Romania Tax Guide 2012

Transcription

1 Tax Guide 2012

2 foreword A country s tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed? Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. This handy reference guide provides clients and professional practitioners with comprehensive tax and business information for 100 countries throughout the world. As you will appreciate, the production of the WWTG is a huge team effort and I would like to thank all tax experts within PFK member firms who gave up their time to contribute the vital information on their country s taxes that forms the heart of this publication. I would also like thank Richard Jones, PKF (UK) LLP, Kevin Reilly, PKF Witt Mares, and Kaarji Vaughan, PKF Melbourne for co-ordinating and checking the entries from countries within their regions. The WWTG continues to expand each year reflecting both the growth of the PKF network and the strength of the tax capability offered by member firms throughout the world. I hope that the combination of the WWTG and assistance from your local PKF member firm will provide you with the advice you need to make the right decisions for your international business. Jon Hills PKF (UK) LLP Chairman, PKF International Tax Committee jon.hills@uk.pkf.com I

3 important disclaimer This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF International is a network of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms. II

4 preface The (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of 100 of the world s most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current as of 30 September 2011, while also noting imminent changes where necessary. On a country-by-country basis, each summary addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country s personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice. In addition to the printed version of the WWTG, individual country taxation guides are available in PDF format which can be downloaded from the PKF website at PKF INTERNATIONAL LIMITED APRIL 2012 PKF INTERNATIONAL LIMITED ALL RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION III

5 about pkf international limited PKF International Limited (PKFI) administers the PKF network of legally independent member firms. There are around 300 member firms and correspondents in 440 locations in around 125 countries providing accounting and business advisory services. PKFI member firms employ around 2,200 partners and more than 21,400 staff. PKFI is the 10th largest global accountancy network and its member firms have $2.6 billion aggregate fee income (year end June 2011). The network is a member of the Forum of Firms, an organisation dedicated to consistent and high quality standards of financial reporting and auditing practices worldwide. Services provided by member firms include: Assurance & Advisory Corporate Finance Financial Planning Forensic Accounting Hotel Consultancy Insolvency Corporate & Personal IT Consultancy Management Consultancy Taxation PKF member firms are organised into five geographical regions covering Africa; Latin America; Asia Pacific; Europe, the Middle East & India (EMEI); and North America & the Caribbean. Each region elects representatives to the board of PKF International Limited which administers the network. While the member firms remain separate and independent, international tax, corporate finance, professional standards, audit, hotel consultancy, insolvency and business development committees work together to improve quality standards, develop initiatives and share knowledge and best practice cross the network. Please visit for more information. IV

6 structure of country descriptions a. taxes payable FEDERAL TAXES AND LEVIES COMPANY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX SALES TAX/VALUE ADDED TAX FRINGE BENEFITS TAX LOCAL TAXES OTHER TAXES b. determination of taxable income CAPITAL ALLOWANCES DEPRECIATION STOCK/INVENTORY CAPITAL GAINS AND LOSSES DIVIDENDS INTEREST DEDUCTIONS LOSSES FOREIGN SOURCED INCOME INCENTIVES c. foreign tax relief d. corporate Groups e. related party transactions f. withholding tax G. exchange control H. personal tax i. treaty and non-treaty withholding tax rates V

7 international time Zones AT 12 NOON, GREENwICH MEAN TIME, THE standard TIME ELsEwHERE Is: A Algeria pm Angola pm Argentina am Australia - Melbourne pm Sydney pm Adelaide pm Perth pm Austria pm B Bahamas am Bahrain pm Belgium pm Belize am Bermuda am Brazil am British Virgin Islands am C Canada - Toronto am Winnipeg am Calgary am Vancouver am Cayman Islands am Chile am China - Beijing pm Colombia am Croatia pm Cyprus pm Czech Republic pm D Denmark pm Dominican Republic am E Ecuador am Egypt pm El Salvador am Estonia pm F Fiji midnight Finland pm France pm Guernsey noon Guyana am H Hong Kong pm Hungary pm I India pm Indonesia pm Ireland noon Isle of Man noon Israel pm Italy pm J Jamaica am Japan pm Jersey noon Jordan pm K Kazakhstan pm Kenya pm Korea pm Kuwait pm L Latvia pm Lebanon pm Liberia noon Luxembourg pm M Malaysia pm Malta pm Mauritius pm Mexico am Morocco noon N Namibia pm Netherlands (The) pm New Zealand midnight Nigeria pm Norway pm O Oman pm G Gambia (The) noon Georgia pm Germany pm Ghana noon Greece pm Grenada am Guatemala am P Panama am Papua New Guinea pm Peru am Philippines pm Poland pm Portugal pm Puerto Rico am VI

