The Romanian Tax Pocket Book

Transcription

1 The Romanian Tax Pocket Book 2011 Edition

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5 Executive Summary 1 Individuals Personal Income Tax 10 General Principles 10 Tax Residence 10 Taxable Income 11 Types of income and the corresponding tax rates 11 Tax-exempt Income 16 Deduction from Income Tax 17 Taxation of Non-residents Social Security System 19 The Social Security System 19 Coverage 19 Contributions 19 Foreign Personnel 22 2 Taxation of Corporations Corporate Income Tax 25 Entities subject to income tax 25 Territoriality 25 Corporate Income Tax rate Calculation of Taxable Profits 26 Accounting and fiscal period 26 Tax base 26 Non-taxable revenues 27 Deductibility of expenses 27 Provisions and reserves 30 Accounting and fiscal depreciation 31 Thin capitalisation rules 32 Transfer pricing 33 Advance Tax Ruling 34 Foreign Fiscal Credit 34 Fiscal losses 35 Dividends, interest, royalties paid by resident companies to resident companies 35 Consolidation 36 Capital gains 36 The Romanian Tax Pocket Book

6 2.3 Corporate Tax for Foreign Entities 37 General principles 37 Branch of a foreign entity 37 Permanent establishment 37 Representative Offices 38 Withholding Tax 38 Capital Gains 39 Double Tax Treaties Corporate tax compliance 40 General aspects 40 Non-resident companies 41 Late-payment penalty Investment Incentives 42 Tax Incentives for companies 42 State aid 44 EU Funds Local Taxes and Other Taxes 52 Building Tax 52 Land Tax 53 Other Taxes 53 3 Indirect taxation Value Added Tax (VAT) 54 Scope of VAT 54 Outside VAT Scope 56 Territoriality Rules 56 VAT Chargeability 57 Taxable Amount 57 Taxable Regime 57 VAT Deduction 59 VAT Registration Threshold 60 VAT Registration 61 VAT Consolidation 62 Simplification Measures 62 VAT Compliance 62 VAT Refund Customs and International Trade 65 Customs Value 65 Customs Duties 66 Temporary Import Relief 67 Trade Measures 69 6 The Romanian Tax Pocket Book 2011

7 3.3 Excise Duties 69 Harmonised Excisable Products 69 Other Excisable Products 72 Car registration Tax 72 Environmental Fund Contribution 72 4 Tax Procedure Overview General principles 75 Interpretation of the law 75 Liability to other persons 75 Fiscal administrative acts 75 Fiscal Domicile 76 Other rules Specific tax procedures 76 Tax Registration 76 Tax Assessment 76 Tax Inspection 76 Collection of Budgetary receivables 77 Enforcement of Budgetary Receivables 78 Administrative Complaints 78 Suspension of enforcement 79 Appendices 80 Appendix 1 List of Double Taxation Treaties 81 Appendix 2 Withholding Tax Rates for Companies in Some Representative Double Tax Treaties 82 This publication aims to provide a general description of the tax system in Romania. The information contained is based on tax legislation and practice as at 1 January The Romanian Tax Pocket Book

8 Taxation of individuals Most types of income earned by individuals are taxed at a flat rate of 16%. Romanians domiciled in Romania are subject to taxation on their worldwide income (except for salaries received from abroad for activities performed abroad). Foreign individuals (including Romanians with a domicile outside Romania), are generally subject to Romanian taxation only for income sourced in Romania. However, as of 2007, foreign individuals are taxed on their worldwide income if specific criteria are met. Individuals employed abroad and performing employment activities in Romania who meet Romanian tax residency criteria may be required each month to calculate, declare and pay individual income taxes as well as contributions to the Romanian Social Security system (observing specific criteria), for income received for employent activities performed in Romania. Salary tax exemption may be applied for employees working on software creation if certain conditions are fulfilled. Dividend income, income from prizes and income from other sources are subject to a final 16% withholding tax. Capital gains from transfers of securities are taxed at 16%. Interest income earned from deposits in Romanian banks or other savings instruments is subject to a 16% withholding tax. Taxation of corporations Standard corporate income tax rate is 16%. The minimum tax was abolished during the 2010 tax year (applied to part of year). Dividend tax rate is 16% on dividends paid to Romanian companies and to non-resident companies. Non-residents may be eligible for a reduced rate under double tax treaties. Dividend tax is reduced to nil if the beneficiary is a company resident in an EU (including Romania) or EEA member state that holds, for at least two years, at least 10% of the shares of the company distributing the dividends. Standard withholding tax on interest and royalties paid to non-residents is 16%, which can be reduced under favourable treaties. From January 2011 these payments are also exempt from withholding tax if the beneficiary of the income is a company resident in the EU or EEA and holds at least 25% of the taxpayer s shares for a minimum period of two years. 8 The Romanian Tax Pocket Book 2011

