Withholding tax

According to the above-mentioned amendments to the Romanian Fiscal Code, the tax on dividends paid to non-residents becomes 8% applied to the gross dividend (instead of 5%), starting with dividends distributed after 1 January 2023. Nevertheless, the exemption / reductions based on European directives or double tax treaties can be applied (if the required conditions are fulfilled).

Corporate income tax 

The CIT-related changes of the Romanian Fiscal Code affect from one hand the exemption of reinvested profits. Starting from 1 January 2023, other assets are eligible for the exemption from corporate income tax regarding the reinvested profit. Investments in assets used in the production and processing activity, the assets representing refurbishment will be exempted from corporate income tax (these assets will be established by order of the Minister of Finance).

Another CIT-related change of the Romanian Fiscal Code affects the dividend tax which is computed by applying an 8% tax rate on the gross dividend paid to a Romanian legal entity (instead of the current 5%).

Both of these provisions apply to dividends distributed after 1 January 2023.

Micro-enterprise tax

The amendments to the Romanian Fiscal Code significantly modify the regime of the income tax of micro-enterprises as well.

The conditions that must be met cumulatively by a company in order to be a taxpayer on the tax of micro-enterprises (these must be met on 31 December of the previous fiscal year) are amended as follows:

• revenues must not exceed the RON equivalent of EUR 500,000 (instead of the current EUR 1,000,000);
• its share capital is held by persons other than the state and the administrative-territorial units (condition currently in force);
• it is not in dissolution, followed by liquidation, registered in the trade register or in the courts, according to the law (condition currently in force);
• the company generates revenues, other than those from consulting and / or management, in proportion of over 80% of the total revenues (new condition);
• the company has at least one employee (new condition – respectively, the differentiated tax rate is no longer applied in relation to the existence or not of the employee);
• the company has associates / shareholders who hold over 25% of the value / number of participation titles or voting rights to at most three Romanian legal entities that apply to apply the income tax regime of micro-enterprises, including the analyzed company (if they are more than three Romanian companies, the three legal entities paying the micro-enterprise tax will be established, and the rest of the legal entities will become corporate income tax payers) – new condition.

Given the above conditions, from 2023 the tax rate becomes 1% in all cases. The tax regime becomes optional upon the registration of the company. The option can be exercised after registration if certain conditions are observed.

Micro-enterprises cannot opt ​​for the payment of the corporate income tax during the fiscal year, the option being able to be exercised starting with the following fiscal year, with certain exceptions.

Special rules for leaving the income tax system of micro-enterprises during the year were also established.

Example: If during a fiscal year a micro-enterprise generates revenues higher than EUR 500,000 or the share of revenues from consulting and / or management in total revenues is over 20% inclusive, it owes corporate income tax starting with the quarter in which any of these limits are exceeded, without the possibility to opt to apply the micro-enterprise tax afterwards.

VAT

According to the amendments to the Romanian Fiscal Code, amongst the goods subject to 9% VAT rate, the list of food products / other similar goods, as well as of the products used in agriculture was modified.

The VAT rate increases to 9% (from 5%) for hotel accommodation, restaurant and catering services (with certain exceptions).

The delivery of homes with a VAT rate of 5% to individuals applies to homes with a usable area of up to 120 square metres, excluding household annexes, whose value, including the land on which they are built, does not exceed the amount of RON 600,000, excluding VAT. Any natural person can purchase, starting with 1 January 2023, individually or jointly with another natural person / other natural persons, a single home whose value does not exceed the amount of RON 600,000, excluding VAT, with a reduced rate of 5% (there are transitional measures for 2022).

If you would like to know more about the latest amendments to the Romanian Fiscal Code or if you have any tax related question in Romania, please visit the homepage of Ensight, the exclusive representative of WTS Global in the country.

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Reduction of personal income tax rates

As one of the most important elements of the Croatian Tax Reform 2021, starting from 1 January 2021 the personal income tax rates were reduced from 24% to 20%, and from 36% to 30%. The reduced personal income tax rates are applicable for employment, self-employment income as well as income from freelance activities such as author’s fees.

