Taxation in Romania February 2009

Aprilie 2009

VENKATESH SRINIVASAN - Partner - Head of Tax Advisory & Compliance Services ERNST & YOUNG S.R.L.

 

Corporate taxes at a glance

 

Taxes on corporate income and gains

The Fiscal Code came into effect on 1 January 2004. The code integrates key tax legislation and provides the basis for a more stable framework of tax legislation by requiring amendments to follow a specific juridical route.

Fiscal year

In Romania, the fiscal year is the calendar year.

Profits tax

Resident entities are subject to tax on worldwide income. An entity is resident in Romania if it is incorporated in Romania or if its effective management and control are in Romania.

Associations or consortia between Romanian legal entities, which do not qualify as legal persons, are taxable in Romania separately at the level of each partner. For such associations between a Romanian legal entity and individuals or foreign entities, the tax must be computed and paid by the Romanian legal entity on behalf of the individuals or its foreign partners.

Non-resident companies are subject to tax on their Romanian-sourced income only. Sale of shares held in Romanian companies by non-resident companies, and sale of real estate located in Romania, are also subject to profits tax in Romania (see section on Capital gains tax).

A permanent establishment in Romania may be constituted inter alia by: an office, a branch, a factory, a mine, land for oil and gas extraction, or a building site that exists for a period exceeding six months.

Romanian legal entities should register with the relevant tax authorities any contracts signed with non-resident legal entities or individuals performing in Romania construction and assembly works, surveillance, consultancy, technical assistance or any other activity performed in Romania if such activities could give rise to a permanent establishment of the non-resident in Romania. The contracts should be registered by submitting a declaration within 30 days from the date they were concluded. The form and content of the respective declaration is approved by order of the National Agency of Fiscal Administration (ANAF). The fine for non-compliance with the above registration requirements is RON 1,000 – RON 5,000.

Rates of profits tax

The standard profits tax rate is 16%. Profits tax payable by companies earning revenues from bars, nightclubs, discos, casinos and sports bets, including revenues from an association agreement, is computed at the standard 16% rate, provided the tax amount is not less than 5% of the total declared revenue. In case the profits tax payable is below this threshold, the taxpayer is liable to pay profits tax computed at 5% of the declared revenue from such activities.

If certain conditions are met, companies may opt for the micro enterprise regime, under which a 3% income tax rate is applied to revenues derived by the company. The conditions to qualify for the micro enterprise regime are the following:

• Annual turnover up to EUR 100,000
• Between one and nine employees
• More than 50% of its income derived from activities other than consultancy and management
• The share capital of the legal entity is owned by persons other than the state, local authorities and public institutions.

 

Representative offices are taxed on a yearly basis at a lump sum of the RON equivalent of EUR 4,000, payable in two equal installments.

Capital gains tax

No separate capital gains tax is payable by resident entities. Capital gains of non-resident entities from the sale of immovable property in Romania, or from sale/transfer of shares held in a Romanian legal entity, are taxed at the standard corporate tax rate of 16%.

Starting from 1 January 2009 and up to 31 December 2009, profits derived by non-resident legal entities from transactions with participation titles held in Romanian companies and traded on the regulated market in Romania are non-taxable.

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