9 Value Added Tax Standard rate of VAT was increased to 24% (from 19%) during The reduced VAT rates remain the same at 9% and 5% for certain goods and services. Rules determining the place of supply for goods and services (and hence the place for VAT taxation) are fully harmonised with EU Directive 112/2006 and EU Directive 8 / 2008 regarding VAT. Invoicing deadline is the fifteenth day of the month following that in which the supply was performed. VAT refund for EU and non-eu businesses. Customs and International Trade As an EU member, Romania applies the EU Common Customs Tariff & EU customs regulations. Romania applies all EU free trade agreements concluded with third countries. Import licences are required for commodities such as oil, certain chemical products and weapons. No customs formalities are applied for goods with community status (goods produced in the EU or goods released for free circulation in the EU). Compensatory interest is due for Inward Processing & Temporary Admission regime goods released for free circulation in the EU. Security required for suspensive customs regimes, with a few exceptions. Excise duties EU harmonised excisable products and non-harmonised excisable products. Tax warehouse for production and storage purposes. Registered consignee and consignor. Excisable products can be produced, transformed, transported and stored under excise duties suspensive arrangements. Environmental Fund Contributions Contributions for packaging, tyres, air-pollutant emissions from fixed sources, sale of ferrous and non-ferrous waste, standing wood, etc. Some contributions depend on compliance with waste management obligations Registration of producers / importers / exporters of EEE (electrical and electronic equipment). Registration obligation for producers / importers of chemical substances and preparations (REACH). The Romanian Tax Pocket Book

10 Chapter 1 Individuals 1.1 Personal Income Tax General principles Romanians domiciled in Romania are subject to taxation on their worldwide income (except for salaries received from abroad for work performed abroad). Romanians not domiciled in Romania and foreign individuals, regardless of their domicile, are generally subject to Romanian taxation only for income sourced in Romania, although if certain criteria are met they may also be subject to tax on their worldwide income. The tax rate is a flat rate of 16% for most types of income earned by an individual. The fiscal year is the calendar year. Tax residence Romanian tax residents Individuals are generally considered to be Romanian tax residents if they:» Are domiciled in Romania, or» Have their centre of vital interests in Romania, or» Are physically present in Romania for more than 183 days in any 12 consecutive months interval ending in the calendar year concerned* * Non-domiciled individuals resident (under the second and third criteria above) for three consecutive years are taxable on worldwide income as of their fourth fiscal year of stay (while respecting the provisions of the Double Tax Treaties, where applicable). Non-residents Non-residents are only subject to Romanian taxation on their income sourced in Romania. This includes, among others, the following types of income:» Income derived from conducting independent activities through a permanent establishment in Romania. 10 The Romanian Tax Pocket Book 2011

11 » Income derived from conducting dependent activities in Romania.» Some other specified types of income derived in Romania. Taxable Income The following categories of individual income are subject to taxation under the Romanian Fiscal Code:» Salary income» Income from independent activities» Income from granting the use of goods (rent)» Pension income over RON 1,000 per month» Income from agricultural activities» Income from prizes and gambling» Income from investments» Income from real estate transactions» Other income Types of income and the corresponding tax rates Salary Income Salary is defined as income in cash and / or in kind received by individuals based on employment agreements and is taxed at a flat rate of 16%. Income relating to salaries includes remuneration paid according to non-competition clauses and taxable benefits expressly stipulated by the relevant Romanian legislation. Taxable benefits include: meal tickets, gift tickets, nursery tickets, holiday tickets, amounts representing compensatory payments,,private use of company cars and telephones. Moreover, administrators incentives, fees received by members of the General Meeting of Shareholders, the Management Council, the Board of Directors and the Supervision Council are treated as salaries. The following individuals are considered taxpayers:» Employees (and Directors remunerated based on mandate agreements) of Romanian companies, branches and representative offices of foreign companies; employers are liable to calculate, withhold and transfer salary taxes on a monthly basis.» Foreign individuals performing activities in Romania based only on foreign employment agreements are liable to submit a monthly income statement and pay monthly income tax based on salary sourced in Romania. The Romanian Tax Pocket Book