8 Q Qatar am R Romania pm Russia - Moscow pm St Petersburg pm s Sierra Leone noon Singapore pm Slovak Republic pm Slovenia pm South Africa pm Spain pm Sweden pm Switzerland pm T Taiwan pm Thailand pm Tunisia noon Turkey pm Turks and Caicos Islands am U Uganda pm Ukraine pm United Arab Emirates pm United Kingdom (GMT) 12 noon United States of America - New York City am Washington, D.C am Chicago am Houston am Denver am Los Angeles am San Francisco am Uruguay am V Venezuela am Vietnam pm VII

9 romania Currency: Romanian Lei Dial Code To: 40 Dial Code Out: 00 (RON) Member Firm: City: Name: Contact Information: Bucharest Florentina Susnea Bucharest Adrian Marghescu Timisoara Carmen Mataragiu a. taxes payable NATIONAL AND OTHER TAxEs COMPANy TAxEs In Romania, the following entities are subject to corporate income tax: Romanian legal entities Foreign legal entities doing business in Romania through permanent establishments Foreign legal entities which derive income from or in connection with real estate transactions or from transactions with shares held in Romanian legal entities Foreign legal entities and individuals doing business in Romania through associations with or without legal personality (partnerships) Resident individuals associated with Romanian legal entities for revenues derived in or outside Romania, through associations without legal personality; in this case the tax due by the individual is computed, withheld and paid by the Romanian legal entity Legal persons with a registered office in Romania incorporated in accordance with European legislation. A company is considered resident if its head office is registered in Romania or has its place of effective management in Romania. From 1 January 2012, associations with legal status set up under the legislation of another state, to which a Romanian legal entity participates are subject to corporate income tax in Romania on their corresponding part of the taxable income of the legal entity. The standard corporate income tax rate is 16%. Resident banks, credit institutions and other similar entities as well as Romanian branches of foreign banks are liable to make quarterly pre-payments on account of annual corporate income tax, as adjusted for inflation. The fiscal year is the calendar year. For fiscal year 2011, taxpayers must submit an annual corporate income tax statement by 25 April of the following tax year. From 1 January 2013, taxpayers can choose to declare and pay corporate income tax quarterly in advance payments. The tax authorities should be notified by 31 January of the year for which the taxpayer wishes this system to be applied and must be maintained for a period of two consecutive years. There are some categories of taxpayer that are not allowed to choose this system. These include taxpayers who: are newly established are in a fiscal loss position at the end of the previous year have been in a state of temporary inactivity do not conduct activities at their registered/subsidiary office were microenterprises in the previous period. In order to establish the amount to be paid via the advance payments system, the corporate income tax due for the previous period is uprated by the consumer price index, published by order of the ministry of public finance no later than 15 April of the fiscal year for which the advanced payments are performed.taxpayers who have chosen the advance payments system and record a fiscal loss in the first year of the two year mandatory period must, nevertheless, make quarterly payments based on the accounting result of the period for which the advance payment is performed. There are further requirements for those taxpayers involved in reorganisation operations, both on a local and cross-border level. 1

