NOER | Romania: Important amendments to the Romanian Fiscal Code

Source NOERR Romania

Government Ordinance no. 16/2022, published in Official Gazette no. 716/15.07.2022 on 15 July 2022, entails important amendments to the Romanian Fiscal Code.

The most important changes to the Fiscal Code include the following:

Starting on 18 July 2022, the new law will:

1. establish consistent rules on the corporate form and tax status of companies for the purpose of applying the dividend tax exemption on the distribution of dividends (i) between Romanian companies; and (ii) from Romanian companies to other EU companies;

2. introduce an additional condition for the applicability of income tax and social security relief for the construction sector – i.e. 80% of the qualifying employers’ total turnover must be from activity carried out in Romania;

3. provide that the turnover on which tax relief for the construction sector is based must be calculated in real time, taking into consideration only year-to-date information from the current year and not using historical data (as has been the case until now).

Starting on 1 August 2022, the new law will:

1. decrease from RON 30,000 per month to RON 10,000 per month the maximum monthly gross salary threshold up to which tax relief for the construction, agriculture and food sectors is granted. Tax relief will not apply to the portion of monthly gross income that exceeds RON 10,000;

2. increase income tax rates on gambling income from 1%-25% to 3%-40% as follows:

3% income tax on gross income up to and including RON 10,000,

RON 300 + 20% income tax on the amount by which gross income exceeds RON 10,000 for gross income up to and including RON 66,750, and

RON 11,650 + 40% income tax on the gross salary amount that exceeds RON 66,750 on gross income higher than RON 66,750;

3. introduce an obligation to pay social security and health insurance contributions on an amount equivalent to the minimum gross salary for full-time or part-time employees whose employment contracts provide for income below this level. The additional tax liabilities are to be paid by employers;

4. increase excise duties on cigarettes.

Starting on 1 January 2023, the new law will:

1. bring about a major overhaul of the micro-company tax regime by

• making applicability of the micro-company income tax regime optional as of incorporation. Conditions related to share capital amount and number of employees will no longer apply;
• decreasing the turnover threshold for applicability of the regime from EUR 1 million to EUR 500,000;
• maintaining the 1% micro-company income tax rate and eliminating the 3% tax rate;
• introducing the obligation to have at least one employee;
• rescinding the applicability of this regime to companies active in banking, insurance, reinsurance and capital markets, including intermediation activities in these fields; gambling; and exploration, development and exploitation of sources of oil and natural gas;
• rescinding the applicability of this regime to companies that obtain more than 20% of their total turnover from consulting and management activities;
• allowing shareholders to hold shares in a maximum of three micro-companies where they hold at least 25% of the value / number of shares or voting rights;
• requiring micro-companies that shift to profit tax starting on 1 January 2023 because they no longer qualify for the micro-company tax regime to inform the Romanian tax authorities of the change by 31 March 2023.

2. eliminate the specific tax for Romanian companies operating in the HORECA industry. These companies will be able to opt for the micro-company regime without having the obligation to fulfil the conditions for qualifying for the profit tax regime.

3. increase the dividend tax on dividends distributed after 1 January 2023 from 5% to 8%, for both companies and individuals.

4. extend the profit tax exemption for profit used to finance investments made in assets used in production and processing, as well as in assets representing re-technologization.

5. change income tax and social security contributions by:

a) instituting a major review of the system for granting personal deductions to individuals who earn salary income;

b) introducing a new non-taxable income threshold for income tax and social security contributions, up to a maximum of 33% of monthly gross salary for certain benefits in kind such as contributions to optional pension funds, voluntary health insurance premiums, additional benefits received by employees based on the mobility clause (except employees in the transport sector), certain accommodation and meal costs;

c) establishing taxable income at the level of real gross income and eliminating the flat-rate deduction of 40% on income from letting (im)movable property;

d) decreasing from EUR 100,000 to EUR 25,000 the maximum threshold up to which net taxable income is determined on the basis of income quotas;

e) amending the provisions on taxation of income from the transfer of real estate from one’s own personal assets by

• eliminating the fixed RON 450,000 deduction from the value of the transaction when establishing taxable income;
• calculating income tax on the value of the transaction by applying a rate of 3% for properties owned for up to and including three years or 1% for properties owned longer than three years;

f) amending the annual basis for calculating pension insurance contributions for individuals earning income from independent activities and/or income from intellectual property from one or more sources and/or income categories with a cumulative value of at least twelve minimum gross salaries. The annual taxable base will be the income chosen by the taxpayer, but not less than:

• 12 minimum gross salaries if the income is equivalent to between 12 and 24 minimum gross salaries;
• 24 minimum gross salaries if the income is equivalent to more than 24 minimum gross salaries;

g) amending the annual basis for calculating health insurance contributions for individuals earning income from independent activities; intellectual property; letting of (im)movable property; agricultural, forestry and fishery activities; investments and other sources; from one or more sources and/or income categories, with a cumulative value of at least six minimum gross salaries. The annual taxable base will be the income chosen by the taxpayer, but not less than:

• 6 minimum gross salaries if the income is equivalent to between 6 and 12 minimum gross salaries;
• 12 minimum gross salaries if the income is equivalent to between 12 and 24 minimum gross salaries;
• 24 minimum gross salaries if the income is equivalent to more than 24 minimum gross salaries.

6. amend VAT law by:

a) increasing the VAT rate for non-alcoholic beverages containing added sugar or other sweeteners or flavorings from 9% to 19%;

b) increasing the VAT rate for restaurant and catering services and hotel accommodation from 5% to 9%;

c) decreasing the maximum value threshold for providing individuals with housing under social policy from RON 700,000 to RON 600,000 and restricting the applicability of the reduced 5% VAT rate for the acquisition of a single dwelling by any individual.

7. amend property tax law in that it makes significant changes to the methodology for calculating tax on buildings by:

a) introducing uniform tax rates for the same type of building, i.e. residential or non-residential, regardless of the owner of the building, i.e. individual or legal entity;

b) eliminating the notion of mixed-use buildings, i.e. buildings that include non-residential and residential spaces will be taxed according to their main use based on the floor space area of each use;

c) providing that the taxable basis for tax on residential buildings will be established by local authorities on the basis of market studies on minimum real estate values as supervised by the National Union of Public Notaries in Romania and published annually on their website;

d) providing that local authorities will set tax rates at a minimum of 0.1% of the taxable base for residential buildings and at a minimum of 0.5% of the taxable base for non-residential buildings. The law will no longer provide any caps for the relevant tax rates. The new rates for 2023 must be made available by 13 September 2022; and

e) providing that local authorities will also determine the taxable base for such properties based on the new rules. Failure to react within 30 days from being served with the official notices concerning the taxable values will imply that the taxpayer agrees with the assessment of the local tax authorities.

Any questions? Please contact: Theodor Artenie, Carmen Mazilu

Practice group: Tax