1 Fundamentals Level Skills Module Taxation (Romania) Specimen questions for June 2015 Time allowed This Reading is and not planning: a full specimen 15 minutes paper, it is a selection of specimen Writing: questions to 3 hours give an indication of the style of the questions. It includes three multiple choice questions and This paper is divided into two sections: one long question. Section A ALL 15 questions are compulsory and MUST be attempted The full exam will consist of the following: B ALL SIX questions are compulsory and MUST be Section A 15 multiple choice questions for 2 marks each attempted Section B Four 10 mark questions and two 15 mark Rates of tax and tables are printed on pages 2 4. questions All Do NOT questions open this are paper compulsory. until instructed by the supervisor. During reading and planning time only the question paper may To be see annotated. example You must of NOT the full write specimen in your answer exam, booklet please until refer to the instructed F6 (UK) by the Specimen supervisor. Paper. This question paper must not be removed from the examination hall. Paper F6 (ROM) The Association of Chartered Certified Accountants
2 SUPPLEMENTARY INSTRUCTIONS 1. Calculations and workings should be made to the nearest lei, unless instructed otherwise. 2. All apportionments should be made to the nearest month. 3. All workings should be shown in Section B. TAX RATES AND ALLOWANCES Personal income tax General tax rate 16% Income from employment Benefits Limit for non-taxable gifts Limit for non-taxable voluntary pension contributions paid by the employer Limit for non-taxable per diem allowance The allowance accepted for public institutions employees for trips within Romania Deductions Deduction allowed for voluntary pension contributions paid by the employee 150 lei/person/occasion 400/year 2 5 x public institutions threshold 13 lei/day/person 400/year Personal deduction Number of dependent Monthly gross income (MI) lei persons for the taxpayer Below 1,000 Between 1,000 and 3,000 Above 3,000 0 persons x MI 1000, , 0 MI 1000, 1 person x , MI 1000, 2 persons x , 3 persons x MI 1000, , 4 persons and more x MI 1000, , Note: The value of the personal deduction resulting from the calculation should be rounded up to 10 (e.g. both 212 and 217 should be rounded to 220). Income from the sale of immovable property owned by an individual For immovable properties sold in less than three years from their acquisition Income Tax rate Up to 200,000 lei 3% Above 200,000 lei 6,000 lei + 2% of the amount exceeding 200,000 lei For immovable properties sold in a timeframe longer than three years from their acquisition Income Tax rate Up to 200,000 lei 2% Above 200,000 lei 4,000 lei + 1% of the amount exceeding 200,000 lei 2
3 Income from renting Lump-sum deductible expenses quota 25% Copyright income Lump-sum deductible expenses quota for: monumental works of art 25% other 20% Self-employed income The limit of deductibility for protocol expenses 2% The limit of deductibility for compulsory subscription expenses 5% The limit of deductibility for subscription expenses other than compulsory ones 2% The limit of deductibility for social expenses 2% The limit of deductibility for sponsorship expenses 5% Reference interest rate set by the Romanian National Bank for loans denominated in lei 3 25% Investment income Tax rate for capital gains from the sale of shares 16% Tax rate for interest received by individuals 16% Tax rate for dividends received by individuals 16% Prize income Tax rate for prize income 16% Non-taxable value 600 lei/day/prize Pension income Non-taxable pension income 1,000 lei Corporate income tax General tax rate 16% Reference interest rate set by the Romanian National Bank for loans denominated in lei Maximum accepted interest rate set by the Tax Code for loans denominated in foreign currency Inflation rate for prepayments of corporate income tax 3 25% p.a. 6% p.a. 2 4% p.a. Maximum value of deductible expenses for employees: voluntary pension contributions 400/tax year/employee private healthcare insurance contributions 250/tax year/employee Maximum value of deductible expenses for subscriptions to non-profit organisations other than those which are compulsory or due to the chambers of commerce and to employers organisations 4,000/year The limit of deductibility for protocol expenses 2% The limit of deductibility for social expenses 2% Maximum value of tax credit for sponsorship expenses 20% of the corporate income tax but no more than 3 of sales revenue 3 [P.T.O.