10 Taxpayers who do not choose the anticipated payments system are obliged to declare and pay quarterly corporate income tax by 25th of the first month following the first, second and third quarters of the year. Any remaining corporate income tax should be declared and paid by 25th March of the following year. The deadline for submitting the annual corporate income tax return is modified: the new deadline is until 25th March of the following year except for certain category of taxpayers specifically mentioned. BRANCH PROFITs TAx Foreign entities are generally subject to Romanian tax on income derived from Romania. The extent to which an entity is subject to Romanian taxation depends on its activities undertaken in, or related to, Romania. A foreign entity can be subject to taxation by establishing a branch, creating a permanent establishment, representative office or by becoming subject to withholding tax on the Romanian-sourced income. BRANCH OF A FOREIGN ENTITy Branches have to be registered with the Romanian Tax Authorities. The registration, filing and payment requirements are similar to those for a Romanian company. A distribution of funds to the head office is not regarded as a dividend distribution and no withholding tax liability should arise. However, as with limited liability companies, profits are transferred at year-end, after the head office approves the branch s financial statements. The taxable profits of the branch are subject to general Romanian tax rules, provided that the following conditions are met: Only income that can be assigned to the branch shall be included within taxable income; and Only expenses incurred in relation to the branch s activities are included in deductible expenses. PERMANENT EsTABLIsHMENT A permanent establishment is not necessarily a legal entity but is taxable in Romania. Thus, a permanent establishment is defined as being the place through which the activity of a non-resident is conducted, fully or partially, directly or through a dependent agent. Once a permanent establishment is created, Romania has the right to tax the profits of the foreign enterprise derived from the activities performed. REPREsENTATIVE OFFICE A representative office can only undertake auxiliary or preparatory activities. A representative office cannot trade in its own name and cannot engage in any commercial activities. There is a flat tax of EUR 4,000 per fiscal year on representative offices, payable in RON using the exchange rate valid on the payment date. The tax is payable in two equal instalments: by 25 June and 25 December. sales TAxEs/VALUE ADDED TAx (VAT) Companies with an annual turnover of at least EUR 35,000 must register for VAT purposes. Companies with turnover below this threshold may register upon request. The general VAT rate is 24%. The reduced rate is 9% and is applied to various goods and services including: (a) cinema tickets and entrance fees to other attractions (b) books, newspapers and magazines, school books, except those exclusively for advertising (c) certain medicinal products (d) accommodation within the hotel sector or similar sectors, including camping. Also, a lower rate of 5% applies to the sale of certain buildings carried out as part of the country s social policy. With effect from 1 January 2010, Romania has incorporated various EU VAT directives into domestic law. These include: Directive 2008/8/CE regarding the place of supply of services B2B and B2C rules Directive 2008/9/CE regarding VAT reimbursement for persons established in EU Directive 2008/117/CE regarding the fight against tax fraud related to Community operations. In addition to the above changes, there are other amendments relating to the harmonisation of Romanian legislation with EU VAT Directives: clarification on the definition of established in Romania and fixed establishment rules regarding the chargeability of VAT for consignment stock, goods supplied for testing and checking from a conformity perspective, call of stock, and supplies of immovable property 2

11 turnover for small enterprises now includes operations for which the place of taxation is deemed to be abroad (if the tax would be deductible if the operations were performed in Romania) clarification regarding invoice requirements for exempt operations, applying special regimes and regarding correction invoices in case of a fiscal control. A reverse charge mechanism on import of goods will not apply until 1 January Also, from 31 May 2011, simplification measures(i.e. reverse charge mechanism) apply to domestic supplies (i.e. such that both persons must be registered for VAT purposes in Romania)of certain categories of goods such as: wheat, barley, rye, corn, soya, rape, sunflower, sugar beet. The simplification measure applies until 31 May FRINGE BENEFITs Fringe benefits are any benefits received by the employee under their employment contract, if applicable. Benefits in kind or in money must be taxed along with the salary income in the month they are granted to the employees. The income tax rate is 16% and the tax must be withheld from the income taxpayer. LOCAL TAxEs In Romania, local taxes are set under the Fiscal Code. Local taxes represent a distinct category of taxes set by the local administration, due by both individuals and legal entities. Building tax: Residents or non-residents owning one or more buildings are subject to real estate tax. All buildings, regardless of their purpose, are taxed according to their value. Rates range between 0.25% and 1.5% and are set by the local councils. The building s taxable value is determined by the area used and the building type. Building tax payable other than on a person s place of residence is set at higher rates: 65% higher for the first, 150% for the second and 300% for the third or additional building. From 1 January 2012, if a building has not been revalued, the taxable base will be set as follows: between 10% and 20% higher than cost for buildings not revalued within the last three years between 30% and 40% higher than cost for buildings not revalued within the last five years. From 1 October 2011, the local Council may grant an exemption from or reduction of the building tax, over a period of a minimum of seven years, to owners who have performed significant refurbishment work on their apartments or buildings at their own expense. Exemptions from building tax can also be granted for a period of five consecutive years for owners performing architectural improvement work on their buildings. Land tax is payable by owners of land. Generally, the tax is established as a fixed amount per hectare, depending on the location of the land within certain determined zones, towns or villages and depending on land use. The tax is payable annually in two equal installmentson 31 March and 30 September. Vehicle tax is payable by owners of land/water vehicles registered in Romania. The tax depends on the engine s capacity and is determined as a fixed amount per 200 cubic centimetres. The tax is payable annually in two equal instalments on 31 Marchand 30 September. Other local taxes and duties include fees for the issuance of certificates, permits and authorizations, fees for using advertising and publicity materials and hotel fees. OTHER TAxEs Certain legal documents are subject to a stamp fee. Stamp fees also apply on other documents and services related to authorisations issued by State institutions such as hunting or fishing licences, driving licences, transport licences and similar documents. Local Councils, the General Council of Bucharest Municipality, and County councils may charge duties for the temporary use of public places and for admission to museums, memorial houses, or historical, architectural or archaeological monuments. Duties are also payable for the possession or use of equipment and tools held for the purpose of obtaining income which involves the use the local public infrastructure. Duties are also payable on some activities which have an impact on the environment. 3

