Romanian Fiscal Code was amended starting 1 January 2018 for transposing the provisions of Directive 2016/1164/EU of 12 July 2016. The new rules concerning also Romanian corporate income tax are intended to address tax evasion.
The most significant revisions to the Romanian corporate income tax
With few exceptions, the exceeding borrowing costs (calculated as the difference between any debt-related costs, including foreign exchange losses, debt-related costs about loans granted by financial institutions, capitalized interest – and the interest income and other equivalent income) incurred in a fiscal period, which exceed the deductible threshold of EUR 200,000 will be deductible for corporate income tax (CIT) up to the limit of 10% of a fiscal EBIDTA. In case of a negative fiscal EBITDA, only the costs up to the threshold of EUR 200,000 are deductible. Non-deductible exceeding borrowing costs are fiscally carried forward for an unlimited period.
A possible increase of the threshold from EUR 200,000 to EUR 3,000,000 is currently under discussion at the Romanian authorities level.
Exit taxation was introduced in Romania in cases of transfer of assets, tax residence and/or economic activity carried out through a permanent establishment for which Romania loses the right to tax. The tax base for 16% CIT is computed as a difference between the market value of the assets transferred and their fiscal value.
Existing General anti-abuse rule stipulated by the art 11 of the Fiscal Code was strengthened. According to this rule tax authorities can ignore a series of arrangements which have been put into place with the sole aim of obtaining a tax advantage, but such decisions should be justified.
Controlled Foreign Companies (CFC) Rules
Under these rules, a Romanian taxpayer should include in its taxable base, in proportion with its holding in the controlled foreign company, the latter’s non-distributed income derived from: interests, royalties, dividends, income from disposal of shares, income from financial leasing, from insurance and financial activities, income from certain transactions performed with associated companies. CFC is an entity held, directly or indirectly, more than 50% by the Romanian taxpayer, entity paying a lower CIT than the difference between CIT that would have been charged for the entity under the applicable Romanian law provisions, and the actual CIT paid.
Tax on micro-company revenues
Starting 1 January 2018, all companies which obtained in the previous year revenues up to RON equivalent of EUR 1,000,000 at the exchange rate valid at the year end, which are not owned by the state and are not in dissolution/ liquidation procedure have been obliged to apply micro-companies tax instead of Romanian corporate income tax.
Micro-companies tax is computed based on total revenues obtained, to which a percentage of 1% in case of companies with 1 employee, or 3% in case of companies with no employees is applied. The level of expenses recorded does not influence the taxable base in this fiscal regime, affecting businesses with low mark-up. Moreover, fiscal losses cannot be carried forward during the period in which the company applies micro-company tax regime, affecting businesses in set-up / investment phase.
In order to limit the disadvantages of micro-company tax, the Ordinance 25 published on 30 March 2018 introduces an exception to the rule above, allowing companies with a share capital of at least RON 45,000 (roughly EUR 9,600) and at least 2 employees to opt for becoming a Romanian corporate income tax payer starting 1 April 2018.
If you would like to know more about the regulation of Romanian corporate income tax, please visit the homepage of Ensight, the exclusive representative of WTS Global in Romania.
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