Below are the main amendments on Romanian Fiscal Code, to enter into force starting with January 2018.
Corporate income tax
- The current provisions regarding the limited deductibility of interest and net foreign exchange losses are replaced by the provisions of EU Directive 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, which will be applicable to companies that are part of a group.
- The excess indebtedness costs, computed as the difference between the interest revenues and other economically equivalent revenues and indebtedness costs and other economically equivalent costs, including foreign exchange losses, which exceed the EUR 200,000 annual threshold, are deductible for corporate income tax purposes up to 10% of the gross accounting profit, minus non-taxable revenues, plus excess indebtedness and tax depreciation; if this computation base is less than or equal to 0, the non-deductible costs can be indefinitely carried forward and can be deducted when this base becomes positive.
- Companies that are not part of a group and which have interest expenses and net foreign exchange losses available to be carried forward as at 31 December 2017 can fully deduct said amounts in 2018.
- An exit tax is introduced to regulate the tax regime for transfers of assets, of tax residence or of the businesses from Romania to other countries.
- Additionally, a general anti-abuse rule is introduced, according to which tax authorities can ignore a series of arrangements which have been put into place with the sole aim of obtaining a tax advantage.
- The concept of controlled foreign companies is introduced, according to which certain non-distributed revenues of said entities located in jurisdictions having low tax rates are included in the taxable base of the parent company in Romania.
Tax on micro-company income
- The income threshold under which companies are required to apply the micro-company regime is increased from EUR 500,000 to EUR 1,000,000.
- Companies carrying out banking, insurance and reinsurance, capital markets, gambling or upstream oil and gas activities and companies rendering management and consultancy services, regardless of the revenue share derived from said services, are no longer excluded from the application of the micro-company tax.
- Newly set-up companies having a share capital of at least lei 45,000 or micro-companies which perform a share capital increase to this minimum will no longer have the option to apply the corporate income tax regime.
- The standard income tax rate is reduced from 16% to 10%.
- It is expressly provided that contributions paid to special social security systems by individuals carrying out independent activities are deductible for income tax purposes.
- Income tax rates applied to income from intellectual property rights decrease from 10% to 7% for determining the advance payments and from 16% to 10% for determining the final income tax due.
- The monthly gross salary based on which the personal deduction is granted increases from lei 1,500 per month to lei 1,950 per month; the personal deductions are increased as well; also, regressive personal deductions are provided within the Fiscal Code for gross salary income between lei 1,951 and lei 3,600.
Mandatory social contributions
The social contributions system is changed as follows:
- The social security contribution is due only by the employee at a rate of 25% from the calculation base (except for cases involving particular or special work conditions, for which the employers also owe social security of 4% or 8% of the calculation base, as the case may be).
- The health insurance contribution is due only by the employee and has a rate of 10% of the calculation base.
- A separate contribution of 2.25% is also due by the employer and replaces the unemployment insurance contribution, the contribution for accidents at work and professional diseases, the contribution for medical leave and indemnities and the contribution to the salary guarantee fund.
- The liability to compute, withhold and pay the social charges remains with the employer.
- Individuals carrying out independent activities can choose to pay the social security contribution by reference to the minimum monthly gross salary. The health insurance contribution is due also by reference to the minimum monthly gross salary.
Value added tax – VAT
- A new rule is introduced according to which the right to deduct VAT is refused to a taxable person if it can be proven that said person knew or should have known that the respective transactions were part of a fraudulent chain of transactions.
- In January 2018, a system of separate Value Added Tax accounts (so called "Split VAT") will come into force in Romania. The Split VAT system requires the use of separate VAT accounts for all payments and revenues associated with Value Added Tax (input and output VAT). This means, among other things, that invoices for goods and services have to be paid to two separate accounts: the net amount to the business bank account, the VAT element to a separate VAT account. The split-VAT scheme is mandatory for:
- Companies in insolvency procedure;
- Companies with delay in payment of due VAT to state budget, if the delay is higher than 60 days and the amount is at least 15000 ron (large taxpayers) / 10000 ron (medium taxpayers) / 5000 ron (small taxpayers).
- Taxpayers can adopt the system on a voluntary basis, and will receive a tax incentives of 5% reduction of the corporate tax (or corporate tax for micro-business)