12 Income from Independent Activities Income from independent activities is taxed at a flat rate of 16% (mandatory social charges are deductible) and includes, among others:» Income from freelance activities (authorisation needed); including incomes from liberal professions;» Income from intellectual property rights. 1. Freelance Activities Income from freelance activities is assessed on the basis of entries in the single entry bookkeeping ledgers that providers of independent activities are obliged to keep. Net income is calculated as gross income minus deductible expenses. For freelancers, the following are non-deductible: fines, late-payment penalties (other than contractual penalties), donations; private scholarships, sponsorship and protocol expenses in excess of the upper limits set by law; per diem and other expenses exceeding limits provided by current law. Alternatively, specific categories of freelancers are taxed on the basis of a fixed income annual quota, as communicated yearly by the local tax authorities. Freelancers earning income from independent activities have to make quarterly advance tax payments for the tax due during the fiscal year. 2. Intellectual Property Rights Payers of royalties must calculate, withhold and pay 10% advance tax. Receivers include the income in the annual tax return on the basis of which the tax authority sets the amount of the final tax (the final tax rate is 16%). There is also the possibility to opt ( starting with the moment the contract is being signed) for a final 16% withholding tax. The taxable basis for the income earned from intellectual property rights can be calculated as gross income minus a lump sum equal to 20% of the gross income less any mandatory social charges paid. In case of income from the creation of monumental art, 25% of the gross income is admitted for deductibility purposes. Rental Income Gross annual income represents the income earned by the owner during the year as stipulated in the rental agreement registered with the Romanian tax authorities. Net taxable income is determined by deducting a 25% expense allowance from the gross income and is taxed at a flat rate of 16%. 12 The Romanian Tax Pocket Book 2011

13 Individuals earning such income have to make quarterly advance tax payments during the fiscal year. Income earned by tax payers from five or more rental contracts is considered income from independent activities and taxed accordingly, as described above. Income from Pensions Pensions are taxable at a flat tax rate of 16% for the amount in excess of RON 1,000 per month. The mandatory social contributions (i.e. health fund contribution of 5.5% applicable to pensions higher than RON 740) are deductible for Romanian tax purposes. Income from Agricultural Activities The following activities are considered agricultural activities:» Farming, in greenhouses and / or in irrigated systems, and selling flowers and vegetables» Farming and selling shrubs, decorative plants and mushrooms» Vineyard farming» The sale of unprocessed agricultural products to specialist units Income from agricultural activities is determined either on a fixed income quota basis, or by single entry accounting, by applying a flat rate of 16% to the taxable income. The tax due for income earned by taxpayers from agricultural activities from selling their products to certain designated collection units is calculated and withheld at source and amounts to 2% (flat rate) of the value of the products sold. The tax withheld is final. The Romanian Tax Pocket Book

14 Income from Prizes Tax on income from prizes is withheld at source and determined by levying 16% on the amount exceeding RON 600 paid for each prize. Income from Investments 1. Dividends Dividends are taxed at a 16% flat tax rate. 2. Interest Interest income from current accounts and deposits, regardless of the deposit type, received starting with 1 July 2010 is subject to the 16% flat tax rate. 3. Capital gains Capital gains in Romania are generally taxed at 16%:» Quarterly filing and advance tax payment obligation (i.e. by 25th of the month following the end of each quarter: 25 January, 25 April, 25 July, 25 October). Also an annual tax return is required to be filed (by 15 May of the following year);» The obligation of calculating and paying the income tax representing advance quarterly payments for the annual income tax on capital gains from the transfer of securities held in listed companies lies with the tax payers;» The obligation of calculating, withholding and wiring the income tax in case of gains from the transfer of shares in case of non-listed companies, lies with the buyer, at the moment of acquisition;» Any net annual loss resulting from the transfer of securities, other than shares and transferable securities in non-listed companies can be carried forward for up to seven consecutive tax years. Foreign individuals are generally subject to the same tax treatment as Romanian individuals. However, based on the fiscal residence of the individual, treaty relief may be available. Depending on the details of the transaction, the taxpayer has the obligation to compute, withhold and pay the capital gain tax from sale of shares. To fulfil this requirement, non-residents may appoint a Romanian fiscal representative or a tax agent. 14 The Romanian Tax Pocket Book 2011

15 Income from real estate transactions Income from the transfer of real estate is taxed as follows:» For real estate owned for less than three years: For values up to (and including) RON 200,000, the income tax is 3%; For values exceeding RON 200,000, the income tax is RON 6, % of the amount exceeding RON 200,000.» For real estate owned for more than three years: For values up to RON 200,000, the income tax is 2%; For values exceeding RON 200,000, the income tax is RON 4, % of the amount exceeding RON 200,000. No income tax is due for ownership of estates acquired under special laws, for donation deeds between relatives up to the third degree, between spouses and in cases of inheritance, provided the procedure is finalised within two years (an income tax of 1% is levied if the procedure is not completed within those two years). Income tax due for transfer of ownership is withheld by the public notary and calculated at the value declared by the parties in the transfer documents. If the value declared by the parties is lower than the estimated value established by the expert appraisal conducted by the Chamber of Notaries Public, the income tax is calculated at the reference value. The tax is to be remitted by the twenty-fifth of the month following that when the income was withheld. Income from Gambling Tax on income from gambling is determined by levying a 25% tax rate on the net income. The tax calculated and withheld upon disbursement is final. The net income is the amount exceeding RON 600 paid by the same organiser or payer of prizes during a single day. Access in the authorised locations is only allowed upon payment of an admission ticket valid for 24 hours from 8 AM to 8 AM. The access fee is:» RON 20 for casino-type gambling;» RON 5 for slot-machine type games. The Romanian Tax Pocket Book

