MAZARS IN ROMANIA

Corporate taxes and other direct taxes

The general corporate income tax is a flat rate of 16% in Romania. In order to compute the taxable profit, the accounting profit is adjusted upwards (with non-deductible expenses) or downwards (with non-taxable revenues). A maximum  50% additional deduction can be applied for certain R&D expenses. The loss recorded by a company can be carried forward for 7 years.

Starting with 1 January 2013, the transferred loss can be carried forward  from a merger or spin-off operation.

As of the 1st of January 2018 the Anti Tax Avoidance Directive (ATAD) has been implemented, one of the consequences is that as of now there are new rules in respect of the fiscal treatment of the interest and exchange rate losses related to loans. As such, the exceeding cost of indebtedness recorded, that exceeds EUR 200.000 threshold,  are deductible within 10% of the designated computation base within the respective fiscal period. The tax base is computed as the difference between the income and expenses accrued under the applicable accounting regulations within the fiscal period, excluding non-taxable income and including CIT expenses, as well as the exceeding costs of indebtedness and the deductible tax depreciation. If the tax base is negative or nil, the expenses that exceed the aforementioned threshold are non-deductible within the fiscal period and can be carried forward in the following fiscal periods, without time limit and under the same deduction rules.

By exception, the borrowing costs can be fully deductible if the taxpayer is an independent entity (i.e. it is not part of a consolidated group for financial accounting purposes and has no related entity or permanent establishment).

Capital gains arising from the sale of the participations held in a state with whom Romania has concluded a DTT are non-taxable (certain conditions apply).

Starting with 1st of January 2018  CFC rules are applicable in Romania.

Romania has an international treaty network consisting of approximately 85 double tax treaties. The Romanian withholding tax rate on Dividends, Interest, Royalties is 16%.

The Interest & Royalty Directive and Parent Subsidiary Directive has been implement in Romanian law, thus subject to these conditions, the withholding taxes are reduced to nil.

The capital gain from the sale of shares is tax exempt (certain conditions apply). In all other relations for withholding tax the general tax rate and the relevant double tax treaty are applicable.

A compulsory micro company scheme is applicable for companies obtaining revenues lower than EUR 1,000,000 as follows:

  • 1% if the company has at least 1 employees;
  • 3% if the company has no employees

However, a microenterprise may opt for profit tax regime if it fulfils the following two conditions:

  • has a share capital of at least RON 45,000 (approx. EUR 9,500 at the current exchange rate);
  • has more than two employees.
Transfer pricing in Romania
Arm’s length principle since 2003 (Law 227/2015)
Documentation liability since 2003 (Order 222/2008, Order 442/2016)
APA since 2007 (Order 3735/2015)
Country-by-Country liability from FY 2017 (with transitional rules)
Master file-local file (OECD BEPS 13) applicable Only the local file rules are applicable
Penalty
lack of documentation For large and medium tax payers – RON 12,000-14,000 (approx. EUR 2,700-3,100)
Other tax payers – RON 2,000-3,500 (EUR 450-800)
Separately, adjustment of tax base plus late payment interest and penalties may be applicable.
tax shortage regular tax regime
Related parties 25%
<
direct or indirect control
Safe harbours  

Level of attention paid by Tax Authority:

10/10

VAT and other indirect taxes

The general rate is 19%. Reduced rates are 9% (e.g. medicines, bread, flour, food etc.) and 5% (e.g. for journals, books, medicines, applied to residential sales under certain conditions). The following options/limits based on the EU Directive are presented in the Romanian VAT legislation:

VAT-exempted activities consist of hospital and medical services, financial and banking services, insurance and reinsurance, sale and rental of real estate, certain types of educational and training activities, and other activities of public interest.

The VAT cash accounting system is optional for companies having an annual adjusted turnover of less than RON 2,250,000 (approx. EUR 474,000 at the current exchange rate). Romania has implemented the split VAT mechanism as both optional and mandatory for certain categories of taxpayers. If the taxpayer opts to apply the split VAT mechanism, it may benefit from a discount of 5% of the profit tax or micro company tax.

Starting with 1st of November 2018 all the taxpayers have the obligation to change their cash registers to fiscal electronic cash registers.

Other indirect taxes applicable in Romania include excise tax and environmental tax.

VAT options in Romania Applicable / limits
Distance selling RON 108,000 approx. EUR 22,800/year at the current exchange rate
Call-off stock
VAT group registration
Cash accounting* EUR 470,000/year
Import VAT deferment Certificate of payment deferral
Local reverse charge Sale of certain types of waste, certain types of cereal, wood, greenhouse gas emission certificates, electricity, green certificates, land and buildings, laptops, mobile phones
Option for taxation
- letting of real estate
- supply of used real estate
VAT registration threshold** RON 300,000 approx. EUR 63,200 at the current exchnage rate

*Optional for SME

**Optional VAT registration below the threshold is allowed

Personal income tax / Social security system

Romania applies a 10% flat tax rate to revenues obtained from dependent activities (e.g. employment or activities assimilated to employment) or independent activities (e.g. freelancers). Dividends are subject to a 5% tax rate.