4 Corporate income tax for very small companies Tax rate 3% Straight-line depreciation periods (for tax and accounting purposes) Class of asset Period in years Buildings 50 Machines and equipment 10 Computers 3 Cars 5 Note: The straight-line depreciation method for the above periods should be used in all cases, except where a question specifically indicates another method and/or period is to be used. The minimum value of an asset for tax depreciation purposes is 2,500 lei. Tax on dividends paid to legal persons For dividends paid to legal persons resident in Romania, EU or EFTA countries 16% or 0% For dividends paid to other non-residents 16% Social security and other insurance contributions Employed persons Employee Employer Social security fund 10 5% 15 8% Healthcare insurance fund 5 5% 5 2% Unemployment fund 0 5% 0 5% Work accident fund 0 15% 0 85%* Health insurance indemnities fund 0 85% Fund for guaranteeing salary payments 0 25% Self-employed persons Social security fund 26 3% Healthcare insurance fund 5 5% Unemployment fund 1% Work accident fund 0 15% 0 85%* Health insurance indemnities fund 0 85% Persons obtaining rent income Healthcare insurance fund 5 5% Persons obtaining intellectual property revenues and revenues based on Civil Code contracts Social security fund 10 5% Healthcare insurance fund 5 5% Average monthly earnings Minimum monthly salary 2,298 lei 900 lei * The exact value will be specified in the question, where necessary. Note: These rates should be used in answering the questions, irrespective of the time period the question refers to. 4
5 Value added tax (VAT) Standard rate 24% Reduced rates 9% and 5% Annual threshold for VAT registration 220,000 lei Annual threshold for a monthly tax period 100,000 Annual threshold for applying the cash accounting scheme 2,250,000 lei Exchange rate Euro/lei 1 = 4 50 lei Note: This rate should be used in all cases except where a question specifically indicates another rate is to be used. Interest and penalties Interest rate for late tax payments Penalty level for late tax payments 0 03%/day 0 02%/day 5 [P.T.O.
6 Section A ALL 15 questions are compulsory and MUST be attempted Note: Only three specimen questions provided. For full specimen exam, see F6 (UK) Specimen paper Please use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple choice question. Do not write out the answers to the MCQs on the lined pages of the answer booklet. Each question is worth 2 marks. 1 On 1 March 2015, Turkey SRL took a loan of 600,000 lei from Cook SRL with an interest rate of 15% per year. The interest is payable at the end of each month. The loan is to be reimbursed in full at the end of the contract period on 28 February Turkey SRL has no other loans and the value of its equity is 140,000 lei, both at the beginning and at the end of Which is the value of deductible interest expense in 2015? A B C D 75,000 lei 16,250 lei 0 lei 90,000 lei 2 Rabbit Co is a company established in the UK, which has a branch in Romania. The Romanian branch is registered for value added tax (VAT) purposes. During June 2015 Rabbit Co performed the following transactions: (1) Sent furniture and computers belonging to Rabbit Co from the UK to Romania as inventory for the Romanian branch (2) Received into the UK from the Romanian branch some broken equipment to be repaired in the UK which, after repair, was sent back to the Romanian branch (3) Allocated an amount of 2,000 lei representing server maintenance costs to the Romanian branch (the website of the Romanian branch is hosted on a server owned by Rabbit Co) (4) Sent to the UK goods imported by the Romanian branch which will be sold in the UK by Rabbit Co Which of the above transactions made by Rabbit Co are considered transfers from a VAT perspective? A 1 and 3 B 2 and 3 C 2 and 4 D 1 and 4 3 In February 2015, Mr Horse purchased an apartment for a price of 150,000 lei. In October 2015, Mr Horse received two offers to buy the apartment as follows: (1) Offer 1: sale price of 180,000 lei (2) Offer 2: sale price of 210,000 lei What is the income tax which would be due by Mr Horse if he sold the apartment in October 2015 under each of the two offers? Offer 1 Offer 2 A 28,800 lei 33,600 lei B 4,800 lei 9,600 lei C 5,400 lei 6,200 lei D 5,400 lei 6,300 lei 6
