Tax Flash No. 10/2015
Law 227/2015 regarding the Fiscal Code was published in Official Gazette 688/2015
The New Fiscal Code, approved by Law 227/2015, shall enter into force on January 1st, 2016, date at which Law 571/2003 regarding the Fiscal Code, as well as certain normative acts that have been incorporated under the New Fiscal Code, shall be repealed.
References in existing laws to Law 571/2003 regarding the Fiscal Code shall be deemed to be made to the New Fiscal Code.
Among the most important amendments brought by the New Fiscal Code, we note the following:
- The stock option plan is defined as representing a program initiated within a legal person whose values are traded on a regulated market or traded on an alternative trading system which grants to its employees, administrators and / or directors, or to those of a related entity, the right to purchase at a preferential price or to receive for free securities issued by the respective entity. In order for a program to qualify as a stock option plan a minimum period of one year must be imposed between the moment when the right was granted and the moment when it is exercised (the securities are purchased).
- Cross border artificial transactions are defined as those transactions which do not have economic substance and cannot normally be used within regular economic activities, performed with the main purpose of tax avoidance or with the purpose to obtain fiscal advantages that would not otherwise be granted.
- A new provision is included which states that in the case where an abuse of law is determined, transactions involved in such abusive practices need to be redefined, so as to restore the situation that would have prevailed in the absence of such transactions that constituted abuse.
CORPORATE INCOME TAX
- The taxpayers that opted for a fiscal year different from the calendar year must declare this within 15 days from the beginning of the modified fiscal year, or from the registration date, as the case may be.
- For these taxpayers, the fiscal authority’s right to determine the corporate income tax is prescribed within 5 years from the first day of the month following that in which 6 months after the end of the fiscal year for which the tax liability due is met.
- The special 5% of income tax rate is no longer applicable to entities performing sports betting activities.
The calculation of the tax result
- The tax provisions related to the correction of errors are correlated with the accounting provisions, as follows:
- errors that are corrected according to the accounting regulations through the retained earning account should be corrected by adjusting the fiscal result of the year to which they relate and by submitting a rectifying tax statement;
- errors corrected according to the accounting regulations through the profit and loss account are taken into account when determining the fiscal result of the year in which their correction is performed.
- The deductions granted for research and development activities are not recalculated if the research and development project’s objectives are not realised.
- The tax exemption granted for reinvested profit also applies for the tangible assets in Group 2.2.9. of the Catalogue on the classification and normal useful life of fixed assets, namely computers, peripherals, as well as for computer programs.
- The following revenues are also specifically mentioned as not taxable:
- income from the recovery, including through re-invoicing, of expenses for which no deduction was granted;
- revenue representing growth in value due to the revaluation of fixed assets, land, intangible assets, which offset expenses with previous decreases relating to the same fixed assets;
- income from the valuation / revaluation of shares held in a Romanian legal entity or a foreign entity located in a state with which Romania has concluded a convention for the avoidance of double taxation if on the date of valuation / revaluation the taxpayer has held a minimum of 10% of the share capital of the legal entity for an uninterrupted period of at least one year;
- amounts collected for fulfilling the responsibility of financing waste management;
- compensation received based on decisions of the European Court of Human Rights;
- income received by a permanent establishment located in a foreign state, provided that the provisions of a double taxation convention concluded between Romania and the foreign state are applicable and that convention provides the exemption method as a method for avoiding double taxation;
- amounts received by shareholders / associates as a result of the share capital reimbursement.
- The condition introduced starting 1 January 2014 regarding the minimum holding of 10% of the share capital of the legal entity issuing the dividends in order for the dividends received form a Romanian legal entity to be non-taxable was eliminated.
- As a general rule, expenses are deemed as deductible if they are incurred for business purposes.
- The calculation basis on which the 2% rate is applied when determining the deductible protocol expenses is the accounting result.
- Social expenses are deductible up to the limit of 5%, applied to the amount of expenditure with personnel salaries.
- The costs related to road vehicles representing exchange differences recorded as a result of the execution of a lease are deductible up to 50% of the difference between income from unfavorable foreign exchange differences / financial income and the expenses thereto.
- For determining the deduction of sponsorship expenses, the 0.3% of the turnover limit is increased to 0.5%.
- When calculating the deductibility of the legal reserve, the 5% rate is applied to the accounting result.
- The expenses with goods such as stocks or depreciable fixed assets discovered as missing or damaged for which there is no insurance contract concluded are deductible, if they fall within any of the following conditions:
- were destroyed as a result of natural disasters or force majeure events;
- were degraded qualitatively and the proof of the damage is documented;
- they have exceeded shelf life / expiration date.
