by Florin Gherghel, Tax Manager Ensight Finance
Law 296 / 2020 regarding amendments of Fiscal Code was published in the Official Gazette no. 1269 as of 21 December 2020. We mention below the main amendments, most of them in force starting with 01.01.2021.
Corporate income tax
a) Place of effective management
A foreign legal entity is considered to have the place of effective management in Romania if it performs operations that correspond to economic, real and substantial purposes and if at least one of the following conditions is met:
- the economic-strategic decisions necessary for the management of the activity of the foreign legal entity as a whole are taken in Romania by the executive directors / members of the board of directors; or
- at least 50% of the executive directors / members of the board of directors of the foreign legal entity are Romanian residents.
If a foreign legal entity is considered to have the place of effective management in Romania and is considered Romanian resident, it will have, amongst others, to have accounting records in Romania, to register as a corporate income tax-payer, to maintain its residence in Romania for a period of at least one fiscal year.
b) Reinvested profit
The reinvested profit exempt from corporate income tax represents the cumulated gross accounting profit from the beginning of the year obtained until the quarter / year of commissioning of the eligible assets. The corporate income tax exemption related to the performed investments is granted within the limit of the cumulated corporate income tax computed from the beginning of the year until the quarter / year of putting the assets into operation.
c) Tele-work deductible expenses
The expenses incurred by the employer related to the telework activity of the employees who work in this regime, according to the law, are deductible expenses in the computation of the corporate income tax.
d) Non-deductible expenses with entities from non-cooperating jurisdictions
Expenses incurred as a result of transactions with a person located in a state included in the EU List of non-cooperating jurisdictions for tax purposes are non-deductible in the computation of the corporate income tax. The list can be accessed at the link below:
e) Integral deductibility of provisions
Provisions that meet the mentioned conditions (e.g. the receivables are uncollected in a period exceeding 270 days from the due date) will be fully deductible in the computation of corporate income tax (now they are 30% deductible).
Note: by GEO 226 of December 31, 2020, this provision becomes applicable starting with January 1, 2022.
f) Fiscal consolidation for corporate income tax purposes
The fiscal group for corporate income tax purposes consists of at least two of the following entities:
- a Romanian legal person / legal person with its registered office in Romania established according to European legislation and one or more Romanian legal persons / legal persons with registered office in Romania established under European legislation in which it holds, directly or indirectly, at least 75% of the value / number of participation titles or their voting rights;
- at least two Romanian legal entities in which a Romanian natural person holds, directly or indirectly, at least 75% of the value / number of participation titles or voting rights;
- at least two Romanian legal persons held, directly or indirectly, in proportion of at least 75% of the value / number of participation titles or voting rights, by a legal / natural person, resident in a state with which Romania has concluded a double tax treaty or in a state with which an agreement on the exchange of information has been concluded;
- at least one Romanian legal person held, directly or indirectly, in proportion of at least 75% of the value / number of participation titles or voting rights, by a legal person resident in a state with which Romania has concluded a double tax treaty or in a state with which an agreement was concluded regarding the exchange of information and the permanent establishment / designated permanent establishment in Romania of this foreign legal entity.
The period of application of the fiscal consolidation system is of 5 fiscal years and is applied starting with the next fiscal year following the submission of the application (hence, it can be applied starting with 2022). The system is optional and is required to be communicated at least 60 days before the start of the period for which the fiscal consolidation is requested.
Certain cumulative conditions must be met, such as the fulfillment of the holding condition for an uninterrupted period of one year, prior to the beginning of the fiscal consolidation period.
A legal person will be appointed for computing the consolidated fiscal result of the fiscal group, submitting the corporate income tax return and paying the corporate income tax on behalf of the group.
Each member of the fiscal group determines the fiscal result individually, and the consolidated fiscal result of the fiscal group is determined quarterly / annually by summing the fiscal results determined individually by each member of the fiscal group. The corporate income tax is calculated by applying the rate of 16% on the positive consolidated fiscal result of the group.
The deductions / exemptions determined by each member and communicated to the responsible legal entity are taken into account when computing the corporate income tax due by the fiscal group. These amounts are deducted up to the corporate income tax due by the fiscal group.
