Amendments to the Fiscal code starting with 1 January 2014
November 21 2013
Amendments to the Fiscal code starting with 1 January 2014
By Theodor Artenie, Managing Director Schoenherr Tax Bucharest
Government Emergency Ordinance no. 102/14.11.2013 (GEO 102/2013) was published in Romania’s Official Gazette no. 703 of 15.11.2013 and it amends the provisions of Law 571/2003 regarding the Fiscal code, as subsequently amended and supplemented.
The most important amendments that will come into force starting with 1 January 2014 are:
Title II – Profit tax
· Taxpayers can now opt for a fiscal year different from the calendar year, in certain conditions. New provisions regarding the tax reporting and payment obligations are introduced accordingly.
· Revenues from dividends, sale of participation titles or liquidation of the companies in which taxpayers hold participations are non-taxable revenues, if the following conditions are met:
o The legal entity which is the source for the respective revenues (i.e. the legal entity which distributes the dividends, or the legal entity whose participation titles are sold or which is subject to liquidation) is established in Romania or in a state with which Romania has a double tax treaty in place; and
o The Romanian legal entity which derives these types of revenues holds a minimum of 10% in the share capital of the legal entity that distributes the dividends or in the legal entity that is sold / liquidated for an uninterrupted period of at least one year at the moment the respective operation is executed.
· The sponsorship expenses and, implicitly, the related tax credit can be carried forward for a period of 7 years if the conditions for claiming the tax credit are not met in the current year. In addition, the law brings clarifications regarding the computation of the turnover.
· The interest expenses and net foreign exchange differences carried forward can be transferred within reorganization operations (mergers/ spin-off) proportionally to the assets and liabilities transferred.
· A permanent establishment in Romania can now claim, in certain conditions, tax credit for taxes paid abroad on income sourced there from.
· For dividend tax, the holding period necessary to claim exemption on dividends distributed by one Romanian company to another is reduced from 2 years to 1 year.
Title III – Income tax
The deduction of contributions paid to facultative pension funds within the limit of EUR 400 p.a. is also allowed for contributions paid to entities set-up in the European Union and in the European Economic Area (provision taken from the application norms).
A specific limit is introduced for the deductibility of interest expenses related to borrowings in foreign currencies, other than the ones from financial institutions, made by freelancers. This limit is the one regulated for profit tax purposes (currently 6%).
For salary tax purposes, mandatory social contributions paid according to the law, including provisions in the European regulations and bilateral conventions (totalization agreements) are now explicitly allowed as deductible.
For in-kind income from land lease the taxable base can be adjusted if the average prices for agricultural goods fluctuate during the fiscal year; the adjustment will apply from the 1st of the month following the one when the price level changes;
Health fund contribution, mandatory for rental income as of January 2014, will be deductible for tax purposes;
The income quotas for agricultural activities valid for 2013 are repealed and new levels will be published by the local tax authorities until the 15th of February;
Advertising materials, samples, flyers and loyalty (bonus) points are non-taxable for the individuals receiving them;
A specific payment deadline is introduced for taxpayers who failed to file the annual tax return: if during a tax audit the tax inspectors identify outstanding tax liabilities, these would be considered due as of the date the tax decision should have been issued, meaning 15th September of the year following the one for which the tax was due;
Tax residents in countries in the European Union and the European Economic Area benefit from the same tax deductions as Romanian residents;
Income from abroad, similar to income from Romania which is non-taxable according to the law, will have the same favorable tax treatment.
Title IV1 – Micro-company tax
· Legal entities deriving revenue from advisory and management activities will be subject to the micro-company tax as long as the revenue obtained from these activities is below 20% of their total turnover.
· Starting with the quarter when the 20% threshold is reached or exceeded, the legal entity becomes a profit tax payer retroactively, from the beginning of the respective tax year. For the computation of the profit tax that entity must consider the revenue and expenses incurred from the beginning of the tax year. The micro-company tax paid during that year will be deducted from the resulting profit tax.
· GEO 102/2013 amends also the taxable base, as regards the treatment of revenue from exchange rate differences and commercial discounts.
Title V – Withholding tax
· GEO 102/2013 limits the exemption granted by the EU directive for dividends to situations where such dividends are paid to affiliated companies established in other EU Member States. Prior to this amendment, the exemption was also available for affiliated companies in countries from the European Free Trade Association (Iceland, Principality of Lichtenstein, United Kingdom of Norway);
· The holding period necessary to claim dividend tax exemption for dividends sourced by EU affiliated companies from Romania is reduced from 2 years to 1 year;
Title VI – VAT
· For leasing agreements where the leasing company also insures the leased asset and then recharges the value of the insurance premium to the user, the insurance premium will no longer be regarded as part of VAT taxable basis for the leasing service.
· In order to claim the refund of VAT invoiced by Romanian suppliers, non-resident companies no longer have to prove the payment of this VAT to the respective suppliers.
· GEO 102/2013 extends the scope of the exception from the obligation to adjust input VAT incurred for the acquisition of capital goods or other goods
· The adjustment of input VAT made in 2013 for stolen goods may be reversed if the theft is proven with a definitive court ruling.
