Profit Tax

 

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Taxpayers
Pursuant to the Fiscal Code, the following are considered as taxable subjects:
(i) Romanian legal entities, for the taxable profit obtained from any source, both in Romania and abroad;
(ii) Foreign legal entities that carry out activities through permanent establishment in Romania, for the related income;
(iii) Foreign legal entities and non-resident individuals that carry out activity in Romania in an association without legal personality, for the portion of the taxable profit of the association attributable to each person;
(iv) Foreign legal entities obtaining incomes from/or in connection with immovable property located in Romania or from the sale/assignment of shares of a Romanian legal entity for the taxable profit related to such incomes;
(v) Romanian legal entities and resident individuals, for the income obtained both in Romania and abroad from associations without legal personality for the taxable profit of the association attributable to the resident individuals.

Standard quota
The standard profit tax rate applicable to taxable profit amounts to 16%.
Taxpayers performing activities in the nature of night-bars, night-clubs, discotheques, casinos or sports betting and for which the profit tax owed is less than 5 % of the respective incomes are required to pay a tax equal to 5 % of the revenue realized from such activities. Companies having an annual turnover of up to EUR 100,000 and having one to nine employees (so called micro-enterprises) are taxed at 3% of their income.

Calculation of taxable profit
The taxable profit is computed as the difference between the income obtained from any source and expenses incurred for the purpose of obtaining the incomes within a fiscal year, from which non-taxable incomes are deducted and to which non-deductible expenses are added.
According to Fiscal Code, the following incomes are deemed as non-taxable:
- Dividends received by a Romanian legal entity from another Romanian legal entity. In addition, starting with the date Romania joins the European Union, the dividends received from a foreign legal entity resident within a member state of the European Community will not be taxable provided that the Romanian legal entity holds at least 25% of the participation titles of the respective foreign legal entity for an uninterrupted period of at least 2 years ending on the date of paying the dividend;
- Favorable differences of value for participation titles recorded in result of incorporating the reserves, benefits or issuance premiums by the legal entities where the participation titles are held, as well as the differences from revaluation of the long-term financial investments. Such differences are taxable on the date of their transfer for free, assignment, withdrawal of the participation titles as well as on the date of withdrawing the share capital of the legal entity in which the participation titles are held;
- Incomes from the cancellation of expenses for which no deduction has been allowed, incomes from the reduction or cancellation of provisions for which no deduction was allowed and incomes from the recovery of non-deductible expenses; and - Non-taxable incomes, expressly provided in agreements and memoranda approved through legal enactments.

Deductible expenses
An expense is tax deductible provided that it is incurred with the purpose of generating taxable revenues including that which is provided by legal enactments in force. According to the Fiscal Code the following expenses are considered to be incurred for the purpose of obtaining incomes:
- Expenses for acquiring packages for the lifetime of goods, established by the taxpayer;
- Expenses effected, according to law, for labor protection and expenses effected for the prevention of labor accidents and professional illness;
- Contributions for insurance against labor accidents and professional illness, as well as professional risk insurance premiums;
- Advertising and publicity expenses effected in order to promote the firm, products or services, based on a written contract, as well as costs associated with the production of materials necessary for dissemination of publicity messages;
- Transport and accommodation expenses within the country and abroad performed by employees and directors, provided that the company records profit either in the current and/or the previous years;
- Subscription fees, dues and mandatory contributions, as regulated by legal enactments in force, as well as contributions to the fund for negotiating the collective labor agreement;
- Professional training expenses;
- Expenses for marketing, market research, promotion on existing or new markets, participation in fairs and exhibitions, business missions, publication of own informative materials;
- Research expenses as well as development expenses which are not considered intangible assets;
- Expenses for the improvement of management, IT systems, implementation, maintenance and improvement of quality management systems, obtaining certifications of conformity with quality standards;
- Expenses for the protection of the environment and the conservation of resources;
- Losses incurred in result of writing-off non-cashed receivables, in the following cases:
a. The bankruptcy procedure of the debtors has been closed based on a court decision;
b. The debtor has deceased and the receivable can not be cashed from the successors;
c. The debtor is dissolved in case of the limited liability company with a sole shareholder or is liquidated without successor; and
d. The debtor encounters major financial difficulties which affect its entire patrimony.

