In the Official Gazette no. 1269 dated December 21st, 2020, the Law no. 296/2020 for modification of the Law 227/2015 regarding the Fiscal Code was published. We present below the most important changes:
I. General provisions
1. Modification/completion of the following definitions:
The definition of the place of actual management has been amended, the place of actual management according to the new definition is the place where, unless otherwise is provided, the foreign legal person carries out operations which correspond to economic, real and substantive purposes and where at least one of the following conditions is fulfilled:
a) the economic and strategic decisions necessary for the management of the activity of the foreign legal person are taken in Romania by the executive directors/members of the board of directors; or
b) at least 50 % of the executive directors/members of the board of directors of the foreign legal person are residents.
The definition of the resident is completed with the specification that he has a full fiscal obligation in Romania, being a taxpayer subject to taxation in Romania for world income obtained from any source, both in Romania and outside Romania.
2. Determination of fiscal residence based on the place of actual management
For any foreign legal person, the residency is established on the basis of the residence questionnaire and other documents attesting the residence. The Romanian tax authorities will be able to establish on its own motion or at the request of another authority, a place of effective management that has not fulfilled its tax obligations (registration, management and accounting, registration as a profit tax payer, declaration and payment of profit tax etc).
Foreign legal persons registered with the place of actual management in Romania until December 31, 2020, have the obligation to submit the questionnaire together with the related documentation until June 30, 2021.
II Corporate income tax
1. Fiscal group
One of the most significant legislative update of year 2021 is the introduction of the concept of fiscal group from the perspective of corporate income tax and the possibility of fiscal consolidation at group level.
Within the tax group, each member of the tax group will determine the tax result individually, and the consolidated tax result of the tax group will be determined by algebraically summing the tax results determined individually by each member of the tax group. However, regarding the fiscal credit, reinvested profit tax, exemptions and reductions of corporate income tax calculated according to the legislation in force, the amounts representing sponsorship and/or patronage expenses and expenses regarding the private scholarships, according to the law, the acquisition cost of the electronic fiscal cash registers and other amounts deducting from the profit tax , according to the legislation in force, determined by each member and communicated to the responsible legal person, these amounts are deducted within the limit of the profit tax due by the tax group.
The conditions that should be met for the formation of a fiscal group are:
- holding, direct or indirect, at least 75 % of the value/number of shareholdings or voting rights for an uninterrupted period of one year prior to the start of consolidation;
- corporate income taxpayers;
- similar fiscal year;
- are not part of another fiscal group in the field of corporate income tax;
- are not tax payers on the income of micro-enterprises or are not simultaneously corporate tax payers and specific tax payers;
- do not apply one of the special regimes (activities such as night bars, night clubs, discos, casinos);
- is not in dissolution/liquidation, according to the law.
Attention should be paid to the following:
- Obligation to maintain the tax group for a period of 5 years;
- The exit of a member before the 5-year period leads to the recalculation of the fiscal results at the level of the member who left the group, but also at the level of the fiscal group for the period in which the consolidation system was applied, with the establishment of interests and penalties. There are exceptions to this rule for reorganizations, dissolution, sale of shares leading to a holding below 25%)
- The tax loss recorded by the member/members of the group prior to joining the tax group is recovered only from the tax result of the respective member/members. This is not carried over to the tax group level.
- Only the loss registered during the application of the fiscal consolidation system can be recovered from the consolidated fiscal result of the group;
- In case of dissolution of the fiscal group after the minimum period of 5 years, only the designated legal person can recover the registered and unrecovered fiscal loss during the fiscal consolidation of the entire group.
- Each member of the tax group has the obligation to prepare the transfer pricing file which will include both the transactions carried out with the members of the tax group and those carried out with the affiliated entities outside the tax group.
2. Tax exemption on reinvested profit
Clarifications are made regarding the applicability of the tax exemption for reinvested profits, as follows:
- for taxpayers applying the quarterly system – the exemption will be granted within the limit of the cumulated profit tax calculated from the beginning of the year until the quarter of the commissioning of the assets;
- for taxpayers applying the annual scheme - the exemption will be granted within the limit of the cumulative profit tax calculated from the beginning of the year of commissioning of the assets until the end of the respective year.
