Taxation in Romania
 |
Martie 2008 |
 |
VENKATESH SRINIVASAN - Partner - Head of Tax Advisory & Compliance Services
ERNST & YOUNG |
Adresa
Strada Dr. Felix Iacob, Nr. 63-69
Cladirea Premium Plaza, Etaj 15
011033 Bucuresti, Sector 1
Telefon
+40-21-402.40.00
Fax
+40-21-310.71.93
Website
www.ey.com
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 necessarily 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, an agency, a factory, a mine, land for oil and gas extraction, 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 PE 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 of RON 1,000 – 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 2.5% (3% in 2009) 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;
- company should have between 1 and 9 employees; and
- company should derive more than 50% of its income from activities other than consultancy and management.
Representative offices are taxed on a yearly basis at a lump sum of the RON equivalent of EUR 4,000, payable in two equal instalments.
Capital gains tax
No separate capital gains tax is payable by resident entities. Capital gains of non-resident entities from 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%.
Dividends
Under the EU Parent-Subsidiary Directive, dividends paid by resident legal entities to their shareholders (i.e., Romanian legal entities and EU resident legal entities) are exempt from withholding tax in Romania provided the shareholders own a minimum 15% (10% starting 1 January 2009) of the share capital of the Romanian legal entity for an uninterrupted two years period ending at the date of dividend payment. Unless the above conditions are met, a 10% tax rate applies to dividends paid by resident entities to other resident entities, while a 16% tax rate applies to dividends paid to any nonresident legal entities (or a tax rate available under a tax treaty, if favourable).
If the condition of shareholding period is fulfilled at a later stage, the dividend beneficiary would be entitled to exemption at that moment and may request reimbursement of the withholding tax paid.
Dividends paid by a Romanian entity to individual shareholders are subject to 16% withholding tax rate.
Payments made by a Romanian legal entity to any of its shareholders for goods or services provided by the latter, in excess of the market value of the transaction, are assimilated to dividends from a tax point of view. The same tax treatment will apply to payments made for supply of goods/services to be used for personal purposes by the company’s shareholders or associates.
The dividend tax must be withheld and paid to the state budget by the 25th of the month following the payment of dividend. In case of dividends declared, which were not effectively paid by the end of the year, the dividend tax must be paid by 31 December of the respective year.
Foreign tax relief
Foreign income of Romanian entities is included in the taxable income. This includes passive income as well as capital gains. However, a credit is allowed for foreign taxes paid, up to the level of the Romanian tax on that income.
Dividends received from EU resident entities constitute nontaxable income at the level of the Romanian recipient, if the Romanian beneficiary of dividends holds at least 15% (10% starting 1 January 2009) of the shares of the EU entity for an uninterrupted period of minimum two years.
