1
Tax issues in (international) project management 11 May 2016 2
3 main issues 1. Company taxation Who shall be the contracting party? 2. Salary taxation Based on which contractual form employees will act? 3. Value added tax Where is the place of supply? 3
1. Company taxation A. Legal form B. Taxation and tax rate C. Registration requirements D. Transfer pricing 4
Company taxation A. Legal form - Permanent establishment (e.g. construction site): - fixed facility, where activity is performed - also by an agent - not registered in the Trade Register - Branch office (e.g. of an Austrian company): - registered in the Trade Register, no legal status - can have employees - Subsidiary (e.g. Romanian SRL ): - registered in the Trade Register, has legal status - PLC / GmbH ( SRL ): only low share capital (200 RON, ca. 45 EUR) - Consortia ( silent partnerships ): - no legal status, e.g. joint ventures, partnerships - not registered in the Trade Register 5
Company taxation B. Taxation and tax rate - Standard Corporation Tax 16% - Subsidiary: subject to corporation tax - Branch office: subject to corporation tax with attributable incomes and expenses (problem of allocation) - Permanent establishment: attributable profits (for construction and assembly activities > 12 months) - Double Tax Treaty not applied automatically, only after submission of a certificate of fiscal residence 6
Company taxation C. Registration requirements - Contracts for supplies and services delivered in Romania have to be registered by the Romanian beneficiary (within 30 days of contract date) - For consortia: Romanian partner has different reporting requirements 7
Company taxation D. Transfer pricing (1) - transactions between affiliated companies to be documented in a transfer price file - so far: obligation to prepare a transfer price file only on request of tax authorities (usually during a tax audit) - starting with 1 January 2016: annual preparation and submission of a transfer price file mandatory for companies exceeding certain thresholds - content defined in a separate Order by the Ministry, including detailed information about the group and the individual company 8
Company taxation D. Transfer pricing (2) - Obligation for annual preparation and submission of a transfer price file for large taxpayers, exceeding any of the annual thresholds: - 200,000 EUR for interest paid/received for financial services - 250,000 EUR for services received/provided - 350,000 EUR for acquistions/sales of goods - Preparation on request only for: large taxpayers (not exceeding above thresholds), medium and small taxpayers, exceeding any of the annual thresholds: - 50,000 EUR for interest paid/received for financial services - 50,000 EUR for services received/provided - 100,000 EUR for acquistions/sales of goods 9
2. Salary taxation A. Salary tax and social security contributions B. Assignment C. Local (Romanian) contract 10
Salary taxation A. Salary tax and social security contributions - Salary tax (flat): 16% - Social security contributions: - Employer: ca. 23% - Employee: 16,5% - Romanian employer: collects and pays salary tax and social security contributions - Austrian employer: employee himself has to pay salary tax and social security contributions 11
Salary taxation B. Assignment (1) - Austrian employment contract with additional assignment agreement - tax liability of income begins on the first day - can be influenced by application of Double Tax Treaty (certificate of residence is important) - 183-day rule : - tax liability after 183 days - questionnaire on fiscal residence to be filled in (can result in full tax liability in Romania) - but even earlier than 183 days: - if salary payment for a beneficial employer in Romania, or - deductible expenses for Romanian establishment 12
Salary taxation B. Assignment (2) - Social security contributions: - obligation in host state (country of activity) - exemption possible with (EU-wide standardized) A1-certificate - Project timeline to be considered; in doubt, short-term assignments should be concluded at the beginning 13
Salary taxation B. Assignment (3) - Registration requirements: - foreign employees have to be registered centrally with the labour authorities before starting their activity; contact person has to be named - after three months: residence in Romania has to be registered - salary payments from Austria: information to be filed within 15 days - after 183 days: questionnaire on fiscal residence to be filled in 14
Salary taxation C. Local contract - Local (Romanian) employment contract - Taxation and social security contributions in Romania - Romanian employer: collects and pays salary tax and social security contributions 15
3. Value Added Tax A. Place of supply of goods/services B. Registration requirements 16
Value Added Tax A. Place of supply of goods/services - VAT permanent establishment: - fixed establishment for the supply of goods or services - independent of 12-months-rule included in various Double Tax Treaties - supply of goods/services related to property: place of supply is in Romania possibly reverse charge to the Romanian beneficiary - reverse charge for non-resident companies possible - obligation for VAT-registration for non-resident companies under certain conditions 17
Value Added Tax B. Registration requirements - in case of obligation for VAT-registration: - invoice has to be in line with the Romanian requirements for invoice contents - VAT to be declared in RON - FX-rate issued by the Romanian National Bank (from prior business day) to be used - VAT-registration procedures: - extent depending on legal form - for Romanian legal entities: questionnaire including 20 questions - for intra-community transactions: registration in registry of intra-community Operators necessary 18
Further issues - different registration requirements to be adhered to (penalties in case of non-compliance) - administrative language is Romanian (authorities can demand documents to be presented in a Romanian translation) - rather formalistic approach of Romanian tax authorities 19
Tax questions for international projects (checklist) 1. What is the estimated project duration? 2. Who shall be the contracting party company itself or a Romanian subsidiary? 3. Will a permanent establishment be established? 4. VAT-obligation in Romania? Will there be the obligation for VAT-registration? 5. Will withholding tax be applicable? If yes, will it be deductible? 6. Based on which contractual form will employees act? 20
Conclusion - Fiscal framework is a determining factor in projects. - Timely and realistic estimation of the project duration (to avoid possible retroactive effects) is important. - Complexity of (two) involved tax regimes needs to be considered. - Different registration requirements may arise even before the start of activities. 21
Many thanks for your attention! STALFORT Legal. Tax. Audit. Bucharest - Sibiu - Bistrita Bucharest office: Lt. Av. Vasile Fuica 15, Sektor 1 012083 Bucharest Tel.: +40-21 - 301 03 53 Fax: +40-21 - 315 78 36 E-Mail: bucharest@stalfort.ro Internet: www.stalfort.ro 22