- The adjustment for the depreciation of fixed assets are deductible if they have been destroyed due to force majeure events and if insurance contracts were concluded.
- The interest rate used to determine the deductibility of interest for foreign currency loans is 4% p.a.
- Starting 1 January 2017, the tax on dividends will drop from 16% to 5%.
MICROENTERPRISES INCOME TAX
- Entities engaged in the exploration, development, exploitation of oil and gas deposits cannot be microenterprises.
- If the EURO 65,000 threshold is exceeded or the share of revenue from consulting and management activities exceeds 20% of the total income, profits tax is due by taking into account the revenues and expenses registered starting the respective quarter.
- Newly established legal entities, which have at least one employee and are constituted for a period exceeding 48 months, whose shareholders/associates did not hold equity in other legal entities benefit from a reduced tax rate of 1% under certain conditions.
- Resident individuals who are not domiciled in Romania and non-resident individuals who meet the tax residency criteria must pay tax on income from any source, obtained both from Romania and from abroad, starting the date on which they become residents in Romania (not starting the following year).
- The deduction quota for calculating the net income from intellectual property rights, including the creation of monumental art, is 40% of the gross income (instead of 20%).
- The personal deductions level granted to taxpayers with low incomes from salaries to basic function is increased based on the number dependent persons.
- Gifts and gift vouchers granted on special events (Easter, Christmas, June 1, March 8) within a RON 150 limit are exempt for all employees.
- The quota for flat expenses applied when determining the net income from rental and letting, is 40% of the gross income.
- Starting 1 January 2017 the income tax on dividends is 5%.
- If the value declared by the parties in the document attesting the transfer of immovable property from the personal patrimony is less than the minimum value established by a market survey conducted by the chambers of public notaries, the tax shall be applied on the value declared by the parties, however the public notary shall notify the transaction to the tax authorities.
SOCIAL SECURITY CONTRIBUTIONS
- Individuals deriving income from independent activities have to pay social security contributions (SSC), the basis of calculation, in case of prepayments, representing 35% of the gross average salary, while a recalculation will follow based on the income effectively realised. The monthly computation basis regarding the recalculation cannot be less than 35% of the gross average salary nor higher than 5 times such gross average salary. The taxpayer has the possibility of choosing for the prepayments and for the recalculation between the individual rate (i.e. 10.5%) and the whole rate (i.e. 25.8%).
- The basis for social security contribution in case of income from intellectual property withheld at source represents the difference between the gross income and the expense determined by applying the rate of 40% on the gross income.
- Starting with the 1st of January, 2017, if the taxable base (for each type of income) exceeds 5 times the average gross salary, the health insurance social security contribution is calculated within that limit.
- Starting with the 1st of January, 2017, revenues from intellectual property rights and income from dividend are included in the calculation basis of the health contribution, regardless of whether the beneficiary derives income from salaries or from independent activities.
- The tangible fixed assets are defined as any depreciable tangible asset, buildings or land of any kind, the conditions regarding the minimum period of use and minimum value being eliminated;
- The provision according to which the tangible fixed assets having a depreciation period of 5 years are deemed as capital goods is eliminated. A transitional regime is provided for the VAT adjustment related to the depreciable tangible fixed assets and/or tangible fixed assets deemed as capital goods, having a depreciation period of 5 years, that were acquired or produced between the EU Accession date and 31 December 2015, inclusively;
- A distinction is provided between the VAT regime applicable to transfers of assets and, as the case, liabilities performed upon sale and the contribution in kind to the share capital, compared to those performed upon mergers and spin-offs. The methodological norms shall regulate the conditions to apply such VAT regime;
- The adjustment of the taxable base would be possible for the receivables that are amended or cancelled as a result of the implementation of a reorganisation plan approved and confirmed through a court decision. If the respective receivables would be cashed after the court decision, the adjustment of the taxable base would be reversed.
- The small enterprises would be liable to perform an adjustment, with the view of applying the taxable regime valid on the date of delivery of goods or provision of services, in respect of the invoices issued and/or the advances cashed before the VAT registration for the partial or entire value of the delivery of goods or provision of services;
- The standard VAT rate shall be amended from 24% to 20% starting 1 January 2016, respectively 19% as of 1 January 2017;
- The reduced VAT rate of 5% shall be applicable also for the following operations:
- school books, books, newspapers and magazines, except those destined exclusively or mainly to advertising;
- services consisting in granting the access to touristic sights and cultural and sporting events, as specifically indicated by the law.