A new provision introduced by the present Law is that the profit for which the corporate income tax exemption has been granted, except the part of the legal reserve, may also be allocated to reserves during next year.
3. Expenses tax treatment
- The following changes have been introduced regarding tax deductible expenses:
- Adjustments for the deprecian of claims become 100% deductible (previously the percentage was 30%), if the receivables cumulatively meet the following conditions:
- are not collected for a period exceeding 270 days from the due date;
- are not guaranteed by another person;
- are due to a person who is not affiliated with the taxpayer.
Attention ! The entry into force of this provision on 01.01.2021 was postponed by OUG 226/2020, published in Official Gazette no. 1332 of 31 December 2020. The provision is to apply from 2022.
- Expenses incurred by the employer related to the telework activity for the employees who carry out the activity in this regime;
- New separate regulations are introduced regarding the tax treatment of leasing contracts for taxpayers that apply the accounting regulations compliant with International Financial Reporting Standards, respectively rules on the deductibility of expenses with depreciation of assets related to the right to use during the underlying asset, revaluation of assets related to the right usage, interest deductibility and interest rate differences generated by leases.
- The provision that included the expenses for the proper functioning of some early education units among the social expenses, limited deductible, is repealed.
- In the category of non-deductible expenses the following were introduced:
- Expenses incurred as a result of transactions with a person located in a State which, at the date of recording the expenses, is included in Annex I and/or Annex II of the EU List of non-cooperating jurisdictions for tax purposes.
On 7 October 2020, the European Council's recommendations on non-cooperating jurisdictions were published in the Official Journal of the EU. However, the list includes jurisdictions such as Turkey, Australia, which are still awaiting further verification or have until 31 December 2020 to adapt their legislation. The next revision of the Council is due in February 2021.
Given that in some situations, jurisdictions had a deadline of 31 December 2020, a period after publication in the Official Journal of the EU, and the next review will take place in February 2021, there are uncertainties regarding the tax treatment of expenses incurred with partners residing in in the Annexes of the EU List until its revision.
At this time, the risk is that the expenses registered in 2021 with partners from the jurisdictions mentioned in the EU List of non-cooperating jurisdictions will be considered nondeductible until the moment of its rectification. However, there are indications that the Ministry of Finance will issue a statement that would help clarify the tax treatment.
During the tax seminar of BDO Tax from January 27, 2021, Dan Barascu - Tax Partner will discuss these provisions, their applicability and the associated risks.
- Expenditures representing the depreciation of electronic fiscal cash registers, which are deducted from the corporate income tax tax.
- Expenditure on benefits granted to employees in equity instruments with equity settlement. These are elements similar to expenses at the time of the actual granting of benefits, regardless of the tax treatment applied to employees. In the past, they could only be considered as items of expenditure if they were taxed at the level of employees.
4. Cash registers
Clarifications were also made regarding the fiscal facility introduced by Law no. 153/2020 regarding the decrease of the acquisition cost of the fiscal cash registers purchased and put into operation starting with 2018.
Taxpayers who apply the tax deduction facility for the cost of purchasing electronic fiscal cash registers do not benefit from the reinvested profit facility for these appliances.
New provisions are introduced to recover tax losses from reorganisation operations (merger / division / breakdown) in which are involved micro-enterprises.
In order to obtain the tax credit, the new law facilitates the obligation of taxpayers to obtain further certifications of taxes paid abroad from various foreign authorities. Thus, for taxes withheld by third parties, supporting documents issued by the payer of income are also accepted, and for taxes paid directly by the taxpayer in other States, a copy of the tax return, together with documents attesting payment, is also accepted.
III. Micro-enterprises income tax
1. The provisions relating to the tax rate applicable to newly established legal entities are repealed.
2. Dividends received from a Romanian legal person are eliminated from the taxable basis of the micro-enterprises, income tax (they become non-taxable income).
3. For taxpayers who exit from the tax system during the tax year (become corporate income taxpayers), the gain from foreign exchange differences, recorded cumulatively since the beginning of the year, is considered to be element similar to revenues in the first quarter for which corporate income tax is due (except those who become corporate income taxpayers in the first quarter of the year).