Starting with 1st of January 2018, the SSC are the following: Social Security Contribution (25% - employee part, Health Insurance Contribution (10% - employee part) and Work Insurance Contribution (2,25% - employer part).

Dependent activities are subject to SSC at the employee (35 %) and the employer level (2.25%).

Independent activities are subject to SSC only if the monthly revenue from such activities is higher than the minimum salary (i.e. RON 1,900 for the year 2018). Starting with 1st of January 2019, the minimum monthly gross wage guaranteed in payment, without including bonuses or other additions, increased to RON 2,080 for a normal working schedule. For the employees assigned in positions for which high education studies are required and having at least one year of seniority in the higher education area, the minimum monthly gross wage will be of RON 2,350.

Otherwise, the SSC is optional for the taxpayer. The Health Fund Contribution is capped at the level of the minimum salary RON 3,000 per month (without including other bonuses and additional payments).

For the period of 1st of January – 31st of December 2028, the following tax exemptions are granted for the salary income realized by individuals in the field of constructions:

  • Payment of income tax for the salary revenue is fully exempted;
  • Social security contribution is reduced to 21.25%, from 25%;
  • Payment of health contribution if fully exempted;
  • Work insurance contribution is reduced to 0.337%.

In order to apply the exemptions, the following conditions should be cumulatively met:

  • The employers must carry out activities in the construction sector – i.e. have certain NACE codes, as ecifically detailed in the Ordinance;
  • 80% of the annual turnover is achieved from the construction activities – in accordance with the ject of activity mentioned in the Ordinance;
  • The monthly gross salary income realised by the employees exempted is between RON 3,000 – RON 30,000.
Wage-related taxes in Romania Minimum salary Average salary in private sector
Exchange rate RON/ EUR 4,7 in EUR in RON in EUR in RON
  443 2 080* 886 4 162
TOTAL WAGE COST 453 102,25% 905 102,25%
Employer's contributions 10 2,25% 20 2,25%
Gross salary 443 100,00% 886 100,00%
Employees` contributions 155 35,00% 310 35,00%
Personal Deduction ** 133   0  
Personal income tax*** 15 10,00% 58 10,00%
NET SALARY 272 61,50% 518 58,50%

* The minimum monthly gross wage guaranteed in payment, without including bonuses or other additions, will increase to RON 2.080 for a normal working schedule. For the employees assigned in positions for which high education studies are required and having at least one year of seniority in the higher education area, the minimum monthly gross wage will be of RON 2.350. In the construction sector, the minimum monthly gross wage for the period 1st of January 2019 – 31st of December 2019 is RON 3.000 per month (without including other bonuses and additional payments).

** 1 family member is assumed

*** Personal income tax base is gross salary - employee's contribution - personal deduction

Transfer pricing

The application of the arm’s length principle between related parties is provided by the Romanian transfer pricing legislation.

Based on the provisions of the Romanian transfer pricing legislation, related companies shall document the arm’s length price, the method used for determining the arm’s length price, and all evidence or circumstances supporting them, for the intra-group transactions.

Transfer pricing documentation should present the arm’s length consideration of transactions between related parties domestic and foreign alike.

The provisions of BEPS Action 13 have been fully implemented in the Romanian transfer pricing legislation with regards to the content of the transfer pricing file.

The Romanian transfer pricing legislation does not lay out any provisions regarding safe-harbour rules concerning low-value adding intra-group services.

APA is available from 2007. Applications can be made for future transactions on unilateral, bilateral or multilateral basis for a period of 5 years, with the possibility of extension. The application fee for issuing an APA is EUR 20,000 for large taxpayers and EUR 10,000 for other categories of taxpayers.

Deadline to Submit Documentation

Large taxpayers above significance thresholds as per applicable legislation:

  • The deadline for presenting the transfer pricing file is maximum 10 calendar days upon the request of the tax authorities, but no sooner than 10 calendar days from the submission date of the annual corporate income tax return.

 

For other categories of taxpayers

  • For other categories of taxpayers, the transfer pricing file must be submitted upon the request of the Romanian tax authorities in 30 or 60 calendar days, with the possibility of a 30-day extension of the deadline.
MAZARS CONSULTING S.R.L.
4b and 2-4 Ing. George Constantinescu Street,
Building B, Globalworth Campus Pipera,
RO-020339, Bucharest
Edwin Warmerdam
Partner, Head of Tax Advisory