According to the Romanian Government, a revolution in taxation will begin 1 January 2018 when a recently adopted Emergency Ordinance becomes effective. The current version of the Ordinance has a significant impact on various tax matters such as the corporate income tax, controlled foreign companies, the microenterprise income tax, the income tax for individuals, social security contributions, VAT, and excise and local taxes.
Among the most relevant changes created by the ordinance:
A. Limitation of interest deductibility
To prevent tax evasion practices, new rules will limit deductibility through the following means:
• Indebtedness costs exceeding the deductible EUR 200,000 limit are deductible within a limit of 10 % that will apply to the calculation basis resulting from the difference between revenues and expenses recorded. If the calculation basis is negative or zero, the excess debt is non-deductible therefore will be reported in future periods for an unlimited period following the same deduction rules;
• The rules mentioned above will be applicable for the exchange differences carried forward to 31 December 2017;
• The rules described above do not apply to independent entities that will have the right to fully deduct the indebtedness costs in the period in which they were incurred in the following conditions:
a. the entity is not a part of a consolidated group for financial accounting purposes;
b. the entity does not hold any associated enterprise nor a permanent establishment;
B. Transfer of assets, tax residence, or economic activity carried out through a permanent establishment for which Romania loses the taxation right
• The taxable amount for the exit tax represents the difference between the market value of the transferred assets and their fiscal value and will be subjected to 16% exit tax
C. Microenterprise tax
• By far the most important change has to be the increase of the annual threshold from EUR 500,000 to EUR 1,000,000;
• The legal definition for the microenterprise is amended by including in this category other legal entities that:
a. derive income from the following activities: banking, insurance and reinsurance, capital markets, gambling, exploration, and development of oil and natural gas;
b. derive income the consulting and management.
• The microenterprise regime is mandatory for all taxpayers regardless the object of activity or the share capital fully subscribed.
D. Income tax
• The tax rate will be reduced to 10 % from 16% and will apply to the following revenue categories:
a. independent activities;
b. salaries and assimilated to salaries;
c. income from immovable property;
d. investments, except dividend income;
f. agriculture, forestry and pisciculture activities;
h. other sources.
• Another notable amendment is the reduction of the tax rate for the intellectual property as it follows:
a. from 10% to 7% to determine the anticipated payments whether the natural person did not opt for to set the income tax as the final tax;
b. from 16% to 10% if the natural person opted for determining the income tax as the final tax;
E. Transfer of the social contribution from the employer to the employee
• At the moment, the social security includes six social security contributions amounting to a total of 39.25%
Under the Ordinance, the transfer of social contribution will be transferred from the employer to the employee for:
a. the social insurance contribution (CAS): 25% of the gross revenue gained, but not less the gross minimum salary established in Romania for this month when the contributions are due (starting 1 January 2018 when the gross minimum salary is up to increase to 1,900 RON);
b. the health social security contributions (CASS): 10% of the gross revenues gained, but not less than the minimum gross salary established in Romania for the month due.
Employers or Legal persons assimilated to employers must submit the following contributions:
a. a special working condition social security contribution in the amount of 4%;
b. for difficult conditions and other working conditions social security contribution in the amount of 8%;
c. a new contribution is required and labeled as “insurance contribution for work” in the amount of 2,25%
Also, the social contribution will represent a minimum of 37,25% instead of the 39,25% required under the current law.
• In the light of the recent decisions of the European Court of Justice, tax authorities may refuse a VAT deduction only if they can demonstrate beyond any reasonable doubt that the taxable person knew or must have known the transaction was involved in VAT fraud.
• The excisable products that are held outside the fiscal warehouse without complying with the rules may trigger the seizure of the tanks, containers, and means of transport used for such purpose.
Emergency Ordinance no. 79/2017 amends and completes Law no. 227/2015 regarding the Fiscal Code.