Tax News & Insights July 2022
11 July 2022
We kindly inform you that the Ministry of Public Finance published on 4th of July 2022 a Draft Ordinance amending and supplementing Law no. 227/2015 on the Tax Code, repealing some normative acts and other fiscal measures, which can be found on the website of the Ministry of Public Finance.
The Draft Ordinance mainly targets the following tax changes, most of them entering into force on 1st January 2023:
- Increase of the tax rate on dividends from 5% to 8% for dividends distributed / paid both to Romanian legal entities and to non-resident persons.
MICRO-ENTERPRISES INCOME TAX
- Introducing new conditions to be fulfilled for the classification in the category of micro-enterprises income taxpayers:
- Decrease in the threshold of revenues obtained in the previous year from 1 million euros to 500,000 euros;
- Limitation of consulting and management revenues to 20% of the total revenues obtained;
- At least one employee. Thus, the tax rate of 3% is eliminated;
- Establishing a condition for holding shares by the same shareholder / associate in maximum three micro-enterprises, in case of holding at least 25% of the shares.
- Is eliminated the possibility for opting for the corporate income tax regime.
- Exclusion from the micro-enterprises income tax regime of legal entities carrying out activities in the field of banking, insurance and reinsurance, gambling, exploration, development, exploitation of oil and natural gas deposits.
TAX ON SPECIFIC ACTIVITIES
- Repeal of Law no. 170/2016 on the specific tax for certain activities, starting with 1st August 2022.
- Increasing the VAT rate from 5% to 9% for accommodation in the hotel sector, restaurant and catering services and the delivery of chemical and pesticide fertilizers.
- The non-alcoholic beverages falling within CN codes 2202 10 00 and 2202 99, respectively non-alcoholic beverages containing added sugar or other sweetening matter or flavored, are excluded from the scope of the 9% reduced VAT rate, in addition to the exception already provided for alcoholic beverages.
- Limitation of the scope of application of the reduced VAT rate of 5% to the delivery of housing to individuals, in the sense that individuals benefit from this facility only once. Thus, any individual can purchase, individually or jointly with another individual/s, a single home whose value does not exceed the amount of 600,000 lei, excluding VAT, with a reduced rate of 5%.
INCOME TAX AND SOCIAL CONTRIBUTIONS
- The Ordinance proposes the cancellation of the income tax exemption for individuals who earn income from salaries and assimilated to salaries, as a result of carrying out the activity on the basis of an individual employment contract concluded for a period of 12 months, with Romanian legal entities carrying out certain seasonal activities provided in art. 1 of Law no. 170/2016 regarding the specific taxation of certain activities.
- Additionally, it proposes the revision of the framework for granting tax incentives for employees who carry out activities in the field of constructions, as well as in the agricultural field and in the food industry, as follows:
- The incentives will apply only to individuals who obtain salary income based on an individual employment contract;
- Clarifications are provided regarding the turnover indicator and the calculation method of that turnover;
- The maximum salary up to which the incentives can be applied decreases from 30,000 lei / month to 10,000 lei / month.
- From a salary income tax perspective, the main proposed changes are the following:
- The following types of salary income become non-taxable, up to a monthly cumulated amount of no more than 33% of the basic gross salary corresponding to the occupied job position:
- The additional payments received by the employees based on the mobility clauses;
- The reimbursement of tourism expenses, including transport, during the paid leave, granted by employers to their employees and their family members, capped at the level of one average gross salary/year/employee;
- contributions to a pension fund, borne by the employer for its own employees, up to a limit of 400 euros per year for each person;
- the voluntary health insurance premiums, as well as the medical services provided in the form of a subscription, borne by the employer for his own employees, up to a maximum amount of 400 euros, for each person;
- the amounts granted to the employees who carry out teleworking activities to compensate utilities and furniture expenses at the place where the employees carry out their activity;
- This new ceiling also includes two new types of income, as follows:
- the value of the food prepared in own units or purchased from specialized units, granted by the employer to employees who do not benefit from meal vouchers, within the value of one meal voucher per working day;
- accommodation and/or the value of the rent made available by the employers, within the limit of a non-taxable ceiling of 20% of the minimum gross salary.
- The order in which the income types are included in the monthly ceiling is established by the employer. The same rules apply from a mandatory social security contributions perspective.
- Review of the system for granting personal deductions.
- Additionally, it proposes changing the threshold from which taxpayers who obtain income from independent activities are obliged to move from a taxation system based on income norms to a taxation system based on actual income and expenses (from EUR 100,000 to EUR 25,000).
- Moreover, the Ordinance proposes the elimination of the lump-sum deductible rate of 40% that is applied on gross income to determine the taxable income from rental activities, other than income from lease and income for rental for tourism purposes of rooms located in personal properties. Thus, the taxable income will become the gross rental income.