IV. Personal income tax and social security contributions
1. The tax residence of individuals
- Starting 1st January 2021, the non-resident individuals owe personal income tax on income from any source, starting with the date when they declare that they have the centre of vital interests in Romania and not with the date when they became residents, as before.
- Also, the non-resident individuals who stay in Romania for more than 183 days in any 12 consecutive months will be subject to income tax on income from any source, as from their first day of arrival, and not from the day they became residents, as before.
2. Income from independent activities
- Starting January 21st 2021 the gross income from independent activities, determined in real system, includes the gains from the transfer of assets from the business patrimony, used in an independent activity, excluding the value of the personal assets assigned to the activity, remaining at the end of the activity.
- Also, there are introduced in the category of non-deductible expenses the expenses regarding the depreciation of the assets from the personal patrimony assigned to the exercise of the activity, and also the expenses with the acquisition cost of the electronic fiscal cash registers put into operation in the respective year.
- A new paragraph is introduced to article 68, 71, which establish the applicable rules in case the form of exercising the activity transforms or changes, when the activity is carried on.
3. Income from salaries and assimilated to salaries
- By amending the article 76, paragraph (3) from the Tax Code, there are included in the category of taxable salary benefits (both with personal income tax and mandatory social contributions) the benefits in kind or cash received from third parties as a result of a contractual relation beetween parties.
- There are introduced as non-taxable income (both from the point of view of personal income tax and mandatory social contributions), starting with the income related to the month of January 2021, the following:
- Adoption aid;
- Benefits in the form of personal use of vechicles which are not exclusively used for the purpose of economic activity, owned or used by legal persons applying the tax regime of micro-enterprises or the specific tax of certain activities;
- Benefits in kind granted, during the alert state, to individuals who earn income from salary or assimilated to salaries as a result of occupying positions considered by the empoyer essential for carrying out the activity and who are in preventive isolation at the workplace or in specially dedicated areas where no one from outside has access, for a period established by the employer;
- The amounts granted to employees who carry out telework activities to support the expenses with utilities and the acquisition of furniture and office ecquipment, within the limit set by the employer through the work agreement or internal regulations, in the limit of a monthly threshold in amount of 400 lei coresponding to the number of days of the month when the individual carries out telework activities. The amounts will be granted without any justifying documents;
- Covering the expenses with the epidemiological testing and/or vaccination of the employees to prevent the spreading of the diseases which endanger employees’s health and the public one.
- Completions are introduced regarding the applicable tax treatment to the value of tourist services and/or of treatment, including transport, during the rest leave, for the employees and their family members, granted by the employer, as provided in the labour agreement. Therefore, this amount is non-table in terms of income tax and social security contributions if the total value of the services does not exceed, in a fiscal year, the level of a gross medium salary used to substantiate the state social insurance budget for the year in which they were granted.
- There are included in the category of income exempted from the payment of social contributions, the amounts paid by the employer for the early education of employees’ children (so far, the amounts were non-taxable only from the personal income tax view).
- It is established that the obligation of computing, declaring and paying the personal income tax and mandatory social contributions is of the employer’s (if the payment is made through him) or of the income payer (if the payment is made by third parties) in case of benefits in cash or in kind received from third parties as a result of the provisions of the individual employment contract, an employment relationship, an act of secondment or a special status provided by law or a contractual relationship between the parties.
- As regards the benefits received from non-resident third parties, the obligation of computing, declaring and paying the personal income tax rests with the individual. However, the resident employer may choose to compute, withhold and pay the personal income tax due. Regarding the mandatory social security contributions, these are computed, declared and paid by the individual or by his non-resident employer, depending of the state where the income payer/employer has his headquarter.
4. Rental income
- New regulations are introduced regarding the income obtained owners from the rental for tourism purposes of the rooms located in the personal property dwellings, applicable starting with January 1, 2021, according to which:
- the income obtained from renting for tourism purposes of one to five rooms, during a fiscal year, is determined based on the annual income norm.
