InfoCompanies Romania business guide: Fiscal system

InfoBusiness Romania - online guide

Fiscal system

• Legal background

The legislative background that governs the fiscal system in Romania was the object of repeated amendments and additions for its improvement, the securing of transparency and bringing bureaucracy down to a minimum. One of the main objectives of the fiscal policy in Romania for 2002 is to establish unitary, stable laws, with simplified implementation procedures, in close conformity with the directives of the European Union.

The category of direct taxes includes:

- The profit tax, regulated by the provisions of Government Ordinance no. 70/1994, as republished, with its subsequent amendments;

- The tax on incomes acquired by micro-enterprises, subject to the provisions of Government Ordinance no. 24/2001;

- The tax on dividends, regulated by the provisions of Government Ordinance no. 26/1995, with its subsequent amendments;

- The income tax, regulated by the provisions of Ordinance no. 7/2001 regarding the income tax, with its subsequent amendments;

The category of indirect taxes includes:

- The Value Added Tax, regulated by the provisions of Government Emergency Ordinance no. 17/2000 regarding the Value Added Tax, as subsequently amended;

- Excises, subject to the provisions of Government Emergency Ordinance no. 158/2001 regarding the excises regime and Government Ordinance no. 27/ 2000 regarding products subject to excises;

- Customs fees, regulated by the provisions of Law no. 141/1997 regarding the Romanian Customs' Code and Government Ordinance no. 26/1993 regarding Romania's customs import tariff, with its subsequent amendments

• Profit tax

Subjects of the profit tax (taxpayers)

The following categories of taxpayers owe profit tax, under the law:

- Romanian legal entities, for the taxable profit obtained from any source, both in Romania and abroad;

- foreign legal entities that carry out activities through permanent headquarters in Romania for the taxable profit related to said headquarters;

- Foreign individuals and legal entities that carry out activities in Romania as partners in an association that does not result in a legal entity for all incomes resulting from the activity carried out in Romania;

- associations between Romanian individuals and Romanian legal entities that do not result in a legal entity for incomes obtained both in Romania and abroad, in such case the tax being calculated and owed by the legal entity.

Profit tax quota

The profit tax quota is 25 percent, with the exceptions expressly provided for under the law.

Taxpayers who obtain incomes from the activity of nightclubs and casinos shall pay an additional tax quota of 25 percent over that portion of the taxable profit that corresponds to the percentage of the incomes registered from said activities in the total volume of the incomes. The additional profit quota shall also be paid by the individuals and legal entities for personal incomes of the same nature, obtained on the basis of partnership contracts.

Any increase of the share capital, made by incorporating the reserves, as well as profits, except for the legal reserves and the favorable differences from the patrimony evaluation, are taxed by a quota of 6 percent since Jan. 1, 2002. The obligation to retain and pay in the tax is incumbent upon the company, as of the registration of the increase with the Trade Registry.

Taxable profit

The profit is calculated as the variation between the incomes obtained from the delivery of movable goods, services rendered and works completed, the sale of immovable goods, including gains from any source and expenses made with achieving the same, within one fiscal year, out of which one deducts non-taxable incomes and to which one adds non-deductible expenses.

Upon calculating taxable profit, one shall solely consider as deductible the expenses related to the obtaining of the incomes. The categories of expenses considered deductible upon the calculation of the taxable profit are expressly and restrictively provided for under the law.

• Tax on dividends

Under the law, dividends are any distributions, either in cash or in kind, in favor of the shareholders or associates, legal entities, from the profit determined on the basis of the annual balance sheet and the profit and loss statement, in proportion with the quota of participation to the share capital.

Dividends are subject to taxation, by means of withholding, with a quota of 10 percent of the value of the same for legal entity shareholders/associates or 5 percent for individual shareholders/associates.

The obligation to calculate, retain and pay in the tax on dividends is incumbent upon the legal entities, together with the distribution of the dividends to the shareholders or the associates.

