The fifth edition of the Real Estate Investment Guide is here

The fifth edition of the Real Estate Investment Guide provides you with a comprehensive overview of all real estate related tax aspects in 50 countries, including Romania. The information is based on the experience of dedicated real estate tax practitioners across the globe and is up to date as of December 2020.

For the first time the guide includes an interactive map that will help you access the most wanted local information at a glance.

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Fiscal Code New Amendments

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:

  1. 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
  2. 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.

Withholding tax

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.

VAT

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).

New fiscal measures in response to the coronavirus crisis

by Florin Gherghel, Tax Manager Ensight Finance

Emergency Ordinance no. 181 / 2020 was published in Official Gazette no. 988 as of 26 October 2020 regarding some fiscal measures and prolongation of some deadlines. We mention below the main aspects.

a) Non-computation of interest and penalties / non-enforcement of unpaid taxes

Interest and penalties for late payment will not be computed for taxes due starting with March 21, 2020 and not paid until December 25, 2020 (the previous term was October 25).

The above due and unpaid taxes will not be considered outstanding taxes and their enforcement will be suspended / will not start until December 25, 2020 (with certain exceptions, such as in criminal cases).

No interest and penalties will be computed for late payment of the installments from reschedulement of taxes until December 25, 2020, the validity of these reschedulements is maintained also until December 25, 2020.

The prescription terms of the tax authorities to compute additional taxes and to request forced execution are suspended until December 25, 2020.

b) Extension of VAT refund without control

The VAT can be refunded until January 25, 2021 with the subsequent performance of the tax inspection (with certain exceptions, such as the submission of the first VAT refund request after registration for VAT purposes, the reimbursable VAT is older than 1 year). The subsequent fiscal inspection is decided based on a risk analysis made by the fiscal authorities.

c) Payment reschedulement of taxes

A payment reschedulment of taxes is possible to be approved for a maximum period of 12 months for the main and ancillary fiscal obligations whose maturity / payment term has expired after the date of declaration of the state of emergency (March 16, 2020) and are not paid until the issuing date of the tax attestation certificate.

The payment reschedulment is not granted for fiscal obligations in the total amount of less than 500 RON in case of individuals and 5,000 lei RON in case of legal entities.

In order to benefit from the payment reschedulment, the debtor must cumulatively meet the following conditions:

  • to submit an application to the tax authorities until December 15, 2020 inclusive;
  • not to be in bankruptcy / dissolution procedure;
  • not to register outstanding fiscal obligations on the date of declaring the state of emergency and not paid until the date of issuing the fiscal attestation certificate;
  • not to be liable according to the legislation regarding insolvency and / or joint liability;
  • to have submitted all tax returns, according to the fiscal evidence, at the date of issuing the fiscal attestation certificate.

After receiving the request, the fiscal body issues, ex officio, the fiscal attestation certificate and communicates it to the debtor.

There are several conditions for maintaining the validity of the payment reschedulment, amongst which we mention: (i) declaring and paying the fiscal obligations with payment terms starting with the date of communication of the rescheduling decision, including until the 25th of the next month following the due date provided by law; (ii) payment of the differences of taxes resulting from rectifying declarations within maximum 30 days from the date of filing the declaration; (iii) compliance with the amount and payment terms in the rescheduling schedule, including if the rescheduling rate is paid by the next payment deadline in the rescheduling schedule.

During the period for which payment reschedulements were granted, starting with December 26, 2020, interest is due and calculated (0.01% for each day of delay) for the tax obligations scheduled for payment, namely for each rate in the payment schedule for payment starting with the date of issuing the decision of payment rescheduling and until the payment term in the schedule or until the date of payment of the installment.

The delay penalty of 0.01% will also be due for each day of delay.

Additionally, a penalty of 5% will be due for the payment rescheduling rate paid late until the next payment term in the rescheduling schedule, as well as for the differences of unpaid fiscal obligations after solving the VAT returns with reimbursement option.

The penalty of 5% is computed at: (i) the amount remaining unpaid from the rescheduling rate, representing main fiscal obligations and / or ancillary fiscal obligations rescheduled for payment; (ii) the differences of fiscal obligations remaining unpaid after the settlement of the returns with the negative amount of VAT with the option of reimbursement.

d) Reduction of the specific tax for HoReCa

HoReCa entities liable to specific tax due for HoReCA activities in 2020, do not owe specific tax for the period between October 26, 2020 (the date of entry into force of these provisions) and December 31, 2020 inclusive.

