Romania and in other countries, starting with the 1st of January of the calendar year subsequent to the year when they fulfill the criteria for fiscal residence in Romania. In case of non-resident natural persons (foreigners) the Double Taxation Convention shall apply if a tax residence certificate is provided, valid for the year/years for which it is issued. Resident natural persons domiciled in Romania, who make proof of the change of residence to a state with which Romania has not concluded a Double Taxation Convention, must pay income tax for the income obtained both in Romania and in other countries, for the calendar year when the change of residence is incurred and for the 3 subsequent calendar years. Taxable Income Salary income; Income from independent activities; Income from the transfer of use (rent); 20

21 Income from pensions that exceed RON 1,000 per month; Income from agriculture, forestry and fishery activities; Income from awards and gambling; Income from investment; Income from real estate transactions; Income from other sources. Non-taxable Income Public assistance, indemnities and other types of support having a special destination, granted from the State s Budget, the state s social insurance budget, special funds budget, local budgets and other public funds, including the ones granted from nonrefundable external funds; Income derived from the recovery of movable goods like wastes in view of dismemberment in collecting centers that are subject to national programs financed by the State Budget or by other public funds; Amounts received from insurance of any kind representing compensations, insured amounts and compensations in cash or in kind, received for material damage, including compensations representing moral prejudice; Amounts derived from an expropriation having as cause the public use; Amounts received as compensations for damages incurred due to natural disasters as well as for invalidity or death, according to the law; Pensions for war invalidity, orphans, war widows/widowers, fixed amounts for caretaking of pensioners that have the 1 st degree of invalidity, and also pensions. Amounts or goods received as sponsorship. Income derived from the transfer of the property right over movable and immovable goods from the personal patrimony (except for the shares considered capital gains ); 21

22 Benefits in money and in kind received by conscripted soldiers, short-term conscripted soldiers, students and pupils to education institutions from the national security and defence sector or public order, and civilians, but also sergeants and mobilised soldiers. Scholarships received by persons following any kind of training or schooling form in an institutionalised organization; Amounts or goods received as inheritance or donation; Income received by persons having diplomatic status for their activities developed in Romania and income received by the officials of international systems and organisations for their activities developed in Romania having an official status; Net incomes received by diplomatic mission members, consular offices and cultural institutions of Romania located abroad; Income obtained by foreign citizens for management activities developed in Romania, according to the agreements for non-repayable funds concluded by Romania with other states, with international organisations and non-governmental organisations; Income obtained by foreign citizens as press correspondents, for their activities developed in Romania, under the condition that their status should be confirmed by the Romanian authorities. Amounts representing the difference of the subsidized interest for credits received in accordance with the law; Subsidies received for the acquisition of goods, if they are granted in accordance with the legislation in force; Income representing benefits in money and/or in kind received by handicapped persons, war veterans, invalids, war widows and persons politically or ethnically persecuted by the communist regime. Prizes received by athletes awarded at World or European Championships or at the Olympic Games. Prizes and other rights like benefits for accommodation, meal, transport and others likewise, received by pupils and students in internal and international competitions; State premium for collective system crediting and saving up for the locative domain. 22

23 Amounts or benefits received by natural persons for dependent activities developed in a foreign state, irrespective of the state s tax policy. Benefits from stock option plans at the moment of their granting and exertion. Amounts received to cover transport and accommodation expenses made during delegations/detachments; Amounts received to cover work related moving expenses; Income from salary received for software s creation and conception (both the employer and the employee must comply to certain criteria); Other non-taxable income, specified at each income category. As of October 2011 fiscal regulations applicable to income derived from fiduciary operations in agreement to fiduciary contracts concluded within the regulations of the new Civil Code came into force. 7. LOCAL TAXES Local taxes : a) Building tax; b) Land tax ; c) Vehicle tax; d) Tax to issue certificates, notices and authorizations; e) Publicity and advertising tax; f) Show tax; g) Resort tax; h) Special taxes; i) Other local taxes. 23