- in case of exceeding the number of 5 renting rooms during the same fiscal year, the income is determined based on the yearly income norm for the entire fiscal year, and starting with the following fiscal year, the net income is determined in real system and it is subject to taxation in accordance with the rules provided for the income from independent activities.
- The provisions regarding the possibility of determining the net income in the real system are repealed for the income obtained from renting for tourism purposes of one to five rooms.
5. Investment income
- Changes are made regarding the definition of income realised in Romania from the transfer of securities. Thus, starting January 1st, 2021, there are also considered to be obtained from Romania, irrespective they are received in Romania or abroad, the income from operations with derivative financial instruments, made through an intermediary, Romanian tax resident, with which the individual has opened an account.
- There is included in the category of non-taxable income the transfer of securities and / or gold at the time of their acquisition in the case of a judicial or voluntary division, as well as a regime of separation of assets.
- A new date is set on which the intermediaries trading securities are obliged to provide taxpayers with information about the gain/loss for the current fiscal year, as well as to file am informative statement on the gain/loss for each taxpayer - the last day of February, instead of January 31.
6. Pension income
- The determination of the monthly taxable income is regulated for amounts received as instalments. Thus, the non-taxable threshold is granted for each monthly instalment, from each pension fund.
- When establishing the taxable income related to the rights received by the legal heirs of the participants in pension funds, the non-taxable threshold is granted for each pension right, even if they are granted from the same pension fund.
7. Income from prizes and gambling
- The category of non-taxable income includes now, also, the commercial price reductions granted to individuals, other than those granted to taxpayers who obtain income for which the taxation rules related to income from salary or assimilated to salary apply.
8. Income from other sources
- There are introduced in the category of income from other sources the vouchers such as gift vouchers, granted on the basis on nominal record, to other categories of beneficiaries, for marketing campaigns, market research, promotion for existing or new markets, for protocol, for advertising and publicity, other than gift vouchers to which the taxation rules related to income from salaries and assimilated to salaries are applicable. The nominal record must include, at least information about the name, surname, personal numerical code/tax identification number of the beneficiary and the value of the vouchers granted to each beneficiary, on a monthly basis.
9. Unique Statement
- The term for submitting the Unique Statement regarding the income tax and social contributions owe by individuals is modified, as well as the term for the payment of the related tax obligations. Thus, the new term will be May 25th inclusive of the following year when the income was earned - for the income earned starting 2020 and May 25 inclusive of the current year in case of estimated income starting with 2021 (excepting the earned income during the year or starting the activity during the year).
- Also, the deadline for submitting the form 230 “Declaration regarding the destination of the amount representing up to 3.5% of the annual tax due” is modified and becomes May 25 inclusive of the following year when the income is earned.
10. Avoidance of double taxation by the tax credit method or the exemption method
- It is included the possibility to grant a tax credit / exemption for the tax paid abroad even if the proof of payment is provided by the income payer / the withholding tax agent, in case the competent authority of the foreign state does not issue a justifying document. For the income for which no tax is withheld, the tax paid abroad by the individual can be proved by a supporting document, issued by the competent authority of the foreign state, or by a copy of the tax return or similar document submitted to the foreign competent authority accompanied by the documentation attesting the payment, in case the competent authority of the foreign state does not issue the supporting document.
V. Withholding tax
1. The tax rate for the below presented types of income obtained from Romania by an individual resident in a Member State of the European Union or in a State with which Romania has concluded a double tax treaty is reduced from 16% to 10%:
- income from sports and entertainment activities carried out in Romania;
- income from the management or consultancy services;
- income from services rendered on the Romanian territory;
- income from independent professions in Romania - doctor, lawyer, engineer, dentist, architect, auditor and other similar professions;
- income from prizes awarded at competitions held in Romania;
- income earned by non-residents from the liquidation of a resident;
- income from the transfer of the fiduciary patrimony from the fiduciary to the non-resident beneficiary within the trust operation.
2. With regard to securities loans, the provisions applicable to non-residents are in line with those applicable to residents. Thus, it does not generate taxable income in Romania:
- the transfers of ownership on the transferable securities at the time of transfer as a result of the securities loans;
- the transfers of ownership on the transferable securities at the time of the establishing guaranties.