16 Other Income Subject to 16% Flat Tax Rate The following types of taxable income are included in this category (NB. The list is not exhaustive):» Insurance premiums incurred by a company for the benefit of individuals with whom they have no employment relationship;» Gains on depreciation drawings, received from insurance companies as a result of insurance contracts concluded between the parties;» Income granted to retired former employees, in the form of discounts for goods, services and other entitlements, according to clauses in employment agreements or under special laws;» Income derived by individual taxpayers in the form of fees from commercial arbitration. Tax-exempt Income The main categories of tax-exempt income are:» Allowance for maternity leave, maternity risk and for child care leave paid from the health fund;» Incentives granted as aid to families for child care leave;» Salaries obtained by seriously disabled individuals;» Salary income obtained from certain employment activities rendered abroad, irrespective of the tax treatment of the income in that foreign country;» Stock option plan advantages, at the moment of being granted and exercised;» Amounts received for transport and accommodation expenses incurred during delegation / secondment;» Salary income related to the design and creation of software (some criteria need to be met, both by the employer and the employee);» Sponsorship and donations;» Inheritance;» Income from the sale of movable assets (with the exception of shares described as capital gains ), if not received on a regular basis. 16 The Romanian Tax Pocket Book 2011

17 Deductions from Income Tax For the primary job, the following amounts are to be deducted from the gross income when calculating the taxable income from salary:» Mandatory state social security contributions;» Personal and family related deductions calculated in accordance with the relevant laws;» Contributions to facultative pension funds, up to the RON equivalent of EUR 400 annually;» Trade union membership fees. For each secondary job, taxable income is assessed as the difference between the gross income and the social security obligations, the personal deduction and family members deduction are not applicable. Taxpayers may give up to 2% of the annual income tax due to charitable purposes (sponsorship). Taxation of Non-Residents Income earned by non-resident individuals from activities performed in Romania or from income sources in Romania is generally subject to 16% tax unless the tax is reduced or eliminated under an applicable double tax treaty. The following types of Romanian source income are generally subject to 16% withholding tax at source in Romania:» Dividends, interest, royalties and income from commissions received from a resident;» Interest, royalties or commissions paid by non-residents, if they have permanent establishments in Romania and the interest/royalty/commission is an expense of those permanent establishments;» Income derived from sports and entertainment activities performed in Romania;» Income from management and consultancy activities;» Income and fees representing remuneration received by administrators, founders or members of the Board of Directors, in a Romanian company;» Income from services rendered in Romania, excluding international transport and related services;» Income from independent professions performed in Romania;» Pension income; The Romanian Tax Pocket Book

18 » Prize income from contests organised in Romania;» Gambling income obtained in Romania;» Income obtained from liquidation of Romanian companies;» Non-residents income attributed to a permanent establishment in Romania;» A foreign legal persons income derived from real estate situated in Romania or from the sale of shares;» Income from dependent activities;» Income from the transfer of shares on the Romanian capital market;» Income from a partnership setup in Romania. Income derived by non-residents from gambling activities in Romania is taxed at a 25% rate. Income from real estate transactions is taxed at the same specific rates as in the case of residents. Where foreigners can claim treaty protection, the more favourable rates under the relevant tax treaty can be applied by Romanian disbursers of income, if the beneficiaries have produced the required tax residency certificate. 18 The Romanian Tax Pocket Book 2011

19 1.2 Social Security System The Social Security System In Romania, all employers and employees, as well as other categories of taxpayers, have to contribute to the state social, health and employment security system. Coverage Social and health security covers pensions, child benefits, temporary work disabilities, work accidents and professional illness risks, illness and other social care services. Employment security covers, on one hand, minimal unemployment benefits and, on the other hand, grants aimed at generating employment. Contributions Social contributions are covered by the Fiscal Code and by other special laws. According to the Fiscal Code, the contributors to the social security system are:» Residents who receive income under an employment contract (or a work relationship or special status) as well as income treated as wages (directors incentives / single associate / director on mandate contract, etc.);»» Non-residents who receive income mentioned above, according to juridical arrangements (e.g. social security agreements) in which Romania takes part;»»» Individuals who derive income from professional activities (copyrights and civil conventions);»» Retirees with pension incomes above RON 740 per month;»» Individuals and companies which act as employers and entities similar to employers;»» Public institutions;» Any payer of salaries or revenue similar to salaries. The percentages paid by employers and employees are applied to a certain computation base that is capped as provided by the Fiscal Code. These can be modified by the Social Security Contributions Law or by the State Budget Law. For 2011, the contribution rates are established as follows: The Romanian Tax Pocket Book