Limited deductibility expenses
The following expenses have limited deductibility:
- Protocol expenses within the limit of 2% of the difference between total taxable incomes and total expenses related to taxable incomes, other than protocol expenses and profit tax expense;
- Reimbursement of travel allowances of employees for travel in Romania and abroad, within the limit of 2.5 times the legal level established for public institutions, provided that the taxpayer obtains profit in the current and/or previous years; if this condition is not met, then such expenses are deductible up to the level established for public institutions;
- Social expenses, within the limit of up to 2% of the salary fund realized.
- Perishables, within the limits established by specialized bodies of the central administration, together with specialized institutions, with the endorsement of the Ministry of Public Finance;
- Expenses for meal tickets granted by employers;
- Expenses for fees and dues to non-government organizations or professional associations, within the annual limit of the ROL equivalent of 2,000 euro;
- Expenses for provisions and reserves, within certain limits;
- Expenses for interest and differences in the exchange rate, within certain limits;
- Depreciation, within certain limits;
- Expenses effected on behalf of an employee for optional occupational pension schemes, within the limit of the equivalent in ROL of EURO 200 within a fiscal year for each participant;
- Expenses for private health insurance premiums, within the limit of the equivalent in ROL of EURO 200 within a fiscal year for each participant;
- Expenses for the operation, maintenance and repair of job dwellings located in the locality wherein the company’s registered office or the secondary offices are established, deductible within the limit corresponding to the constructed areas as provided in the law on dwellings, which is increased (from a fiscal perspective) by 10%.
The non-deductible difference must be recovered from beneficiaries, respectively lessees/users;
- Expenses of operation, maintenance and repairs related to an establishment within a dwelling owned by a natural person, used for personal purposes, deductible within the limit corresponding to the areas made available to the company on the basis of contracts concluded for this purpose; and
- Expenses of operation, maintenance and repairs related to cars used by employees with management or administrative positions of the legal person, deductible within the limit of a single car for each physical person with such position. In order to be deductible for tax purposes, such expenses must be justified with legal documents.

Fiscal depreciation
The expenses related to the acquisition, production, construction, assembly, installation or improvement of depreciable fixed assets are recovered from a fiscal standpoint by deducting depreciation expenses.
The depreciation regime for a depreciable fixed asset is to be determined in accordance with the following rules:
- In case of constructions, the straight-line method of depreciation is to be applied;
- In case of technological equipment, respectively machines, tools and installaions, as well as for computers and equipment peripheral to computers, the
taxpayer may choose the straight-line method, the declining balance method or the accelerated depreciation method; and
- In case of any other depreciable fixed asset, the taxpayer may elect to use the straight-line method of depreciation or the declining balance method of depreciation.

Fiscal losses
Annual loss, as established by the profit tax return, is to be recovered from the taxable profits obtained during the following five consecutive years. The recovery of losses is to be made provided that such losses are recorded, at each deadline for the payment of the profit tax, as provided by the legal provisions in force for the year when such loss is recorded.

Income Tax

Romanian has recently introduced a flat tax system for individuals, at a rate of 16%,
which became effective as of January 2005.

Individual Income Taxpayers
The Fiscal Code defines the following categories of taxpayers:
- Resident natural persons;
- Non-resident natural persons conducting independent activities through a permanent establishment in Romania;
- Non-resident natural persons who carry out dependent activities in Romania; and
- Non-resident natural persons deriving specific income.
In order to qualify as a Romanian resident for tax purposes, at least one of the following conditions should be met:
- Domicile in Romania;
- Centre of vital interests located in Romania;
- Presence in Romania exceeding 183 days within 12 consecutive months, ending in the respective calendar year; or
- Romanian state employee working abroad.

Taxable Income
The following categories of income are subject to taxation under the Fiscal Code:
1. Income from salaries;
2. Income from independent activities;
3. Income from transfer of rights of use;
4. Income from investments;
5. Income from pensions exceeding ROL 9 million per months;
6. Income from agricultural activities;
7. Income from prizes and gambling; and
8. Other incomes.

Tax-exempt Income
The most important categories of tax-exempt income are:
- Allowance for maternity leave and for child care leave paid from state social security budget;
- Meal tickets;
- Amounts obtained from insurance policies, representing compensations, insured amounts or amounts obtained from ethical damages;
- Stock options plan advantages, at the moment of employment and of their grant;
- Amounts received for covering transport and accommodation expenses incurred during delegations;
- Salary income related to the design and creation of software (certain conditions need to be met);
- Sponsorship and donations;
- Inheritance;
- Amounts representing the portion of subsidized interest for loans granted according to the legislation in force; and
- Income from sale of movable and immovable assets (with the exception of shares described as "capital gains").

Taxation of non-residents
Pursuant to the Fiscal Code, the income earned by non-resident individuals as a result of activities performed in Romania are also subject to taxation in Romania.
The following taxation quotas are applicable, depending on the income categories they relate to:
- 5 % for interest income derived from term deposits, certificates of deposits or other saving instruments at banks and other authorized credit institutions located in Romania;
- 20 % for the incomes resulting from gambling activities; and
- 15 % for any other incomes (i.e., dividends, royalties, commissions, management services and so on).
Should the income beneficiary be resident of a country with which Romania has concluded a Double Tax Treaty, the more favorable tax rate shall apply. For the application of the provision of a double tax treaty, the non-resident is required to submit a certificate of fiscal residence to the payer of the income. Value Added Tax

Standard quota
The standard VAT rate is of 19 % and applies for any taxable operation, which does not qualify for an exemption or for the VAT reduced rate.
The reduced VAT rate is of 9 % and applies for the following supplies of services and/or deliveries of goods:
- Rights of admission to castles, museums, memorial houses, historical monuments, architectural and archeological monuments, zoos, botanical gardens, fairs, exhibitions;
- Delivery of books, newspapers and magazines, school manuals, with the exception of those intended exclusively for publicity;
- Deliveries of any type of prostheses and accessories, with the exception of dental prostheses;
- Deliveries of orthopedic products;
- Medicines for human use and veterinarian use; and
- Accommodations within the hotel sector or within similar sectors, including the rental of land for camping purposes.

