Latest developments in the Romanian tax and fiscal environment. Smoke crackers, tears and hopes

Mai 2011

MAZARS ROMÂNIA S.R.L.

The Romanian business environment looks of late ever more like a stadium: all of us wait hot and bothered for the game, experience joy and pleasure or suffer any change occurring on the scoreboard (i.e. Monitorul Oficial al Romaniei), all while hoping from the bottom of our hearts that everything is to go from well to better.

Unfortunately, however, the changes which occurred in the 2010 tax legislation resembled much more smoke crackers: they made nothing but infernal noise, stifling smoke and confusion, leaving us with a bitter taste. This was so because, eventually, the effect of the game was only that of image as both players (taxpayers) and referees (Government) won nothing, excepting, certainly, additional amounts brought by a higher VAT rate from 19% to 24%.

Therefore, it was a hard year, full of tough, unluckily oftener inconsistent and incoherent, fiscal measures rendering taxpayers' and tax inspectors' life strenuous, making them face with legislative acts difficult to understand, being not at all easier for tax consultants who, more often than not, have been in the delicate position of shrugging their shoulders while having to advise clients on a mode of action when two legislative acts conflict with each other.

Nevertheless, the yearend gave us some hope inasmuch as a few of the latest amendments of the Tax Code follow the line required by the business environment. Consequently, at the beginning of 2011, we have been in the position to hope that life will improve. Notwithstanding, each one of us should adopt a pessimistic, yet constructive, attitude allowing us to avoid unpleasant feelings if the fragile macroeconomic equilibrium gets broken in the months to come.

 

But what is new in the tax legislation in 2011?

PROFIT TAX

• Transactions with a taxpayer that has been declared inactive under order of the President of the National Tax Administration Agency shall not be taken into consideration by tax authorities, except for the acquisitions and supplies of goods which are subject of enforcement proceedings.
• The period during which fuel expenses are deductible contingent upon certain conditions has been extended from December 31st, 2010 to December 31st, 2011.
• The period spanning October 1st – December 31st, 2010 shall be considered fiscal year in the meaning of the seven (7) consecutive years for the recovery of the tax loss recorded in 2010.

TAX ON MICROENTERPRISES INCOME

GEO 117 introduces a new Title, i.e. Title IV – Tax on Microenterprises Income, providing, inter alia, as follows:

• A microenterprise is defined as a Romanian legal entity which cumulatively meets the following conditions:

- achieves an annual income amounting to less than the RON equivalent of EUR 100,000;

- has one (1) to nine (9) (included) employees;

- the share capital is held by persons other than the State and local authorities.

• The tax on microenterprises income is optional and is 3% rated.

• The fiscal year of microenterprises is the calendar year. When a microenterprise is established or ceases to exist, its fiscal year shall be the period in the calendar year during which this legal entity existed.

• Romanian legal entities that

- perform banking activities;

-  carry on activities in areas such as insurance and reinsurance or capital market, except for those acting as intermediaries in these domains;

- perform gambling activities or provide consultancy and management services;

- have their share capital held by a shareholder which is a legal entity staffed with more than 250 employees,

may not choose the taxation system applicable to microenterprises.

• Microenterprises paying profit tax may choose to pay the tax on microenterprises income starting the next fiscal year, provided that they meet the abovementioned conditions and that they have not been payers of the tax on microenterprises income.

• A newly established Romanian legal entity may opt to pay the tax on microenterprises income starting its first fiscal year if the condition referring to share capital is fulfilled at the date of its registration with the Trade Registry and the condition regarding the number of employees is met within 60 days of its registration date.

• The tax on microenterprises income applies to the income obtained from any source, from which the specifically mentioned categories of income are subtracted. When a microenterprise purchases cash registers, their purchase value shall be deducted from the taxable base.

• Microenterprises may not apply this taxation system starting the fiscal year following the year in which they no longer meet any of the conditions specified by the Tax Code.

• The Romanian legal entities that are profit tax payers shall inform the territorial tax authorities of their option to pay the tax on microenterprises income by filing a notice of amendment specific of legal entities, family associations and associations without legal personality until January 31st, included, of the year for which the tax on microenterprises income is paid.

• The legal entities established during a fiscal year shall mention their option in the application for registration with the Trade Registry and such option remains final for the respective fiscal year.

• Should the microenterprise no longer meet any of the required conditions during a fiscal year, it shall continue being subject to the aforesaid taxation system. Notwithstanding the foregoing, if the microenterprise achieves income in excess of EUR 100,000 during a fiscal year, it shall pay profit tax also taking into account the expenses made from the beginning of that year, without benefiting in the following period from the provisions applicable to microenterprises.

• The tax on microenterprises income shall be calculated and paid quarterly until the 25th of the month following the quarter for which the tax is calculated. Microenterprises shall submit their income tax returns until the provided payment date. In the case of associations without legal personality between a microenterprise and a natural entity, the microenterprise shall calculate, withhold, declare and pay the 3% rated tax applied to its income share of the association by the 25th of the month following the quarter for which the tax is calculated.

• Microenterprises shall keep record of tax depreciation in compliance with Art. 24 of Title II of the Tax Code.

VAT

The amendments to Title VI – Value Added Tax refer particularly to the following aspects:

• The exception has been abrogated in respect to the establishment of the place of supply of principal and ancillary services, involving two taxable entities, related to cultural, artistic, sporting, scientific, educational, entertainment or other similar activities such as fairs and exhibitions, inclusive of the services provided by the organisers of these activities (Art. 133 (4) (c)).

• A new exception has been introduced with regard to the place of supply of principal and ancillary services, involving a taxable entity and a non-taxable entity, in domains covering cultural, artistic, sporting, scientific, educational, entertainment or other similar activities such as fairs and exhibitions, inclusive of the services provided by the organisers of these activities, for which the place of supply shall be where services are effectively carried out.

• The place of supply of services, involving two taxable entities, regarding the access to cultural, artistic, sporting, scientific, educational, entertainment or other similar events such as fairs and exhibition, as well as of ancillary services related to the said access shall be the place where the events actually take place.

• A new exception has been introduced with reference to the place of supply of services, involving two taxable entities, in the sphere of transportation outside the Community, namely that, when such services are rendered by a taxable entity established in Romania, the place of supply shall be outside the Community if the services are effectively used outside the Community.

• A new provision is included with reference to the right to deduct the tax levied on acquisitions from an inactive or temporarily inactive taxpayer that is subject to enforcement proceedings.

• The limitation on the right to deduct the tax on the acquisitions of certain vehicles and fuel shall be extended December 31st, 2011.

• Taxable entities registered for VAT purposes, obtaining a turnover that is lower than the ceiling for which they may apply the special exemption regime, may request deregistration; also, such entities shall request to be registered again with the relevant authorities if later they exceed the exemption ceiling.

• Taxable entities that have or have not registered for VAT purposes, achieving a turnover that is lower than EUR 35,000 shall file a notice with the competent tax authorities, by the 25th of February, evidencing the supplies and acquisitions performed. Any taxable entity that is a beneficiary of asset transfer and has not registered for VAT purposes shall file a declaration in consequence of VAT adjustments until the 25th of the month following the month in which the transfer has taken place.

• Taxable entities changing the type of registration for VAT purposes (as per Art. 153 or Art. 1531) shall continue to be recorded in the Register of Intra- Community Operators, having the obligation to update the information contained therein.

• Simplified measures, i.e. the reverse charge mechanism, shall also apply, only under the conditions provided by Art.160, to the transfer of permits for greenhouse gas emissions, as well as of other units which may be used by operators.

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