20 Employee Contributions:» Social security contribution 10.5%» Unemployment fund 0.5%» Health fund 5.5% For 2011, out of the total rate of individual contribution, the rate automatically directed towards private pension funds has been established at 3%, which is 0.5% more than for the previous year. The monthly assessment base is the gross income derived from dependent activities, in Romania and abroad, respecting international juridical arrangements in which Romania takes part. Ceiling: the individual monthly pension contribution is capped at five times the average gross salary for each place of revenue gain; for 2011 the average gross salary is RON 2,022. Employer Contributions:» Contribution to social security fund 20.8%; 25.8%; 30.8% depending on working conditions» Contribution to health fund 5.2%» Contribution to contribution for medical leave 0.85% (capped)» Contribution to guarantee Fund 0.25% of the salary fund» Contribution to unemployment fund 0.5%» Contribution to work accidents insurance fund 0.15% to 0.85% The monthly assessment base is the amount of the gross revenue gained by individuals, resident and non-resident, based on a work contract (or a service report or special status) as well as revenues treated as salaries (directors incentives / single associate / director on mandate contract, etc.). Ceiling: the monthly pension contribution is based on an amount capped at five average gross salaries multiplied by the number of insured individuals in the company. The individual and employer health and unemployment fund contributions remain uncapped and are computed by reference to the relevant assessment bases stipulated by the Fiscal Code. The monthly basis for calculating medical leave contributions due by employers is capped at 12 minimum gross salaries multiplied by the number of employees covered by this contribution (the current minimum gross salary for 2011 is RON 670). 20 The Romanian Tax Pocket Book 2011

21 The percentage contribution to the work accident insurance fund varies between 0.15% and 0.85%, depending on the risk category. The criteria for establishing risk categories were established by Government decision. From 2011, a single tax return (Form 112) is introduced for social security and income tax liabilities and the name list of subscribers. The obligation to submit this return lies with individuals and companies with employer status or entities similar to employers, as described by the Fiscal Code. Employers calculate and withhold salary contributions when paying salaries. State budget and state social security budget contributions are payable by the twenty-fifth of the month following that to which the salary relates. Failure to pay these withholding contributions within 15 days of their becoming due is deemed a criminal offence and sanctioned accordingly. Exemption from social security contributions is granted for salaries which are non-taxable, and for certain taxable benefits. Contributions due for professional income: Social security and unemployment contributions are due for professional income, other than salaries, including income from intellectual property rights or related rights and / or income from professional activities based on contracts/conventions concluded as per the Civil Code); The taxable base for individual social security contributions is computed based on the gross income for civil contracts, and based on the gross income minus the expense quota (20% or 25%) for intellectual property rights; In case such income is obtained on a regular basis, the monthly taxable base for these contributions is capped at five times the medium gross salary used to substantiate the state social security budget and is approved by the state social security budget law. For revenue generated occasionally, the annual taxable base cannot be greater that five times the average gross salary. The obligation to declare, calculate, withhold and pay the social security and unemployment contributions lies with the payer of the income (using Form 112) and has to be complied with by the twenty-fifth of the following month. The Romanian Tax Pocket Book

22 Foreign Personnel Fiscal Registration Number Foreign individuals including citizens of the European Economic Area (EEA) and Switzerland earning income sourced in Romania and who do not need to obtain a residency permit or a registration certificate (for EEA and Switzerland citizens) need to file a fiscal application form with the Romanian tax authorities through a fiscal agent to obtain a fiscal registration number. Foreign individuals that require a residency permit or registration certificate (for EEA and Switzerland citizens) should use this number as their fiscal identification number upon registering with the Romanian Tax Authorities. Citizens from the EEA and Switzerland undertaking dependent activities in Romania may have:» A foreign employment contract (secondment)» A local employment contract Working rights for EEA and Switzerland citizens EEA and Switzerland citizens working in Romania as employees with a local/secondment contract do not have to obtain an authorisation for work; these individuals have free access to the local labour market. For secondees, a procedure for notifying the competent authorities has been established (the notification procedure does not apply for EEA or Switzerland citizens seconded in Romania by companies from non-member states). Authorisations for Work As a general rule, foreign individuals working in Romania need to apply for a Romanian work authorisation (before obtaining their residence permit). There are some exceptions to this rule, such as:» Foreign citizens married to Romanian citizens, which obtained a sitting permit for reuniting the family, do not have to obtain a work authorisation to work in Romania;» Foreign citizens seconded to Romania by companies from EEA or Switzerland do not need work authorisations; however, there is a procedure for notifying the competent authorities about these secondments. 22 The Romanian Tax Pocket Book 2011

