Law 227/2015 – the Fiscal Code

Law no 227/2015 regarding the Fiscal Code, was published into Official Gazette no 688/10.09.2015.

The main provisions are:

Corporate tax

Expenses incurred for economic activities are considered deductible expenses (currently only expenses incurred in order to obtain taxable incomes are deductible).

It is simplified the calculation of protocol and legal reserve deductibility. It starts from the accounting profit, but no adjustments are made with non-taxable incomes and expenses related to these revenues.

Social expenses are deductible up to the limit of 5% of the salary costs (currently the limit is 2%).

Sponsorship expense is deducted from corporate tax up to 5 per thousand of turnover (currently the limit is 3 per thousand), but not exceeding 20% of corporate tax due.

Expenses booked in accounting, later found to be associated with facts of corruption are considered non-deductible.

Write-off losses related to doubtful receivables are deductible if insurance contracts are concluded.

Impairement for doubtful receivables are deductible within the 30% limit. It was eliminated the condition providing that revenues related to receivables should have been included in the taxpayer’s taxable income, the other conditions remaining unchanged.

Impairment of fixed assets are deductible if:

1. fixed assets are destroyed as a result of natural disasters or of other causes of force majeure;
2. insurance contracts are concluded.

For long-term foreign currency loans from other entities interest rate deductibility limit is reduced to 4% (currently the limit is 6%), depending on compliance with conditions related to indebtedness.

In connection with the exemption of reinvested profit, it is introduced a new category of assets (computers and peripheral equipments – class 2.2.9 from Fixed Assets Catalogue).

Starting 1 January 2017 the tax on dividends is 5%.

Microenterprises

Enterprises’ income tax rate is 3%. As an exception, for start-ups Romanian legal entities that have at least one employee and are set-up for a period exceeding 48 months, and shareholders/associates did not hold equity in other legal entities, the income tax rate is 1% for the first 24 months of the date of registration of the legal entity.

If during a fiscal year a microenterprise obtains incomes exceeding 65,000 euros or share of revenues from consulting and management services in the total revenue is over 20%, legal entity owes corporate tax, starting with the quarter when either of these limits are exceeded.

Income tax

Net income from intellectual property rights is determined by subtracting expenses from gross income, determined by applying 40% to the gross income (current deduction is 20%).

Final withholding tax of 16% does not apply to gross income, but to gross income less 40% flat rate and the withholding mandatory social contributions.

It is clearly stated that daily allowance can be provided to administrators.

Gift vouchers granted to all employees (not just to those with children) for Easter, June 1, Christmas etc are nontaxable.

The amounts deducted as personal allowances are increased.

Non-taxable ceiling for retirement income is increased to 1,050 lei. It will reach 1,200 lei in the next three years.

In case of income from transfer of real estate from the personal patrimony, notaries will notify to the tax authorities the transactions whose declared value is lower than the minimum set by the market study conducted by notaries.

Social contributions

For income from independent activities social insurance contribution (CAS) is due, even if freelancers are insured to the public pension system (as employees, retirees, etc).

Gift vouchers granted to employees for Easter, 1 June, Christmas etc, is not included in the basis for calculating social security contributions.

Social insurance contribution for income from independent activities is 10.5%, but taxpayers may opt for full CAS rate of 26.3% corresponding to normal working conditions.

For pensioners monthly calculation base of social health insurance contributions (CASS) is only income that exceeds the value of a pension point, set for the respective fiscal year.

During 2016, persons who derive income from intellectual property rights or dividend income does not owe CASS for these incomes, if they already obtain income subject to health contributions, such as income from wages, income from independent activities, income from agricultural activities.

Starting 1 January 2017, CASS is due for these revenues even if the beneficiary obtains revenues from wages, pensions or other independent activities.

For wages obtained starting 1 January 2017, if total income value is higher than 5 times the gross average salary, the individual social health insurance contribution base is limitted to this threshold.
Starting 1 January 2017, the same threshold of five average salaries applies for pensions, income from independent activities, income from dividends.

Persons who do not obtain any income and does not fall within the categories of persons exempted from CASS, they due CASS monthly and must request registration to the tax authorities.