12 ExCIsE DUTy Excise duty is a consumption tax and is payable on import and sales of locally produced items on the domestic market and is determined as a fixed amount per unit or as a percentage of a specified taxable base. In Romania there are two categories of excise duties: 1. Harmonised excise duties: beer, wine, fermented beverages other than beer and wine, intermediate products, ethyl alcohol, tobacco products, energy products, electrical power 2. Duties for other excisable products: green, roasted and soluble coffee. With effect from 1 April 2010, Romania has incorporated the provisions of EU Directive 2008/118/CE which sets out general arrangements for excise duties into the national legislation. The main amendments should refer to: Amendments to certain definitions and concepts such as Member State, territory of a Member State, Community and territory of Community etc. Detailed provisions will be introduced regarding the functioning of the EMCS (European computerised system) for monitoring the movement of excisable products placed under the excise duty suspensive regime. The only product on which excise will be due which is not included in the EU s standard harmonised list will be green, roasted and soluble coffee. social security CONTRIBUTIONs Social assistance contributions are payable jointly by the employee and by the employer on gross salary, subject to a maximum monthly limit. The joint rate from February 2009 is 31.3% and it is divided between the employer (20.8%) and the employee (10.5%). Under particular work conditions, the joint rate is 36.3% or 41.3%. In these cases, the employer s contribution is 25.8% and 30.8% respectively. b. determination of taxable income DEPRECIATION The Fiscal Code makes an explicit distinction between accounting and fiscal depreciation. For fixed assets, fiscal depreciation is to be calculated based on the rules set out by the Fiscal Code and deductibility no longer depends on the level of depreciation recorded in the accounts. Fiscal depreciation should be computed based on the asset s fiscal value and useful life for tax purposes, by applying one of the permitted depreciation methods: Straight-line depreciation Reducing-balance method Accelerated depreciation. The method used for the depreciation of buildings is the straight-line method. Land is not a depreciable asset. Technical equipment, computers and peripherals can be depreciated by using any of the depreciation methods available, i.e. straight-line method, accelerated method or reducing balance method. For any other fixed assets (except for buildings for which only the straight-line method can be applied), only the straight-line or degressive method can be used. Under the accelerated method,the maximum depreciation in the first year of use of an asset is 50%. stock/inventory The inventory must be valued according to generally accepted accounting principles (GAAP) and must include all acquisition, processing and administration costs. CAPITAL GAIN TAx Capital gains are treated as ordinary business income and taxed at the general corporate income tax rate of 16%. Income earned by non-residents from the sale of real estate located in Romania or from the sale or assignment of securities held in a Romanian entity is also taxed at the general corporate income tax rate of 16%. DIVIDENDs Dividends paid to resident companies are subject to a final withholding tax of 16% or are exempt where the recipient company has held at least 10% of the distributing company s share capital for at least two years prior to payment of the dividend. 4