23 The type of employment relationship can significantly affect tax and social security liabilities (e.g. foreigners performing activities in Romania based on local employment agreements are liable to pay income tax on their entire remuneration received in Romania as well as all social security contributions required by the Romanian legislation. Foreigners seconded to Romania may be entitled to certain secondment rights (such as tax incentives) while observing the limitations/ exceptions provided by domestic law and/or the EU regulations for immigration and social security). Further to Romania s EU accession, the EU regulations on social security contributions now prevail over domestic legislation. Accordingly, EU expatriates working in Romania can be exempted from paying social security contributions, provided that they obtain the A1 certificate from another EU Member State where their employer is located, or the E101 certificate from Norway, Iceland, Liechtenstein and Switzerland for expatriates whose employers are located in these states. Work authorisation for local employment purposes If a local employment contract is to be concluded between a foreign individual and a Romanian company, a work authorisation for permanent workers must previously have been obtained for this purpose (apart for those cases excepted by law), by the foreign individual. Foreign individuals become taxable in Romania from the first day, with salary tax and social charges being withheld monthly by the employer through the payroll. Work authorisation for secondment purposes Foreign citizens can be seconded to Romania by companies located in third countries (i.e. based on a foreign employment contract) for a total of one year within a five-year period. To obtain a work authorisation for secondees requiring long-term visas, a secondment visa should be obtained from the Romanian diplomatic mission or consular offices abroad. Individuals seconded to carry out dependent activities for Romanian companies are required to contribute to the health fund. Health fund contributions of 5.5% are payable once the right for temporary residency in Romania is extended (i.e. stay of more than 90 days). Such individuals have to calculate and pay salary taxes (i.e. income tax and health fund contributions) on a monthly basis. Residency documents The residency documents are: certificates of registration, residency cards and residency permits. The Romanian Tax Pocket Book

24 Romanian legal residence for EEA and Switzerland individuals and their family members who are not EEA/Switzerland citizens. EEA and Switzerland nationals can enter and reside in Romania for a three-month period without obtaining any formal residency documents (registration certificates). After this period, they can extend their legal stay here by obtaining a certificate of registration (the certificate is obtained within 24 hours of being requested and has unlimited validity). Certificates of registration are obtained observing the purpose of stay in Romania (e.g employment, secondment, etc). However, family members who are not EEA / Switzerland citizens themselves are subject to different immigration compliance requirements, as follows:» They should obtain Romanian entry visas if necessary; and» They should obtain Romanian residency cards to extend their legal stay in Romania over a three-month period. Romanian legal residence for foreign individuals As a general rule, foreign Individuals whose stay in Romania exceeds 90 days within a six-month period need to apply for temporary residency permits (there are very limited exceptions to this rule, for very special situations). Temporary residency permit applications can be made based on long-term visas which have to be obtained from the Romanian embassy or consulate abroad prior to the application. Foreign nationals from certain countries, including USA, Canada, Japan, etc are exempted from obtaining Romanian long-term visas. The documentary requirements for obtaining Romanian long-term visas / residency permits depend on the purpose of stay. 24 The Romanian Tax Pocket Book 2011

25 Chapter 2 Taxation of Corporations 2.1 Corporate Income Tax Entities subject to corporate income tax The following entities are liable for corporate income tax:» Companies tax resident in Romania (generally meaning a Romanian company, a company managed and controlled in Romania, or legal persons set up in accordance with European legislation with the registered head office in Romania);» Foreign companies doing business in Romania through permanent establishments;» Foreign companies which derive revenues from or in connection with real estate transactions or from share transactions in Romanian companies;» Foreign companies and individuals doing business in Romania through partnerships without legal capacity;» Resident individuals who form partnerships without legal capacity with Romanian companies, for revenues derived in or outside Romania. Territoriality A company is considered resident if its head office is registered in Romania or has its effective place of management in Romania. Corporate Income Tax Rate The standard corporate income tax rate is 16%. The tax due for nightclubs and gambling activities is the higher amount between 5% of the revenues obtained and 16% of the taxable profit corresponding to such activities. The previously applicable minimum tax for companies was eliminated as of 1 October As a result, for taxpayers subject to the minimum tax for the first part of 2010, the year 2010 was split into two different fiscal periods: 1 January 30 September and 1 October 31 December. The Romanian Tax Pocket Book