Title VII – Excise duties and other special duties
· The value of the bond submitted by authorized tax warehouse keepers or by registered consignees may be reduced, on request, to a level which must not be lower than the minim level mentioned by the law;
· It is now forbidden to grant tobacco products or alcoholic beverages as free supplements to promotional sales.
· GEO 102/2013 amends the provisions regarding the exchange rate used for the conversion from euro to lei of the excise duties and of the tax on crude oil. Thus, the exchange rate used for the conversion may also be the exchange rate in force in the first working day of October from the second year going backwards from the year for which the excise duties and the tax on crude oil are computed. In the latter case the values will be adjusted using the annual average of the consumer price index computed in September of the year prior to that for which the excise duties and the tax on crude oil are computed and released by the National Statistics Institute on the 15 of October. For 2014, the annual average of the consumer price index computed in September 2013 is 104.77%.
· The excise duty rate for leaded gasoline increases from 547 euro/tone to 637.91 euro/tone, respectively from 421.19 euro/1,000 liters to 491.19 euro/1.000 liters.
· The excise duty rate for unleaded gasoline increases from 467 euro/tone to 557.91 euro/tone, respectively from 359.59 euro/1,000 liters to 429.59 euro/1,000 liters.
· The excise duty rate for diesel fuel increases from 391 euro/tone to 473.85 euro/tone, respectively from 330.395 euro/1,000 liters to 400.395 euro/1,000 liters.
· The excise duty rate for kerosene increases from 469.89 euro/tone to 557.39 euro/tone, respectively from 375.91 euro/1,000 liters to 445,91 euro/1,000 liters.
Title IX3 – Tax on special constructions
· A new tax of 1.5% is introduced on the value of special constructions included in Group 1 from the Catalogue regarding the classification of fixed assets and their normal useful life approved by Government Decision 2139/2004, as subsequently amended and supplemented (“the Catalogue”).
· This tax will be due by Romanian companies, by permanent establishments of non-resident companies and by legal entities established in Romania in accordance with European law.
· The tax will be computed based on the gross accounting value of the eligible assets as detailed in the trial balance at the end of the previous year, reduced with elements such as:
o The value of buildings for which the building tax is due;
o The value of constructions mentioned in subgroup 1.2.9 from the Catalogue.
· The tax must be self-assessed and declared by 25 May of the year for which the tax is due.
· Payment will be executed in two equal installments by 25 May and by 25 September respectively.
· The new tax will be managed by ANAF who is required to issue additional guidance regarding the tax assessment form within 30 days from the moment GEO 102/2013 entered into force.
By Theodor Artenie, Managing Director Schoenherr Tax Bucharest
Government Emergency Ordinance no. 102/14.11.2013 (GEO 102/2013) was published in Romania’s Official Gazette no. 703 of 15.11.2013 and it amends the provisions of Law 571/2003 regarding the Fiscal code, as subsequently amended and supplemented.
The most important amendments that will come into force starting with 1 January 2014 are:
Title II – Profit tax
· Taxpayers can now opt for a fiscal year different from the calendar year, in certain conditions. New provisions regarding the tax reporting and payment obligations are introduced accordingly.
· Revenues from dividends, sale of participation titles or liquidation of the companies in which taxpayers hold participations are non-taxable revenues, if the following conditions are met:
o The legal entity which is the source for the respective revenues (i.e. the legal entity which distributes the dividends, or the legal entity whose participation titles are sold or which is subject to liquidation) is established in Romania or in a state with which Romania has a double tax treaty in place; and
o The Romanian legal entity which derives these types of revenues holds a minimum of 10% in the share capital of the legal entity that distributes the dividends or in the legal entity that is sold / liquidated for an uninterrupted period of at least one year at the moment the respective operation is executed.
· The sponsorship expenses and, implicitly, the related tax credit can be carried forward for a period of 7 years if the conditions for claiming the tax credit are not met in the current year. In addition, the law brings clarifications regarding the computation of the turnover.
· The interest expenses and net foreign exchange differences carried forward can be transferred within reorganization operations (mergers/ spin-off) proportionally to the assets and liabilities transferred.
· A permanent establishment in Romania can now claim, in certain conditions, tax credit for taxes paid abroad on income sourced there from.
· For dividend tax, the holding period necessary to claim exemption on dividends distributed by one Romanian company to another is reduced from 2 years to 1 year.
Title III – Income tax
The deduction of contributions paid to facultative pension funds within the limit of EUR 400 p.a. is also allowed for contributions paid to entities set-up in the European Union and in the European Economic Area (provision taken from the application norms).
A specific limit is introduced for the deductibility of interest expenses related to borrowings in foreign currencies, other than the ones from financial institutions, made by freelancers. This limit is the one regulated for profit tax purposes (currently 6%).
For salary tax purposes, mandatory social contributions paid according to the law, including provisions in the European regulations and bilateral conventions (totalization agreements) are now explicitly allowed as deductible.