3. The deadline for submitting the information statement on withholding tax/exempt income (Form 207) is amended. Thus, Form 207 (including for the income obtained during 2020) should be submitted until the last working day of February, inclusively, of the current year for the expired year.
4. Is amended the deadline until which the intermediaries, defined by the legislation, by which non-resident individuals obtain income from the transfer of securities issued by Romanian residents, must fulfill the following obligations:
- to provide in written form to each non-resident taxpayer the information on the total gains/losses for transactions performed during the fiscal year;
- to submit annually to the competent tax body an informative statement on the total gains/losses for each taxpayer;
Thus, the deadline for fulfilling these obligations (including for transactions performed during 2020) is until the last day of February, inclusively, of the current year for the previous year.
5. The phrase “Romanian legal person” is replaced by the broader term of “resident”.
1. VAT on collection threshold
Starting January 1st, 2021, the turnover threshold for the application of the VAT on collection system is modified, being increased to 4,500,000 lei (the old threshold was 2,250,000 lei). We expect clarifications from the Ministry of Public Finance regarding the application of this measure considering that the provisions of art. 282 para. (4) and (5) of the Fiscal Code continue to refer to the old threshold.
2. Tax base adjustment
A new provision is introduced according to which it is possible to adjust the tax base in the case of uncollected receivables from individuals, if the total or partial value of the goods delivered or services provided was not collected within 12 months from the payment deadline established by the parties, or in its absence, from the date of issuing the invoice, except for the affiliated persons. The adjustment is allowed only if it is proved that commercial measures have been taken for the recovery of receivables up to 1,000 lei, inclusive, respectively, that legal proceedings have been undertaken for the recovery of receivables higher than 1,000 lei.
3. Fiscal representative for the application of the customs regime 4200 - “import followed by intra-community delivery”
Starting with April 1st, 2021, taxable persons not established in Romania will no longer have the obligation to register for VAT purposes in Romania in case of operations consisting of import of goods followed by an intra-community delivery (import under customs regime 4200), being able to appoint an authorized tax representative to fulfill the VAT obligations arising from the performance of these operations.
4. Import reverse charge
Changes are made regarding the application of reverse charge to the import of goods, among which we mention:
- in case of the postponement of the VAT payment in customs for imports over a certain threshold, the threshold of 50 million lei will be considered in the last 6 months, previously being considered a threshold of 100 million lei for the last 12 months. Other changes are made regarding the procedure in this situation;
- it is no longer necessary to obtain also a certificate for deferral of VAT payment at customs in the case of authorized economic operators, the measure being applicable only on the basis of the AEO certificate;
- it is applicable to postpone the payment of VAT in customs in case of imports made by taxable persons who obtained authorization to submit a customs declaration in the form of an entry in the records of the declarant;
- it is applicable to postpone the payment of VAT in customs in case of imports made by taxable persons importing goods subject to national simplification measures: wood, grain, as well as mobile phones, consoles, devices with integrated circuits.
5. Right of deduction exercised through the VAT return
The exercise of the right to deduct VAT from the beneficiary is possible if the supplier issues correction invoices, either on his own initiative or following the fiscal inspection, even if the limitation period of the right to establish fiscal obligations has been fulfilled. The right of deduction can be exercised within one year from the date of receipt of the correction invoice, under the sanction of forfeiture.
In order to align with the case law of the Court of Justice of the European Union, it is clarified that the exercise of the right to deduct VAT is allowed if the conditions and formalities for exercising the right of deduction are not met during the tax period or if the documents justifying the tax were not received, through the statement of the fiscal period in which these conditions are met or through a subsequent statement, but within the limitation period provided in the Code of Fiscal Procedure, including in case of cancellation of the reservation of subsequent verification as a result of the tax inspection.
6.Reduced VAT rate (5%)
The reduced VAT rate of 5% is applied for the delivery of housing that have a usable area of maximum 120 m2, excluding household annexes, whose value, including the land on which they are built, does not exceed the amount of 140,000 euros. The old threshold was 450,000 lei. According to GEO no. 226/2020, the application of the measure regarding the increase of the threshold for the delivery of housing to individuals with the rate of 5% is postponed until 2022.