Each member of the fiscal group has the obligation to prepare the transfer pricing file which will include both the transactions carried out with the members of the fiscal group, as well as with the affiliated entities outside the fiscal group.
Special rules are provided both for entering / leaving the fiscal group and for cases in which the group no longer meets the mandatory conditions during the 5 years.
g) Withholding tax rate
A 10% withholding tax rate has been introduced for certain incomes obtained from Romania by individuals resident in an EU state or in a state with which Romania has concluded a double tax treaty.
h) Online tax residence certificate
If the foreign tax authority issues the tax residence certificate in electronic or online format, such certificate represents the original of the tax residence certificate.
i) Withholding tax return
The income payers have the obligation to submit a declaration regarding the computation and withheld tax for each income beneficiary, until the last day of February inclusive of the current year for the previous year.
j) Increase of ceiling for VAT-cash accounting system
The ceiling for entities wishing to apply the VAT cash accounting system has increased to 4,500,000 RON (from 2,250,000 RON).
k) Adjustment of VAT taxable base in case of deliveries to individuals
The VAT taxable base can be adjusted if the invoices issued to individuals have not been fully or partially collected within 12 months, except for the case where the supplier and the beneficiary are affiliated parties.
The adjustment is allowed only if it is proved that commercial measures have been taken for the recovery of receivables up to 1,000 RON, including, respectively, that legal proceedings have been undertaken for the recovery of receivables higher than 1,000 RON.
l) Increase of ceiling for delivery of dwellings
The ceiling for the delivery of houses subject to 5% VAT rate was increased to 140,000 EUR (from 450,000 RON).
Note: by GEO 226 of December 31, 2020, this provision becomes applicable starting with January 1, 2022.
m) Exemptions for certain imports
Amongst others, the VAT is not actually paid to the customs authorities for certain imports of goods subject to simplification measures (for example, imports of cereals), made by entities registered for VAT purposes (if certain conditions are met). The VAT will be paid through the reverse charge mechanism.
n) Import followed by an intra-community delivery of goods
The taxable person not established in Romania and not registered for VAT purposes in Romania who makes an import in Romania followed by an intra-community delivery of goods may appoint an authorized fiscal representative to fulfill the VAT obligations arising from these operations. The person who appoints an authorized fiscal representative is held individually and jointly and severally liable for the payment of the VAT, together with his authorized fiscal representative.
Income tax and social contributions
o) Tourist services and/or treatment services for employees
If the employer grants tourist and / or treatment services, including transport, during the holiday, for their own employees and their family members, as provided in the employment contract, the value of such services is non-taxable, insofar as the total value does not exceed in one fiscal year the level of an average gross salary. The amount that exceeds the average gross salary per year and employee will be taxed as salary income if it is borne by the employer (the same provisions are applicable to social contributions).
p) Private use of vehicles by employees of micro-enterprises
Advantages in the form of personal use of vehicles that are not used exclusively for economic activities (50% deduction), owned or used by legal entities applying the tax regime of micro-enterprises or tax specific to certain activities are non-taxable incomes for salary tax computation (the same provisions are applicable to social contributions).
q) Amounts granted to employees working in telework
Specific amounts granted to employees working in telework are considered non-taxable incomes when computing the salary tax. These amounts are granted to support utility expenses at the place where the employees carry out their activity (e.g. electricity, heating, water and data subscription), purchase of furniture and office equipment and they should be within the limits established by the employer through the employment contract or the internal regulations, within a monthly ceiling of 400 RON corresponding to the number of days in the month in which the individual carries out teleworking activity. The amounts will be granted without the need to present supporting documents. If the amount granted by the employer exceeds the ceiling of 400 lei / month / employee in telework, then the difference will be taxed as salary income (the same provisions are applicable to social contributions).
r) Submission deadlines for 205 and 207 tax returns
Income payers that have to withhold the due taxes have the obligation to submit 205 return to the tax authorities until the last day of February, including, of the current year for the previous year. Similar provisions are valid for 207 returns in case of non-residents.
s) Amendment of submission term of unique tax return
The unique tax return can be submitted by individuals / the income tax can be paid until May 25 of the following year (until now, it was March 15).