7 Section B ALL SIX questions are compulsory and MUST be attempted Note: Only one specimen question provided. For full specimen exam, see F6 (UK) Specimen paper Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet. 1 The Cat family lives in Timisoara, Romania. Mrs Cat started a self-employed activity trading in pet food on 5 January During 2015, Mrs Cat made prepayments of income tax of 11,200 lei. The following additional information is known about Mrs Cat s activity in 2015: (1) Mrs Cat s quarterly purchases and sales of pet food: Quarter Q1 Q2 Q3 Q4 Lei/quarter Lei/quarter Lei/quarter Lei/quarter Purchases of pet food 50,000 30,000 70,000 60,000 Sales of pet food 180, , , ,000 According to the commercial conditions, all purchases are paid for in the quarter they are made, but only 50% of the sales are paid for in the same quarter, while the remaining 50% are paid for in the following quarter. (2) On 1 March 2015, Mrs Cat employed three individuals. The gross monthly employment revenue of these individuals is as follows: Employee one Employee two Employee three 11,000 lei 5,000 lei 4,500 lei Mrs Cat pays the monthly salaries and related social contributions on the last day of each month. (3) Mrs Cat decided to create her own brand, and made a contract of intellectual property right with a copyrighter to produce the brand image. The gross amount due to the copyrighter for this task was 20,000 lei. (4) Mrs Cat needed a feasibility study in order to access credit from a bank to expand her business. Mrs Cat asked her husband, Mr Cat, to perform the feasibility study based on a Civil Code contract. The gross fee due to Mr Cat for this activity was 5,000 lei. This contract had no characteristics of a dependent activity. (5) On 19 June 2015, Mrs Cat bought and started using a car for her self-employed activity. The value of the car was 30,000 lei. Mrs Cat does not keep a logbook ( foaie de parcurs ) for the car. The fuel expenses paid in 2015 amounted to 3,600 lei. (6) In August 2015, Mrs Cat sponsored a dog beauty contest for the amount of 3,000 lei which was paid in full on 20 August A sponsorship contract was signed by Mrs Cat with the organisers of the contest, according to the legal provisions. (7) During 2015 Mrs Cat paid 8,000 lei for meals with business partners. (8) Mrs Cat made prepayments of compulsory social contributions due for herself for 2015 as follows: annual social security contributions of 3,156 lei (based on a declared monthly taxable base of 1,000 lei), annual health insurance contribution of 3,850 lei and annual health insurance indemnities contribution of 600 lei. These amounts represent the entire value of prepayments due for 2015 and were paid entirely in Required: (a) (b) Compute the final income tax due by Mrs Cat for 2015 and the difference to be paid or recovered at the end-of-year settlement. Note: The work accident fund contribution rate is 0 15%. (12 marks) Compute the final values for social contributions due by Mrs Cat for 2015 and the difference to be paid or recovered at the end-of-year settlement. (3 marks) (15 marks) 7
9 Fundamentals Level Skills Module, Paper F6 (ROM) Taxation (Romania) Specimen Answers and Marking Scheme Section A 1 B Interest expenses within the NBR interest rate = 600,000 * 3 25% * 10/12 = 16,250 lei Debt-to-equity ratio = (( ,000)/2)/((140, ,000)/2) = 300,000/140,000 = 2 14 Deductible expenses = 16,250 lei 2 D 3 C Offer 1: Income tax = 3% * 180,000 = 5,400 lei Offer 2: Income tax = 6, % ( 210, ,000) = 6,200 lei 11