Thus, the specific tax established for 2020 will be recalculated accordingly.

e) Reduction of local taxes

Local authorities may adopt reductions of building tax for 2020 until December 2, 2020, the main measure being the reduction of the annual building tax by 50% for non-residential buildings, if, during the period for which the state of emergency / alert was established, the owners or users of the buildings were obliged, according to the law, to totally interrupt their economic activity or hold the certificate for emergency situations issued by the Ministry of Economy certifying the partial interruption of the economic activity.

In case such measures are adopted, the owners of the buildings are obliged to submit to the local fiscal authority a request for granting the reduction until December 21, 2020 inclusive, together with a declaration on their own responsibility, which must contain specific information.

f) Prolongation of restructuring of unpaid taxes

The possibility of restructuring of taxes (GO 6/2019) is extended and the obligation to notify the fiscal authorities regarding the restructuring intention can be submitted between November 1, 2020 and March 31, 2021. The restructuring request can be submitted until June 30, 2021.

g) Non-taxation for the employee of the COVID tests supported by the employer

No salary tax and social contributions are computed for the value of medical tests for diagnosing COVID-19 infection, supported by the employer, on his own initiative, for his employees, during the state of emergency or alert.

Reductions of taxes in case of capital increases

by Florin Gherghel, Tax Manager Ensight Finance

Emergency Ordinance 153/2020 was published in the Official Gazette 817 of September 4, 2020 regarding tax incentives for maintenance / increase of equity

Thus, from January 1, 2021 until the end of 2025, reductions of taxes are granted for entities that increase their equity.

Corporate income tax payers (regardless of the declaration and payment system), micro-enterprise tax payers, as well as payers of specific tax for certain activities (HoReCa), benefit from reductions of the annual corporate income tax / micro-enterprise tax / specific tax for certain activities, as follows:

a) 2% – if the equity, in the year for which the tax is owed, is positive. If there is a legal obligation to set up the share capital, the accounting equity must also meet the condition of being at the level of a value at least equal to half of the subscribed share capital.

 

b) If an annual increase of the adjusted equity of the year, for which the tax is owed, is registered in comparison with the adjusted equity registered in the previous year and simultaneously the condition provided at let. a) is fulfilled, the reductions have the following values:

Reduction percentage of tax Ranges of annual increase of adjusted equity
5% Up to 5% inclusive
6% Over 5% and up to 10% inclusive
7% Over 10% and up to 15% inclusive
8% Over 15% and up to 20% inclusive
9% Over 20% and up to 25% inclusive
10% Over 25%

 

c) 3%, if an increase above the level mentioned in the table below is registered for the adjusted equity of the year for which the tax is owed in comparison with the adjusted equity registered in 2020 and simultaneously the condition provided in let. a) is fulfilled. This reduction applies starting with year 2022, respectively, starting with the modified fiscal year starting in 2022. The percentage increase of the adjusted equity of the year for which the tax is owed in comparison with the adjusted equity registered in 2020 has the following values:

The year for which the tax is owed Minimum percentage of increase of adjusted equity
2022 5%
2023 10%
2024 15%
2025 20%

 

If two or three of the reductions provided above are applicable, the corresponding percentages are added together, and the resulting value of the reduction is applied to the tax.

 

The adjusted equity mainly includes the following elements:

  • paid-in subscribed capital;
  • a capital premium;
  • a legal, statutory or contractual reserve and other reserves constituted by the net profit as a result of the decision of the shareholders / associates or according to the legal provisions;
  • the net carried forward result – credit balance, representing the positive difference between credit and debit balances.

 

For the period 2021 – 2025, the deadlines for submitting the declarations and for paying the tax have been modified as follows:

a) the payers of the corporate income tax submit the annual declaration regarding the profit tax and pay the profit tax afferent to the respective fiscal year until June 25 inclusive of the following year;

b) the payers of the micro-enterprise tax submit the declaration related to the fourth quarter and pay the tax related to this quarter until June 25 inclusive of the following year;

c) the payers of specific tax for certain activities submit the declaration related to the second semester and pay the tax related to this semester until June 25 inclusive of the following year.