- The threshold of the social dwellings supplied subject to the reduced VAT rate of 5% would increase from lei 380,000 to lei 450,000;
- The definition of the new buildings resulted further to the transformation is amended and such shall depend on the evaluation method used for recognising the buildings in accounting;
- The VAT related to the acquisitions incurred for investments destined to be used both for transactions with deduction right, as well as for transactions without deduction right, shall be deducted entirely during the investment process, an adjustment being performed accordingly after the commissioning of the investment;
- Clarifications are brought regarding the manner to exercise the VAT deduction right by applying the temporary pro-rata by the taxable persons with a mixed VAT regime, depending on the moment the transactions without a full VAT deduction right are performed;
- The exercising of the deduction right of the VAT inscribed within the correction invoices issued by the suppliers after a tax audit, would be allowed within 1 year term from the date when such invoices were received, even though the status of limitation term is exceeded;
- Specific provisions are introduced for taxable persons obtaining deferred payment decision or under insolvency in the sense of not carrying forward the outstanding cumulated value of payable tax, respectively the balance of the VAT that was not requested for reimbursement within the VAT return prepared for the next fiscal period;
- The procedure for cancelling the VAT refund request submitted is provided;
- The procedure for takeover the cumulated value of payable tax, respectively the balance of the negative amount of tax, in case of merger/spin-off of the taxable person is clarified;
- The write-off of capital goods would not trigger a VAT adjustment obligation.
- The provisions on the joint and several liability for the payment of the tax is removed;
- The transactions which would not be taken into consideration for the computation of the threshold for applying the special VAT exemption regime for small enterprises are clarified;
- If it will be considered that a taxable person exceeded the threshold provided for small enterprises and triggered the obligation to register for VAT purposes, the tax authorities will determine the output VAT amount but will take also into consideration the input VAT amount related to the period during which the taxable transactions were performed, the late payment interest and penalties being imposed only for the resulted payable VAT, as the case;
- The taxable persons whose VAT code is annulled would have the obligation of submitting the last VAT return by 25th of the next month following the one when the annulment decision was communicated to them;
- The possibility of applying the reverse charge mechanism for the imports of goods would be available solely based on the VAT deferment certificate;
- If certain events triggering the VAT adjustment at the level of the beneficiary would arise, and the supplier fails to issue the correction invoice, the beneficiary would be liable to issue a self-invoice in this respect, no later than the 15th day of the month following the one in which the respective events occurred;
- The following transactions shall also be subject to simplification measures:
- the supply of buildings, parts of buildings and land of any kind under taxation regime;
- the supplies of mobile phones, integrated circuit devices, tablets PC, laptops, game consoles, defined and supplied according to the specific conditions provided by law and carried out until 31 December 2018 inclusively.
- The level of excise duty for the following products modified:
- unleaded gasoline: RON 2035.40 for 1,000 liter and 2.03 bani / liter;
- alcohol: RON 3306.98 / hl alcohol.
- The non harmonized excise for “luxury products” such as yachts, cars with engines larger than 3,000 cc, fur garments etc. is eliminated. Thus, such non-harmonized excise duties will apply to:
- heated tobacco products;
- liquids containing nicotine (electronic cigarettes).
- The provision according to which individuals who own two or more buildings due surtax is eliminated.
- A new method of calculating the tax on buildings is established depending on destination, namely buildings are classified into three main categories:
a) residential buildings, being taxed between 0.2% and 0.08%
b) non-residential buildings being taxed between 0.2% -1.3%.
c) mixed destination: where the tax is computed proportionally with the area allocated for the destinations mentioned at letters a) and b).
- If the value of non-residential buildings cannot be calculated, the tax is determined by applying a 2% rate on the building’s taxable value, as if the building was residential.
- In case of buildings owned by legal entities, if the owner of the building has not updated the taxable value of the building through an appraisal report in the last 3 years preceding the referenced year, the tax rate is 5%.
- The taxes on buildings, land and means of transportation are due for the entire fiscal year by the person who owns the asset at December 31 of the prior fiscal year, this taxes no longer being calculated for fractions of a year.
- The provision requiring the tenants to notify to the owner the modifications/improvements to the building is eliminated.
- The provision according to which no tax is due on the land adjacent to a building, for the land area that is covered by the building, is eliminated.
- Local authorities will be able to increase local taxes by 50% from the peak levels established in the Fiscal Code.
- The hotel tax is eliminated.