Local taxes

The provisions according to which individuals who own two or more buildings due to an increased tax on buildings are eliminated.
The concepts of economic activity, residential, non-residential building and mixed-use building are defined.
The tax on buildings, owned both by individuals and legal entities, is calculated by applying the following rates:

– residential buildings: between 0.08% – 0.2%;
– non-residential buildings: between 0.2 – 1.3%;
– mixed-use buildings owned by individuals: the tax is calculated by adding the tax calculated for the area used for residential purposes with the tax determined for the area used for non-residential purposes.
The taxable value for non-residential buildings owned by individuals, shall be determined by valuation report if they have not been built or acquired over the past 5 years.

If at the building adress is registered a fiscal domicile at which no economic activity is carried out, the tax is calculated according to the rules applicable to residential buildings.

If the areas used for residential purposes and those used for non-residential purposes cannot be separately identified and at the building address is recorded a tax domicile to which economic activity is performed and utility expenses are recorded by the person who carries out economic activity, the building will have non-residential tax regime.

For non-residential buildings used for agricultural activities, building tax is calculated by applying a rate of 0.4% to the taxable value of the building.

The taxable value of a building is updated every three years based on an valuation report. If the building owner has not updated the taxable value of the building in the last 3 years preceding the reference year, the tax rate / tax on buildings is 5%.

The provision according to which the tenant must notify to the lessor the value of works executed for submission of a new local tax return when reconstruction, consolidation , modernization works were made it is eliminated.

The provision according to which no tax is due for the land under a building it is eliminated.

No tax is due for the electrically powered transport vehicles. In case of hybrid transport vehicles, the tax is reduced by minimum 50%.

Depending on certain criteria, local authorities can increase local taxes by 50% compared to the maximum levels set in the Fiscal Code.

Local Council may raise the tax on buildings and land tax by up to 500% for buildings and untidy lands, located within built-up areas.

VAT

The definition of fixed assets is amended in the sense that it will include all depreciable assets.

The definition of capital goods is amended, meaning that the capital goods includes all depreciable assets, including the assets with the useful life less than 5 years.

The standard VAT rate will be:

– 20% starting with 1 January 2016;
– 19% starting with 1 January 2017.

It introduces The 5% VAT rate for the delivery of textbooks, books, newspapers and magazines, except for those used exclusively or mainly in advertising (currently the VAT rate is 9%).

For social housing for which 5% VAT rate is applied, the threshold changes from 380,000 lei to 450,000 lei.

Reverse charge applies for buildings and lands of any kind which are subject to taxation.

Until 31 December 2018 reverse charge applies for the deliveries of mobile phones, microprocessors, game consoles, PC tablets and laptops.

The tax base for goods supplied or services provided that cannot be collected as a result of implementation of a reorganization plan confirmed by a court decision, by which the creditor’s claim is modified or deleted, it is adjusted. Adjustment is allowed starting with the court order confirmation date of the reorganization plan.

If during a tax audit at suppliers the fiscal authorities have assessed output VAT for certain transactions during the audited period, the beneficiary of operations is entitled to deduct the tax shown on the correction invoice issued by the supplier even if the period of limitation of the right to determine tax obligations is fulfilled. In this case, the deductibility right may be exercised no later than one year from the date the correction invoice is received.

The balance of the negative amount of VAT, noted in the VAT return for the fiscal period prior to the insolvency procedure opening, is not taken up in the VAT return for the tax period in which proceedings have been opened, in which case the debtor is obliged to request VAT refund by correcting the VAT return of the previous fiscal period .

Taxpayers may give up to VAT refund request based on a notification filed to the tax authorities until the VAT refund decision is communicated.

The provisions relating to individual and joint liability for the VAT payment it is eliminated.

When it is mandatory to adjust the tax base, if the supplier of goods / service provider does not issued the correction invoice, the beneficiary must issue a self invoice to adjust the input VAT, no later than the 15th day of the month following that in which the events occurred.

VAT on imports will continue to be paied to the customs authorities. The provision according to which from 1 January 2017 the effective payment of VAT is not made to customs authorities by taxable persons registered for VAT purposes it is eliminated.

The Fiscal Code comes into force on 1 January 2016, with certain exemptions previously mentioned.