A reduced income tax rate of 10% (previously 12%) is levied on capital income based on dividends and profit shares, rental income, as well as capital gains and income from self-employment taxed at a flat rate.

Reduction of corporate income tax rates and withholding tax on dividends

Another important element of the Croatian Tax Reform 2021 is the reduction of the corporate income tax rate from 12% to 10% for taxpayers with revenue up to HRK 7.5 million (roughly EUR 1 million). This tax amendment took effect on 1 January 2021 as well. The corporate income tax rate of 18% remains in force for all taxpayers earning annual revenues of more than EUR 1 million.

The latest amendments to the Croatian Corporate Income Tax Act also prescribe a reduction of the following withholding tax rates:

• From 12% to 10% for payments of dividends and profit shares to foreign legal entities. This evens out the tax rates on dividend and profit shares that are paid to legal entities with the tax rates on dividends and profit shares paid to natural persons.

• From 15% to 10% for payments of fees for performances of foreign performers – artists, entertainers and athletes, when the fee is paid by a Croatian or a foreign payer based on a contract with a foreign person that is not a natural person.

Other fees subject to withholding tax (e.g. consulting services, royalties, etc.) remain taxed at a rate of 15%.

Non-cash payment of VAT on imports

According to the changes to the Croatian Tax Reform 2021, VAT payers with the right to deduct input tax in full are now able to use the non-cash payment of VAT on imports for all imported goods, regardless of their type and value, by recording the import VAT as a liability in their VAT return and simultaneously as a right to deduct input VAT. To be able to use this option, the taxpayer has to submit the request by completing the customs declaration appropriately for the release of goods for free circulation.

Introduction of OSS as part of the Croatian Tax Reform 2021

The Croatian Tax Reform 2021 has also fully implemented Council Directive (EU) 2017/2455 of 5 December 2017 in the Croatian Value Added Tax Act. According to the implemented directive, the application of the special taxation regime for telecommunications services, radio and television broadcasting services and electronically performed services was expanded from 1 July 2021. The OSS (One Stop Shop) regime in Croatia now also applies for distance sales within the EU, i.e. the supply of goods within a Member State via electronic interfaces and for services supplied by taxpayers established within the EU, but not based in the Member State of consumption. 

Changes to the taxation of travel packages sold by non-EU travel agencies 

Croatia is one of the first EU Member States to introduce new rules for the taxation of travel agencies based outside the EU. Pursuant to the changes in the Croatian Tax Reform 2021, from 5 January 2021 when a non-EU travel agency sells services performed by other persons in its own name, the Tour Operators’ Margin Scheme (TOMS) is not applicable. Instead, in cases when a non-EU travel agency sells services related to travel (accommodation or transportation) for which the place of taxation is in Croatia, the non-EU travel agency is obliged to register for VAT purposes in Croatia. Also, non-EU travel agencies registered for VAT purposes in Croatia must appoint a tax representative in Croatia.

Digital nomad residence permit and income taxation

The Croatian Tax Reform 2021 has also introduced the so-called digital nomad residence permit. It means that as one of only 32 countries all around the world, Croatia officially started granting temporary residence permits to digital nomads as of 1 January 2021. The introduction of this permit adds a new option for non-EU nationals to live and work in Croatia up to one calendar year. To obtain such status, applicants have to prove their financial independency, i.e. prove that their regular income amounts to at least HRK 16,907.50 (EUR 2,256.44) per month, or HRK 202,890 (EUR 27,077.27) per year, plus an additional 10% increase per family member.

For taxation purposes, the income of persons having acquired digital nomad status in Croatia stemming from their employment activity with the foreign employer shall not be taxable in Croatia. Therefore, obtaining digital nomad status offers the following benefits: 

• No tax is paid in Croatia on such income;
• There is no reporting obligation for such income in Croatia;
• There is no obligation to pay social security contributions (travel or private health insurance is necessary).

If you would like to know more about any elements of the Croatian Tax Reform 2021, please visit the homepage of Tax Advisory TUK Ltd., the exclusive representative of WTS Global in Croatia.

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