26 The tax forms for the two periods are to be submitted as follows:» For 1 January 30 September 2010, the submission and payment of the profit tax (minimum tax) is to be made until 25 February 2011;» For 1 October 31 December 2010, the form has to be submitted and the profit tax paid by: 25 February 2011, for taxpayers which finalise their financial statements for the period 1 October 31 December 2010 before this date, in which case for Q4, no profit tax is declared (using Form 100); 25 April 2011, for taxpayers who finalise their financial statements before this date. In this case, taxpayers will declare the profit tax for Q4 at the level of the profit tax computed for Q3 2010, by 25 January 2011, using Form 100. Taxpayers which during 1 January 30 September 2010 are not subject to the minimum tax only have to file a single tax return regarding their profit tax for the entire 2010 calendar year. 2.2 Calculation of Taxable Profits Accounting and fiscal period The fiscal year is considered to be the calendar year or the period during which the entity existed if it was set up or ceased to exist during that calendar year. The accounting year is also usually the calendar year, but from 2009, certain categories of entities (i.e. Romanian branches of foreign companies, Romanian consolidated subsidiaries and subsidiaries of the subsidiaries of foreign companies, except for credit institutions) are allowed to set an accounting year other than the calendar year, if the financial year of the parent company is different from the calendar year. Establishing a financial reporting period, different from the calendar year, does not modify the period for which profit tax is calculated as defined by the Fiscal Code namely the calendar year. Tax base The taxable profit of a company is calculated as the difference between the revenues derived from any source and the expenses incurred in obtaining taxable revenues throughout the tax year, adjusted for fiscal purposes by deducting non-taxable revenues and adding non-deductible expenses. Other elements similar to revenues and expenses are also to be taken into account when calculating the taxable profit. 26 The Romanian Tax Pocket Book 2011

27 Non-taxable revenues The most relevant non-taxable revenues stipulated by the Romanian Fiscal Code are:» Revenues from dividends received by a Romanian company from another Romanian company;» Revenues from dividends received by a Romanian company from a subsidiary situated in an EU member state, subject to certain conditions, i.e. the Romanian company is a profit taxpayer and has held at least 10% of the subsidiary s shares for a continuous period of at least two years by the date the dividends are paid;» Unrealised favourable differences in the value of participation titles and long term bonds (e.g. effected according to accounting rules, or in case of titles following the capitalisation of reserves, benefits or shares premiums);» Revenues from reversal or cancellation of provisions / expenses that were previously non-deductible, recovery of expenses that were previously non-deductible and revenues from reversal or cancellation of interest and late-payment penalties that were previously non-deductible;» Non-taxable income expressly provided for under agreements and memoranda. Deductibility of expenses From the deductibility standpoint, expenses fall into three categories: deductible expenses, limited deductibility expenses and non-deductible expenses. Deductible expenses As a general rule, expenses are deductible only if incurred for the purpose of generating taxable income. Some of the expenses specifically mentioned by the Fiscal Code are:» Expenses incurred for marketing, market research, promotion on existing or new markets, participation in fairs and exhibitions, in business missions and publishing of own brochures;» Advertising expenses incurred in promoting the company, products or services, based on written contracts, as well as costs associated with the production of the materials necessary for broadcasting advertisements, including goods granted as samples, for product testing at selling units, as well as other goods and services received in order to stimulate sales;» Research and development expenses that do not meet the requirements to be recognised as intangible assets for accounting purposes; The Romanian Tax Pocket Book

28 » Expenses incurred for environmental protection and resource conservation;» Expenses incurred for improvement of management, IT, the introduction, maintenance and development of quality management systems, and obtaining quality compliance confirmation;» Bad debts expenses are fully deductible in any of the following cases: the bankruptcy procedure of the debtor was closed based on a court decision; the debtor is deceased and the receivable cannot be recovered from the heirs; the debtor is dissolved or liquidated; the debtor has major financial difficulties affecting its entire patrimony;» Travel and accommodation expenses related to business trips in Romania or abroad by employees and directors, and also individuals treated as holding these positions (directors based on mandate and secondees whose costs are covered by the Romanian company); this also includes personnel s transport to and from the workplace;» Expenses incurred from professional training and development of employees;» Expenses incurred in relation to work safety, prevention of work accidents and occupational diseases, the related insurance contributions and professional risk insurance premiums;» Expenses incurred from acquisition of packaging during their useful life;» Fines, interest, penalties and other increased payments due under commercial contracts. Limited deductibility expenses The deductibility of certain expenses is limited as follows:» Interest and foreign exchange losses under thin capitalisation rules (see details below);» Depreciation of assets under fiscal depreciation rules (see details below);» Perishable goods capped as set by the relevant central administration bodies;» Protocol expenses are deductible up to the limit of 2% of the difference between total taxable revenue and total expenses related to taxable revenue, except for protocol and profit tax expenses;» Daily allowances for expenses from domestic and foreign travel by employees are deductible up to the level of 2.5 times the ceiling set for public institutions; 28 The Romanian Tax Pocket Book 2011