13 Companies paying dividends must compute, withhold and pay the tax. The tax must be paid by the 25th day of the month following that in which the dividends were paid. However, from 2010, withholding tax on dividends which have been declared but not paid by the end of the year must be paid by 25 January of the following year. INTEREsT DEDUCTIONs The deductibility of interest expenses and net foreign exchange losses related to loans is limited under the safe harbour rule and the thin capitalisation rule, as set out below. These rules do not apply to interest and forex arising on loans from credit institutions, non-banking financial institutions or other entities that grant credit according to the law. The safe harbour rule limits the deductibility of interest on loans to 6% for loans denominated in a foreign currency.the upper limit for interest rates is set annually with reference to the National Bank of Romania s interest rate for RON loans (currently set at 6.5%). Interest exceeding this limit is tax non-deductible and cannot be carried forward in future periods. Under the thin capitalisation rule, if the debt-to-equity ratio is higher than 3:1 or if the company s equity is negative, interest charges and net foreign exchange losses on loans with a maturity date exceeding one year are not deductible. However, such non-deductible expenses may be carried forward to subsequent fiscal years and become fully tax deductible in the year when the debt-to-equity rato becomes lower than or equal to 3:1. LOssEs Losses may be carried forward for five years if incurred before 1 January 2009 or for seven years if incurred on or after 1 January2009. Losses cannot be used by the successor company when the associated trade is transferred from one company to another. FOREIGN source INCOME Resident companies are subject to taxation on their worldwide income. Foreign losses can be deducted from foreign income on a source by source basis. Foreign exchange differences arising from the re-evaluation of monetary assets and liabilities at the end of the year are deemed to be realised and taxable. INCENTIVEs Authorised companies, set up and performing their activity in under-privileged areas, can benefit from tax exemptions for new investments, on condition that the investor has received an investor certificate before July c. foreign tax relief Unilateral relief is provided by way of an ordinary credit for income taxes paid abroad, The credit cannot exceed the Romanian tax suffered on the same income. d. corporate Groups There is no consolidation or group taxation in Romania. Members of a group must file separate tax returns. Losses incurred by members of a group cannot be offset against profits made by other group members. e. related party transactions Transactions between related parties should observe the arm s length principle. If transfer prices are not set at arm s length, the Romanian tax authorities have the right to adjust the taxpayer s revenues or expenses, so as to reflect the market value. Traditional transfer pricing methods, as well as any other methods that are in line with the OECD Transfer Pricing Guidelines may be used for setting transfer prices. Taxpayers engaged in related-party transactions have to prepare and make their transfer pricing documentation file available upon the written request of the Romanian tax authoritieswithin the deadline set by them. f. withholding taxes As a general rule, non-resident companies are subject to 16% withholding tax on income derived from Romania such as interest, royalties, dividends, revenues from services performed in Romania, revenues derived from liquidation of a Romanian legal entity. 5