For in-kind income from land lease the taxable base can be adjusted if the average prices for agricultural goods fluctuate during the fiscal year; the adjustment will apply from the 1st of the month following the one when the price level changes;
Health fund contribution, mandatory for rental income as of January 2014, will be deductible for tax purposes;
The income quotas for agricultural activities valid for 2013 are repealed and new levels will be published by the local tax authorities until the 15th of February;
Advertising materials, samples, flyers and loyalty (bonus) points are non-taxable for the individuals receiving them;
A specific payment deadline is introduced for taxpayers who failed to file the annual tax return: if during a tax audit the tax inspectors identify outstanding tax liabilities, these would be considered due as of the date the tax decision should have been issued, meaning 15th September of the year following the one for which the tax was due;
Tax residents in countries in the European Union and the European Economic Area benefit from the same tax deductions as Romanian residents;
Income from abroad, similar to income from Romania which is non-taxable according to the law, will have the same favorable tax treatment.
Title IV1 – Micro-company tax
· Legal entities deriving revenue from advisory and management activities will be subject to the micro-company tax as long as the revenue obtained from these activities is below 20% of their total turnover.
· Starting with the quarter when the 20% threshold is reached or exceeded, the legal entity becomes a profit tax payer retroactively, from the beginning of the respective tax year. For the computation of the profit tax that entity must consider the revenue and expenses incurred from the beginning of the tax year. The micro-company tax paid during that year will be deducted from the resulting profit tax.
· GEO 102/2013 amends also the taxable base, as regards the treatment of revenue from exchange rate differences and commercial discounts.
Title V – Withholding tax
· GEO 102/2013 limits the exemption granted by the EU directive for dividends to situations where such dividends are paid to affiliated companies established in other EU Member States. Prior to this amendment, the exemption was also available for affiliated companies in countries from the European Free Trade Association (Iceland, Principality of Lichtenstein, United Kingdom of Norway);
· The holding period necessary to claim dividend tax exemption for dividends sourced by EU affiliated companies from Romania is reduced from 2 years to 1 year;
Title VI – VAT
· For leasing agreements where the leasing company also insures the leased asset and then recharges the value of the insurance premium to the user, the insurance premium will no longer be regarded as part of VAT taxable basis for the leasing service.
· In order to claim the refund of VAT invoiced by Romanian suppliers, non-resident companies no longer have to prove the payment of this VAT to the respective suppliers.
· GEO 102/2013 extends the scope of the exception from the obligation to adjust input VAT incurred for the acquisition of capital goods or other goods
· The adjustment of input VAT made in 2013 for stolen goods may be reversed if the theft is proven with a definitive court ruling.
Title VII – Excise duties and other special duties
· The value of the bond submitted by authorized tax warehouse keepers or by registered consignees may be reduced, on request, to a level which must not be lower than the minim level mentioned by the law;
· It is now forbidden to grant tobacco products or alcoholic beverages as free supplements to promotional sales.
· GEO 102/2013 amends the provisions regarding the exchange rate used for the conversion from euro to lei of the excise duties and of the tax on crude oil. Thus, the exchange rate used for the conversion may also be the exchange rate in force in the first working day of October from the second year going backwards from the year for which the excise duties and the tax on crude oil are computed. In the latter case the values will be adjusted using the annual average of the consumer price index computed in September of the year prior to that for which the excise duties and the tax on crude oil are computed and released by the National Statistics Institute on the 15 of October. For 2014, the annual average of the consumer price index computed in September 2013 is 104.77%.
· The excise duty rate for leaded gasoline increases from 547 euro/tone to 637.91 euro/tone, respectively from 421.19 euro/1,000 liters to 491.19 euro/1.000 liters.
· The excise duty rate for unleaded gasoline increases from 467 euro/tone to 557.91 euro/tone, respectively from 359.59 euro/1,000 liters to 429.59 euro/1,000 liters.
· The excise duty rate for diesel fuel increases from 391 euro/tone to 473.85 euro/tone, respectively from 330.395 euro/1,000 liters to 400.395 euro/1,000 liters.
· The excise duty rate for kerosene increases from 469.89 euro/tone to 557.39 euro/tone, respectively from 375.91 euro/1,000 liters to 445,91 euro/1,000 liters.
Title IX3 – Tax on special constructions
· A new tax of 1.5% is introduced on the value of special constructions included in Group 1 from the Catalogue regarding the classification of fixed assets and their normal useful life approved by Government Decision 2139/2004, as subsequently amended and supplemented (“the Catalogue”).
· This tax will be due by Romanian companies, by permanent establishments of non-resident companies and by legal entities established in Romania in accordance with European law.
· The tax will be computed based on the gross accounting value of the eligible assets as detailed in the trial balance at the end of the previous year, reduced with elements such as:
o The value of buildings for which the building tax is due;
o The value of constructions mentioned in subgroup 1.2.9 from the Catalogue.
· The tax must be self-assessed and declared by 25 May of the year for which the tax is due.
· Payment will be executed in two equal installments by 25 May and by 25 September respectively.
· The new tax will be managed by ANAF who is required to issue additional guidance regarding the tax assessment form within 30 days from the moment GEO 102/2013 entered into force.
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