• Territorial chambers of commerce and industry and the territorial/national

The territorial chambers of commerce and industry and the territorial or national cooperative associations, respectively, may file an application against the debtor who, according to their available data, is in a notorious state of insolvency.

• Income tax

Taxpayers

Resident individuals must pay income tax, as follows:

- Romanian individuals having their residence in Romania for incomes obtained both in Romania and abroad;

- Romanian individuals who do not have a residence in Romania for incomes obtained in Romania through a fixed base on the Romanian territory, or within a period that exceeds a total of 183 days, within 12 months;

- a foreign individual for incomes obtained in Romania through a fixed base on the Romanian territory or in a period that exceeds a total of 183 days, within 12 months.

Taxpayers also include Romanian individuals with no residence in Romania and foreign individuals who obtain incomes in Romania in conditions other than as set forth above.

Global income tax

The global income tax represents the amount owed by an individual for incomes obtained within one fiscal year, set by means of applying taxation quotas over the annual taxable income, under the law.

The annual taxable global income represents the sum of the net incomes obtained from:

- independent activities;

- salaries;

- yielding of the use of goods;

- dividends and interest;

- pensions that exceed a certain amount;

- incomes obtained from agricultural activities;

- incomes being the same in nature and obtained from abroad, by Romanian individuals, out of which one deducts fiscal losses that are carried forward and personal deductions.

Taxation period and taxation quota

The taxable period is the fiscal year corresponding to the calendar year.

The taxation quota is calculated per income portions, according to the taxation schedule, the maximum being 40 percent.

• Value added tax

The VAT represents a state budget income, included in the category of indirect incomes, which apply to operations that the law deemed to be subject to this tax.

Scope

The scope of the VAT includes operations that imply payment and operations assimilated to the same, carried out by the entrepreneurs in an independent manner, as follows:

- deliveries of movable goods and/or rendering of services carried out in the course of the exercise of the professional activity;

- the transfer of ownership over immovable goods among taxpayers, as well as the transfer between taxpayers and individuals;

- import of goods;

- services executed by the performers having their headquarters or residence abroad, for which the performing place is deemed to be in Romania.

Taxation rules. Taxation quota. Taxation basis.

Depending upon the taxation rule applied, the operations included in the scope of the VAT are divided into:

- operations the taxation of which is mandatory, over which a quota of 19 percent is applied;

- operations over which a zero quota is applied; for such operations, the suppliers/performers of services have the right to deduct the fee related to the acquired goods and services intended for achieving the taxable operations;

- operations exempt from the payment of VAT3.

The taxation basis is represented by the counter value of the delivered goods or rendered services, VAT not included.

Excises

Excises are special consumption fees owed to the state budget for certain domestic and imported products.

The products subject to excises are:

- alcohol, distilled beverages, alcoholic beverages, wines and beer;

- tobacco products;

- mineral oils;

- other products and product groups provided for under the law (motor vehicles, certain electronic equipment or video-electronic equipment, crystals, jewelry, etc).

The applicable excise quotas are regulated by the law per product categories/quantities. Products exported by manufacturing economic operators either directly or through economic operators that carry out their activity on commission, products in a regime of transit customs and products in a temporary admission regime, as well as other products expressly provided for under the law are all exempt from the payment of excise taxes.

Custom fees

Customs fees apply to imported goods and are set on the basis of the Romanian import customs tariff, approved under the law. The customs tariff contains the combined system of classification of merchandise, the customs fees expressed in a percentage, as well as the customs fees resulting from applying preferential tariff measures provided for by the legal regulations.

Customs fees are expressed in a percentage and apply on the customs value of the merchandise, expressed in ROL.

Certain merchandise categories may benefit from a favorable tariff treatment, depending upon the type of merchandise or its specific destination, according to the customs regulations and the international conventions to which Romania is a party.

The law sets out the cases where, because of special reasons and circumstances, exemptions from rights are granted at the import of merchandise.