24 8. SOCIAL SECURITY SISTEM 8.1 Social Security Taxpayers Resident and non-resident natural persons who derive income from salaries or income similar to salaries as well as any other income from the performance of a dependent activity, complying with the provisions of the international legal conventions to which Romania is party; Owners of sole proprietorships as well as persons deriving income from associations with no legal personality; Family business members; Persons having the status of natural person authorised to carry out economic activities; Persons deriving income from liberal professions; Natural persons deriving income from intellectual property rights as well as from activities performed on the basis of civil conventions/agreements and agency agreements; Natural persons deriving taxable income from agricultural activities, forestry and fishery. Persons deriving income from the transfer of use of goods; Income derived by a natural person from an association with a legal person taxpayer not generating a legal person; Retired persons with pension income in excess of RON 740; Natural and legal persons with the capacity of employers, as well as entities assimilated to the employer; Public institutions; Any payer of income such as salaries or payments similar to salaries; Persons deriving income from investments, from prizes and gains from games of chance, from fiduciary operations, or from other sources, as well as persons not deriving income, are under the obligation to pay the contribution to the health insurance fund, if they do not pay this contribution for the types of income stipulated above; 24

25 8.2 Employee Contributions The contribution to the state social security budget %; The contribution to the unemployment insurance budget - 0.5%; The contribution to the social health security budget - 5.5%; The monthly basis for the calculation of individual social security contributions is the gross earnings obtained from dependent activities, within the country and abroad, in compliance with international legal conventions to which Romania is a party; The individual monthly social security contribution is limited to the threshold of five times the average gross salary for each location where income is derived. 8.3 Employers Contributions The contribution to the state social security budget %, 25.8%, 30.8% depending on the working conditions; The contribution to the social health security budget - 5.2%; The contribution for leave and indemnity 0.85% (cap amount); The contribution to the guarantee fund for the payment of salary debts %; The contribution to the unemployment insurance budget - 0.5%; The contribution to the insurance fund for work accidents and occupational disease % %; For the calculation of the amount, the monthly basis is represented by the gross earnings obtained by natural persons - resident and non-resident - under an employment contract (or an employment relationship or a special status), as well as income similar to salaries; The social security contribution is capped to the product between the number of insured persons and the value of five times the average gross salary; 25

26 The monthly basis for calculating the contribution for leave and allowances paid by employers is capped at the level of 12 minimal gross salaries per country, as guaranteed for payment, multiplied by the number of insured persons during that month ; 9. TAX ON CONSTRUCTIONS 9.1 Taxpayers Romanian legal entities, other than public institutions, national research and development institutions, associations, foundations and other non-profit legal entities; Foreign legal entities which carry out activity through a permanent establishment in Romania; Legal entities having their headquarters in Romania, established according to European legislation. For financial leasing transactions, the taxpayer is the lessee, while for operational leasing transactions the taxpayer is the lessor. 9.2 Tax rate and taxable base The tax on constructions is computed by applying a tax rate of 1.5% to the value of buildings owned by taxpayers at 31 December of the previous year, minus: j) The value of buildings, including the value of reconstruction, improvement, consolidation, modification or extension of rented buildings, buildings that are the object of a concession, administration, or usage agreement, for which building tax is owed by the taxpayer or the owner, as appropriate; k) The value of reconstruction, improvement, consolidation, modification or extension of constructions that are state property or are about to be transferred into the property of central or local state authorities; l) The value of constructions from subgroup Terraced farmland, fruit-growing plantations and vineyards from the Catalogue on the Classification and Normal Useful Lives of Fixed Assets. 26

27 * * * All information contained herein is general in nature and is not intended to address the specific circumstances of any particular natural or legal person. Although we endeavour to provide accurate and up-to-date information, there is no guarantee that such information is accurate on the date when it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 27