2021 Brings Tax Amendments in Romania

The Romanian Fiscal Code has suffered consistent amendments at the end of 2020 by Law no. 296/2020 and Emergency Ordinance no. 226/2020.

Some amendments have a significant relevance in practice, namely:

1. Group level CIT consolidation rules

New provisions for corporate income tax (CIT) grouping allow companies from the same group to offset fiscal profits and losses. Therefore, the taxable basis for CIT will be reduced to only net profits computed after compensation has been performed within the group. Details are set as regards conditions, computation rules, transfer pricing and possible use of additional sums for fiscal loss carried forward. Specialists consider that these new rules help within the groups (as defined) for the reduction of the cash flow deficit.

2. Effective management

Residence in Romania is recognized for foreign companies whenever its management is effectively established in Romania. Such recognition is made by the tax authorities on the basis of a special Questionnaire and supporting documents. If confirmed, the company in case must follow additional registration obligations and submit statements for at least one fiscal year.

If doubts exist and a double tax treaty may be applicable, the provisions of the latter apply to establish the correct residence.

3. Changes for micro-enterprises

A number of changes were brought to the CIT and tax treatment of micro-enterprises. Among these:

• New rules on the possibility to exempt reinvested profits from the total CIT;
• Expenses with teleworkers are deductible;
• Dividends obtained from a Romanian company are excluded when calculating the taxable basis for micro-enterprise tax;
• Depreciation expenses incurred with electronic cash registers may now be directly deducted out of CIT, similarly with sponsorship expenses;
• Expenses incurred with employees’ benefits (settlement in shares) are deductible at the moment of granting irrespective other individual taxation regimes;
• Starting with January, 1^st 2022 all (not only 30%) adjustments for impairment of receivables (e.g. provisions, write-off) will be entirely tax deductible for CIT purposes.

4. Changes in regards to income tax and social security contributions

• A reduced 10% tax shall be applied for gift vouchers to third party individuals (e.g. collaborators, business partners) defined as “Other income”.
• Employees may benefit of various amounts / facilities when performing telework, for vaccination and/ or testing, but also for the personal use of company´s vehicles. Such benefits are not subject to income tax and social security contributions, such as:
• A 10% reduced domestic WHT rate is to be applied to revenues obtained by non-resident individuals (e.g. from interest, royalties, commissions, management or consulting services and other services provided in Romania, sports and entertainment activities and independent professions activities, prizes, income from the liquidation of a Romanian resident).
• If such non-resident individuals decide to become Romanian residents for fiscal purposes, they owe a reduced income tax for their entire global income. Such income shall be considered as of the day when they declared their center of vital interests in Romania, previous formal requirements being left aside.

5. VAT and excise

• It is very important for VAT practice that the VAT taxable base can be adjusted under certain conditions in case invoices are not collected for longer than one year.
• Starting with January it is possible to avoid burdensome requirements like VAT payments in customs if VAT registered in Romania and in possession of a deferred payment certificate or for imports subject to reverse charge subsequently.
• For specific transactions an authorized fiscal representative for VAT purposes may be appointed in Romania by companies which are not registered for VAT purposes here and want to avoid tiresome procedures.
• the VAT cash accounting scheme capped previously at RON 25 M has been increased up to RON 4.5 M.
• 5% VAT rate for dwellings up to EUR 140,000 shall not be applicable this year. Another postponement has been made for 2022.
• Several aspects on VAT-related adjustments and treatments have been detailed in the context of a business transfer.
• the total excise duties for cigarettes has been increased by concurrently granting an exception for the first quarter of 2021.

6. Extension of deadlines for certain tax returns

• The deadline for submitting the widely discussed Unique Return has been extended from March 15^th to May, 25th.
• Other informative statements regarding withholding tax and the profit/loss from transactions performed by non-resident individuals have also been extended for another month until the last day of February.

For more information, please check our website:

https://stalfort.ro/wp-content/uploads/2021/01/20210115_NEWSFLASH_Tax_amendments_at_the_beginning_of_2021.pdf