Corporate Income Tax changes in Romania

Romania/October 2015

The new Romanian Fiscal Code introduces a number of amendments which impact companies in a wide range of tax aspects.  Below we discuss some of the introduced changes.

The categories of entities exempted from corporate income tax is amended, with religious cults, accredited private educational institutions and homeowners’ associations no longer considered exempted. Such entities are now included in the Tax Code under the “special tax regimes” chapter.

A change has been introduced in regards to a company’s legal reserve. The reserve is calculated by applying a 5% on the accounting profits plus the corporate income tax expenses until a maximum limit of 20% of the subscribed share capital or patrimony.

A new limit is set for deductible sponsorship expenses and is defined as 0.5% instead of the previously applicable 0.3%. Additionally, a 50% limitation is introduced in regards to expenses for transportation vehicles (3,500 kg and 9 seats).

Losses incurred during the write-off of receivables will be considered deductible if covered through insurance contracts.

Interest and penalties for late payments, fines and penalties due to authorities are considered deductible if related to contracts concluded with such authorities.

The deductible interest rate for loans in a foreign currency is reduced to 4% (from a previously valid 6%).

The deductible social expenses, on the other hand, increase from 2% to 5% of the total gross salaries.

The changes include provisions for expenses on behalf of employees for voluntary pension schemes and voluntary health insurance premiums. Such expenses will be fully deductible regardless of the amount; however, in case they exceed EUR 400 per participant, the amounts over this threshold will be considered as taxable income for each individual.

Furthermore, if an expense is booked and then later proven to be related to corruption offenses, such an expense will be considered as non-deductible.

The new Tax Code introduces the concept of “cross-border transaction” and that of “artificial cross-border transactions”. Those transactions qualified as not having economic content will be considered as artificial and will not be part of the scope of double tax treaties.

As of 1 January 2017 the tax rate on dividends will decrease from 16% to 5%. Health contribution payment will be due in cases dividend income is obtained by an individual.

In terms of thin capitalization, borrowed capital is also included even when no interest is applicable.

Companies wanting to modify their fiscal year need to submit the Form 014 within 15 days of the beginning of the modified fiscal year (previously 30 days before the beginning of the modified fiscal year).

The above-discussed changes are only some of the introduced amendments. We urge companies to seek professional advice to ensure compliance.

Cozmina Avasaloaei
Senior Legal Advisor