10 Section B Marks 1 Mrs Cat (a) Final income tax due for (lei) Gross revenue (W1) 595,000 1 Deductible expenses 503,965 acquisitions of pet food (50, , , ,000) 210,000 ½ gross salaries and social contributions (W2) 251,640 3 intellectual property rights 20,000 ½ feasibility study 5,000 ½ car depreciation (W3) 3,000 1 fuel expenses (3,600 x 50%) 1,800 1 sponsorship expenses (W4) 3,000 1½ protocol expenses (W5) 1,919 1 compulsory social contributions paid in 2015 (W6) 7,606 ½ Net realised income 91,035 ½ Final income tax due at 16% 14,565 ½ Prepayments 11,200 ½ Difference of income tax due 3, WORKINGS (1) Gross revenue Gross revenue cashed in 2015 = 180, , ,000 + (110,000 x 50%) = 595,000 lei (2) Gross salaries and social contributions due for employees Monthly gross salaries = 11, , ,500 = 20,500 lei Base for social security contribution = lower of 20,500 and 5 x 2,298 x 3 = lower of 20,500 and 34,470 = 20,500 lei Base for health indemnities insurance fund contributions = lower of 20,500 and 12 x 900 x 3 = lower of 20,500 and 32,400 = 20,500 lei Monthly social security contribution = 15 8% x 20,500 = 3,239 lei Monthly healthcare contribution = 5 2% x 20,500 = 1,066 lei Monthly unemployment contribution = 0 5% x 20,500 = 103 lei Monthly work accident fund contribution = 0 15% x 20,500 = 31 lei Monthly health insurance indemnities fund contribution = 0 85% x 20,500 = 174 lei Monthly contribution to the fund for guaranteeing salary payments = 0 25% x 20,500 = 51 lei Total monthly gross salaries and social contributions = 20, , , = 25,164 lei Total annual gross salaries and social contributions = 25,164 x 10 = 251,640 lei (3) Car depreciation Value of car = 30,000 lei Period of depreciation = 60 months (July June 2020) Monthly depreciation = 30,000/60 = 500 lei Number of months of depreciation in 2015 = 6 Depreciation in 2015 = 500 x 6 = 3,000 lei (4) Sponsorship expense Sponsorship expenses may be deducted up to 5% x computation base. Computation base = Gross revenues deductible expenses, other than sponsorship, protocol and contribution to professional associations = 595, ,046 = 95,954 lei Deductible expenses, other than sponsorship, protocol and contribution to professional association = 210, , , , , , ,606 = 499,046 lei 12
11 Limit of deductibility of sponsorship expenses = 5% x 95,954 lei = 4,798 lei Sponsorship expense = 3,000 lei sponsorship expense is entirely tax deductible. (5) Protocol expense Protocol expenses may be deducted up to 2% x computation base (same as in W4 above). Limit of deductibility of protocol expenses = 2% x 95,954 lei = 1,919 lei Protocol expense = 8,000 lei deductible protocol expense = 1,919 lei (6) Compulsory social contributions paid in 2015 Social contributions paid in 2015 = 3, , = 7,606 lei Marks (b) Final social contributions due for 2015 Final social security contribution The social security contribution paid during the year is also the final value; therefore no adjustments are to be made in this respect. 1 Final healthcare insurance contribution Final healthcare insurance contribution = 5 5% x (Net realised income + social contribution) = 5 5% x (91, ,606) = 5,425 lei ½ Prepayments of healthcare insurance contribution = 3,850 lei ½ Difference due for healthcare insurance contribution = 5,425 lei 3,850 lei = 1,575 lei Final health insurance indemnities contribution Final health insurance indemnities contribution = 0 85% x Net realised income = 0 85% x 91,035 lei = 774 lei ½ Prepayments of healthcare insurance indemnities contribution = 600 lei ½ Difference due for of healthcare insurance indemnities contribution = 774 lei 600 lei = 174 lei