- It also proposes the reintroduction of the owner's obligation to register the rental agreement between the parties, as well as all subsequent changes, within 30 days from its entry into force/amendment, to the competent tax authority, with the element of novelty being that this process will be done exclusively using electronic means of remote transmission. In the case of contracts in progress on 1 January 2023, the registration of the contract and the related amendments shall be made within 60 days from the date on which the obligation to register occurred.
- The dividend income tax rate is expected to increase from 5% to 8%, including for non-residents.
- Significant changes are proposed also on the the non-taxable ceiling, the scales and their respective tax rates for income from gambling activities. The proposed rates are 10%, 20% and 40%, depending on the amounts won.
- Other propositions include the elimination of the non-taxable ceiling (that currently amounts to 450,000 RON) for the income obtained from the transfers of ownership of real estates / land and the application of a tax rate of 1% or 3% on the selling price, dependant of the period in which property is held.
- It is also proposed to reintroduce the minimum calculation base for social insurance contribution at the level of the minimum gross basic salary in force in the month for which the social insurance contribution is due, corresponding to the number of working days in the month in which the full/part-time employment contract was active, with some exceptions.
- If the social insurance contribution calculated on the basis of actual income derived is lower than the contribution calculated on the minimum basis, the difference would be paid by the employer / income payer on behalf of the employee / income beneficiary.
- For individuals who obtain annual income from independent activities and from the transfer of intellectual property rights above the level of 24 minimum gross salaries, it is proposed to increase the minimum taxable base to this ceiling (24 minimum gross salaries).
- Regarding the health insurance contribution due by individuals for income other than employment (independent activities, transfer of intellectual property rights, rental activities, association with a legal entity, agriculture, fisheries and forestry, other sources and investments), it is proposed to introduce two new annual tax bases, as follows:
- 6 minimum gross salaries, in case of obtaining cumulated annual income between 6 and 12 minimum gross salaries;
- 24 minimum gross salaries, in case of obtaining cumulated annual income of over 24 minimum gross salaries.
- Individuals who obtain a cumulative annual net income below the level of 6 minimum gross salaries would not be liable to pay the health insurance contribution, except for the situation where in the previous tax year they did not have the quality of employee and did not fit in the categories of persons exempted from the payment of the health insurance contribution. In the latter case, the persons concerned would owe the contribution at the level of 6 minimum gross salaries.
Most of these changes should enter into force starting with 1 January 2023 (or with the revenues related to the month of January 2023), with certain exceptions, the most important being:
- The new rules regarding the taxation of gambling income, which should come into force for the income paid starting with 1 August 2022;
- The cancellation of the income tax exemption for individuals who earn income from salaries and assimilated to salaries, as a result of carrying out the activity on the basis of an individual employment contract concluded for a period of 12 months, with Romanian legal entities carrying out seasonal activities. These changes should take effect starting with the revenues related to August 2022;
- The changes related to the tax incentives in the field of construction, respectively in the agricultural field and in the food industry, which will enter into force as follows:
- The facilities will apply only to individuals who obtain salary income based on an individual employment contract - these changes should enter into force starting with the income related to January 2023;
- Clarifications are provided regarding the turnover indicator and the calculation method of the turnover - these changes should enter into force within 3 days from the date of publication in the Official Gazette;
- The maximum salary up to which the incentives can be applied decreases from 30,000 lei / month to 10,000 lei / month - these changes should come into force starting with the revenues related to August 2022.
- Reintroduction of the minimum calculation base for establishing the social insurance contribution for salary income below the minimum gross salary and the bearing of the difference in contribution by the income payer, which should come into force starting with the income related to August 2022.
Also, there is a Law project for the cancellation of some tax obligations:
- This Law proposes the cancellation of additional tax liabilities, as well as the late payment interest and penalties related to them, imposed by the tax authorities in tax decisions issued and communicated to the taxpayer, that remained unpaid until the date of entry into force of this law, as a result of the reclassification of the income from gift vouchers from “other sources of income” to „employment income”. This applies to gift vouchers granted up until 31 December 2020.
- The cancellation would also be valid if the employer received the gift vouchers from the third party and distributed them to his employees, in his own name.
- After the entry into force of this law, the tax authorities will no longer issue tax decisions for the periods prior to 31.12.2020 and will no longer reclassify the income from gift vouchers to income from salaries or assimilated to salaries.
- If the taxpayers have already paid the additional tax liabilities, as well as the late payment interest and penalties related to them, they will have the possibility to request the refund of these amounts, after the entry into force of the Order of the Ministry of Public Finances which provides the refund method.
- If the tax authorities issued a tax decision prior to the entry into force of this law, but did not communicate it to the taxpayer, it will no longer communicate it and will deduct the additional obligations from the analytical records on the taxpayer.
The draft law was voted by the Senate and the Chamber of Deputies and must be promulgated by the President of Romania before being published in the Official Gazette.