7. Exceptions regarding the delivery of goods
The transfer of ownership of an immovable property by a taxable person to a public institution is not considered a delivery of goods, in order to settle an outstanding tax obligation (regardless of whether or not the transfer is made during the enforcement procedure).
8. The right to deduct VAT for purchases of alcoholic beverages and tobacco products
The right to deduct VAT is granted in the case of the purchase of alcoholic beverages and tobacco products, if they are intended to be grated (to provide services) free of charge for advertising purposes or for the purpose of stimulating sales or, more generally, for purposes related to carrying out economic activity.
9. Reverse charge
Within the operations for which the reverse charge is applied, is introduced the delivery of natural gas to a taxable person, established in Romania with a negligible own natural gas consumption (maximum 1% of the quantity of natural gas purchased). This measure applies until June 30, 2022 inclusive.
10. VAT exemption
According to GEO 226/2020, the deliveries of medical devices for the in vitro diagnosis of COVID-19, of vaccines against COVID-19, as well as the related testing and vaccination services performed until December 31, 2022, are exempt from VAT.
VII. Excise duties
1. Distance sales from other member States of excisable products
Regarding the moment of payment of excise duties in case of distance sales to Romania, the excise duty will be paid on the first working day immediately following the one on which the products were received.
2. Amendment on the specific excise duty for cigarettes
Between January 1, 2021 - March 31, 2021, the specific excise duty for cigarettes will be 418.76 lei / 1,000 cigarettes (previously 406.521 lei / 1,000 cigarettes).
3. Still fermented beverages
The category of still fermented beverages with zero level of excise duty is updated with the products obtained from berries, without other addition of flavors or alcohol.
VIII. Local taxes
1. Building tax
The term for updating the taxable value of the building is modified. Thus, the taxable value of the building is updated once every 5 years based on an evaluation report prepared by an authorized appraiser (previously, the Fiscal Code provided for its update every 3 years). In the situation of submitting the evaluation report after the first payment term of the reference year, it produces effects starting with January 1 of the following fiscal year.
Individuals who on 31 December 2020 own mixed-use buildings have the obligation to submit a declaration on their own responsibility, until 15 March 2021 inclusive, regarding the area used for non-residential purposes. Individuals whose surfaces used for non-residential purposes have been declared to the fiscal body until December 31, 2020, in accordance with the ITL 001-2016 model, do not have this obligation.
In the case of mixed-use buildings, when the owner does not declare to the fiscal body the area used for non-residential purposes, the building tax is calculated by applying the rate of 0.3% on the taxable value established according to the provisions applicable to residential buildings.
- Other provisions regarding buildings and land
A new provision is introduced regarding the buildings/land for which the tax on buildings/land is due under a concession, rental, administration or use contract that refers to periods longer than one year, the holder of the concession, rental, administration or the use has the obligation to submit a declaration to the local fiscal body within 30 days from the date of entry into force of the contract and owes the tax on buildings/land starting with January 1 of the following year. In the case of concession, rental, administration or use contracts, which refer to a period of more than one year, the building/land tax is paid annually, in two equal installments, until March 31 and September 30, inclusive.
It extends the granting of a bonus of 10%, inclusive, established by decision of the local council for the advance payment of the tax/charges on buildings/land, due for the entire year by taxpayers, until March 31 of that year.
GOVERNMENT DECISION NO. 4/2021 FOR ESTABLISHING THE MINIMUM GROSS BASE SALARY IN THE COUNTRY GUARANTEED IN PAYMENT
In the Official Gazette no. 40 from January 13th, 2021, the Government Decision no. 4 for establishing the minimum gross base salary was published, whereby:
- The minimum gross base salary in the country guaranteed in payment, without any other increases, is established at 2.300 lei monthly, for a normal work program.
- The minimum gross base salary in the country guaranteed in payment for the personnel assigned in positions which require higher education, having at least 1 year of work experience, is established at 2.350 lei monthly, for a normal work program.