29 » Social expenses are deductible up to 2% of salary expenses. Among others they can include maternity allowances, expenses for nursery tickets, funeral benefits and allowances for serious or incurable diseases and prostheses, as well as expenses for the proper operation of certain activities or units under taxpayers administration (i.e. kindergartens, nurseries, health services supplied for occupational diseases and work accidents prior to admission to health establishments, canteens, sports clubs, clubs, etc); expenses incurred for benefits granted under a collective labour agreement are also deductible within this limit;» Health insurance premiums are deductible for employers up to the limit of EUR 250 per year, per person; private pension insurance premiums are deductible up to the limit of EUR 400 per year, per person;» Taxes and contributions paid to non-government organisations and professional associations related to the taxpayer s activity are deductible up to the limit of EUR 4,000 per year;» Expenses from operation, maintenance and repair of vehicles used by individuals in company leadership and management positions for business purposes are deductible within the limits, but only for one vehicle per person. Non-deductible expenses Expenses which are specifically non-deductible include, among others, the following:» Domestic profit tax and profit tax paid in foreign countries;» Expenses related to non-taxable revenues; Note that revenues from dividends have no corresponding expenses;» Expenses related to withholding tax supported by Romanian taxpayers on behalf of nonresidents;» Interest, fines and penalties due to Romanian or foreign authorities;» Expenses incurred from management, consultancy, assistance or other supply of services if no contracts or any other lawful agreements are entered into and the beneficiary cannot justify the supply of such services for the activities performed and their necessity;» Sponsorship and patronage expenses and expenses for private scholarships. Taxpayers are, however, granted a fiscal credit up to whichever is the lower of 0.3% of turnover and 20% of the profit tax due;» Other salary and / or similar expenses (if not taxed at the level of the individual), except for those specifically exempted from individual income taxation; The Romanian Tax Pocket Book

30 » Expenses incurred from insurance premiums unrelated to company assets or business, save for those regarding goods which are bank collateral on loans used to conduct the activity for which the taxpayer is authorised or those used under rental or leasing contracts;» Bad debts expenses in excess of the deductible provision (see below);» Expenses recorded without justifying documents;» Expenses in favour of shareholders, other than those related to goods or services provided by the shareholders at market value;» Expenses incurred from fixed assets impairments as well as losses in value defined as provisory adjustments by the accounting regulations transposing European Accounting Directives;» Fuel expenses for company vehicles weighing under 3,500 kg and with fewer than nine passenger seats (including the driver s seat) and used exclusively for passenger transport until 31 December Exceptions to this rule are vehicles used in the following activities: Intervention, repair, safety and security, courier services, transporting staff to and from work places, TV vans, cars used by sales agents and recruitment agents; Paid transportation services and taxi activities; Rental; and Driving schools. Provisions and reserves In general, provisions and reserves are non-deductible for profit tax purposes, however, there are certain provisions and reserves which can be considered deductible, including:» Setting up or increasing the legal reserve fund to a limit of 5% of the yearly accounting profit before tax (with adjustments) until it reaches 20% of the share capital;» Provisions for doubtful debts recorded after 1 January 2006 are deductible up to the limit of 30%, if the related receivables meet the following conditions simultaneously: Booked after 1 January 2004 Not collected for a period exceeding 270 days from the due date Not guaranteed by another person Due by a person not affiliated with the taxpayer Included in the taxable income of the taxpayer 30 The Romanian Tax Pocket Book 2011

31 » Bad debt provisions are fully tax deductible if all the following conditions are met: Receivables are booked after 1 January 2007 The debtor is a company declared bankrupt by a court ruling Receivables are not guaranteed by another person The debtor is not a related party Receivables were included in the taxable income of the taxpayer» Specific provisions established by credit institutions, non-banking financial institutions and other similar entities;» Technical reserves set up by insurance and reinsurance companies, in accordance with their regulatory legal framework except for the equalisation reserve;» Risk provisions for transactions carried out on financial markets, in accordance with the rules issued by the National Commission of Movable Assets;» Reserves from revaluation of fixed assets and land, made after 1 January 2004, which are deductible through depreciation or through expenses triggered by assets sold or written off, are taxable at the same time and for the same amount as the tax depreciation deduction, i.e. when the assets are sold or written off. The reduction or cancellation of any provision or reserve deducted from the taxable profit, due to changing the destination of the provision or reserve, distribution towards shareholders in any form, liquidation, spin off, merger or any other reason, is included in the taxable revenues and taxed accordingly. The reconstruction of the legal reserve is also non-deductible. Accounting and fiscal depreciation The Fiscal Code makes an explicit distinction between accounting and fiscal depreciation. For fixed assets, fiscal depreciation is to be calculated based on the rules set out by the Fiscal Code and deductibility no longer depends on the level of depreciation recorded in the accounts. Expenses of all intangible assets recognised for accounting purposes, with the exception of start-up costs and goodwill, will now be amortizable. The calculation of depreciation of fixed assets for tax purposes is based on the fiscal value, and may need to be adjusted for revaluations according to accounting rules. The Romanian Tax Pocket Book