Taxation base for import
The taxation base for an import of goods is the customs value of the respective goods, determined according to the customs legislation in force, to which are added customs fees, customs commissions, excises and other import fees exclusive of the VAT.
The taxation base should include ancillary expenses, such as commissions, packaging, transport and insurance costs that are incurred up to the first place of destination of the goods in Romania, to the extent that such expenses are not otherwise included in the base of taxation.
The exports or other similar operations and international transport are exempted from the VAT payment.

Regime of deductions
The right of deduction arises at the moment when the deductible VAT becomes chargeable. If the acquired goods and services are intended for use for one’s taxable operations, any taxable person registered as a VAT payer has the right to deduct:
- The VAT due or paid related to goods delivered or to be delivered and for services supplied or to be supplied by another taxable person; and
- The VAT paid for imported goods.
Exoneration from the VAT payment
The actual VAT payment is not to be made to the customs authorities by a person registered as a VAT payer that has obtained an exoneration certificate for the following:
- Import of industrial machines, technological equipment, installations, equipments, measurement and control devices, automations, intended to carry out investments, as well as the import of agricultural machines and transportation means intended to carry out productive activities; and
- Import of raw materials and consumable materials that are not produced or are insufficient in the country and that are intended to be used for the economic activity of the person performing the import.
- Social Security Contributions

Contributions to the State social security budget
Law no. 19/2000 provides for the following categories of taxpayers contributing to the state social security budget:
- Individually insured persons;
- Employers;
- Legal entities employing the following insured persons: persons occupying elective positions or persons appointed in executive, legislative or judicial authorities, during their mandates, as well as members of a an organization of artisan’s cooperative;
- The National Agency for Labor Force Occupancy;
- Persons concluding optional social insurance agreements.
No social security contribution shall be paid with respect to the following amounts:
- Social security services borne from the social security fund or employer’s funds and which are directly paid by the employer, according to law;
- Proceeds paid under the law upon termination of individual labor agreements, of the mandate or co-operative membership and upon termination of professional relations of public officers;
- Travel and delegation daily allowances, delegation, secondment and transfer allowances, as well as copyright royalties;
- Incomes representing employees’ participation to corporate profit;
- Prizes and other rights exempted by special laws.
The incomes exempted from the payment of the social security contribution mentioned above under letter b)-d), shall not be taken into account when establishing the amount of social security services the beneficiary is entitled to.
Social security contribution rates are established on an annual basis through the law approving the national social security budget.
Under a labor agreement at the individual’s level, the employee owes the following Social Security Contributions:
- Social Security contributions - 9.5% of the monthly gross salary;
- Health Fund Contribution – 6.5% applied on the monthly gross salary;
- Unemployment Fund Contribution – 1% applied on monthly gross salary.
Social security contributions owed by the employer are as follows:
- Social Security contributions: ranging between 31.5 % and 41.5 % (depending on
the work conditions) of the gross monthly income, which is capped at the level of five times the national average salary multiplied by the average number of employees;
- Health Fund: 7 % of total salary fund;
- Unemployment Fund: 3% of total salary fund;
- National Insurance Fund for Labor Accidents and Professional Diseases: the contribution will range between 0.5 % and 4 % of the total salary fund;
- Labor Chamber commission: 0.25 or 0.75 % of total salary fund, depending on whether the company or the Labor Chamber keeps the work books.

Excise Duties
Excises duties represent special consumption fees that are payable to the state budget for the following products derived from domestic production or from import:
1. Beer;
2. Wine;
3. Fermented beverages other than beer and wines;
4. Intermediary products;
5. Ethylic alcohol;
6. Tobacco products;
7. Mineral oils.
The above-mentioned products make subject to excises at the moment of import or production in Romania. The excise is chargeable at the moment of release for consumption or when losses or shortages of excisable products are discovered.

Local Taxes and Fees
The local taxes and fees are the following:
1. Tax on buildings;
2. Tax on land;
3. Fee on means of transport;
4. Fee for the issuance of certificates, permits and authorizations;
5. Fee for using means of advertising and publicity;
6. Tax on shows;
7. Hotel fee;
8. Special fees;
9. Other local fees.
For the functioning of local public services created for the benefit of natural and legal persons, the local councils, county councils and the General Council of the Municipality of Bucharest, as the case may be, may adopt special fees.
The domains in which such special fees may be adopted, as well as their amounts are to be established in accordance with the provisions of Government Emergency Ordinance no. 45/2003 on local public finance.

Exemptions and facilities for legal persons
 The buildings and land tax are to be reduced with 50% for the buildings and related land owned by legal persons which are used exclusively for the provision of tourist services, for a period of not more than 5 months during a calendar year;
 The buildings tax is to be reduced with 50% for the newly constructed buildings owned by consumption or handicraft cooperatives, but only for the first 5 years as of the acquisition date.

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