14 From October 2011, income derived under a trust agreement by a non-resident beneficiary of a resident trust is taxable in Romania, except for cases where the nonresident beneficiary is the settlor. The fiscal obligations of the non-resident settlor are fulfilled by the trustee. From October 2011, income obtained by non-resident individuals from participating in gambling activities in another state are exempt from taxes in Romania, even if the funds are paid from a Romanian source. INTEREsT AND ROyALTIEs The tax rate is 16% unless a lower treaty rate applies. Moreover, Romania has implemented a transitional period for the application of the Interest and Royalties Directive until During the period between the accession date of 1 January 2007 and 31 December 2010, 10% withholding tax applies on payments of interest and royalties made by Romanian companies to companies resident in EU and EFTA member states to entities holding at least 25% of the share capital of the Romanian company for a continuous period of at least two years prior to the date of payment of interest/royalties. Such payments are withholding exempt from 1 January DIVIDENDs The tax rate is 16% unless a lower treaty rate applies. As Romania is an EU member state, the provisions of the Parent Subsidiary Directive apply. Therefore, dividends paid by Romanian companies to companies resident in EU and EFTA countries are exempt from withholding tax if the dividend beneficiary owns a minimum of 10% of the Romanian company for a period of two years ending on the date when the dividend is paid. For all other companies resident in the EU or EFTA the tax rate is 10%. From 2010 interest and dividends paid to pension funds as defined under the legislation of the EU Member State is exempt from tax. In addition, non-residents must provide a tax residency certificate as well as a selfcertified statement on the fulfillment of certain conditions in order to qualify for the more-favourable EU treatment. G. exchange controls The exchange control regulations applicable in Romania are administered by the Romanian National Bank, which can take safeguarding measures relating to monetary capital operations. There is an obligation to notify the Romanian National Bank at least 10 days before the intention to conclude monetary capital operations on a short-time basis. Limitations apply to monetary capital operations applied on a short-term basis which generate incoming/outgoing of capital. H. personal taxes Individuals subject to Romanian income tax include domiciled residents and nondomiciled residents who are employed by a permanent establishment, carry on self-employed activities or obtain other income from Romania. The following categories of taxpayers are subject to income tax: (a) resident natural persons, such as any person who meets at least one of the following conditions: his domicile is located in Romania the centre of his vital interests is located in Romania he stays in Romania for more than 183 days in any 12 month period (b) non-resident natural persons who perform an independent activity through a permanent establishment in Romania (c) non-resident natural persons who perform dependent activities in Romania (d) non-resident natural persons who obtain other income in Romania. Categories of taxable income include the following: (1) income from independent types of activities: commercial, freelance activities, intellectual property rights. The taxable income is,as a general rule, the difference between gross income and expenses. A taxpayer who performs independent activities must make tax payments on account at a rate of 16%, except for income achieved by selling under consignment, intellectual property rights, commission contracts, civil convention and accounting expertise which is subject to tax conventions at a rate of 10% (2) income from salaries: based on an individual s employment contracts or by statute provided by law (3) trading activities, other than those listed in (1) above 6

15 (4) income from investments: dividends, interests, earnings from the transfer of securities, sale and purchase of foreign currency etc (5) income from pensions (6) income from agricultural activities (7) income from awards and gambling (8) capital gains from the sale of immoveable property is subject to a transfer tax rather than income tax. Property owned for less than three years is subject to tax at 3% on proceeds up to RON 200,000 or RON 6,000 and 2% on any excess above RON 200,000. For property owned for more than three years, the rate is 2% on proceeds up to RON 200,000 or RON 4,000 and 1% on proceeds over RON 200,000. Income from dividends and interest is taxed through the withholding tax regime. However, the following types of interest are exempt from income tax: interest on state and municipal bonds interest on certain bank deposits income distributed to members of mutual benefit funds based on the share capital held. Other income exempted from taxation includes scholarships, income from external consultancy projects, work on approved projects in Romania, income from insurances and other damage compensation. Personal allowances are available up to a maximum of RON 650. If the monthly gross income is between RON 1,000 and RON 3,000, personal deductions are reduced. For monthly gross income exceeding RON 3,000, personal deductions are not available. Taxable income is calculated after deducting allowable expenses, union contributions and private pensions contributions up to EUR 200 per year. The rate of tax is 16%. The income of employees developing computer software is exempt from income tax. Taxable income includes all benefits in kind such as free accommodation, use of a vehicle belonging to the business for personal use, personal telephone calls and credit cards used for a personal purpose. Net rental income is established by subtracting from gross income a fixed deduction of 25% of the gross income. Alternatively, the taxpayer may opt to calculate taxable income by deduction of actual expenses. Trading losses can be carried forward for five years and offset against trading profits from the same source. However, losses may not be offset against employment income. Annual net income is determined for each source from the following categories: Income from independent activities Income from trading Income from agricultural activities. Foreign profits may be offset against losses from the same source arising in the same tax year. Salary taxes are payable monthly by the 25th day of the month following the month in which the salary is paid, or quarterly by the 25th day of the month following the end of the quarter. Social insurance contributions, health social insurance contributions and unemployment insurance contributions are paid both by the employer and by the employee. The following rates are applied to gross salary and charged on the employee: Social insurance contribution: 10.5% employee Health social insurance contribution: 5.5%* Unemployment insurance contributions: 0.5% All the above contributions are tax deductible. The criteria to be applied in determining whether income is employed or selfemployed earnings have changed from July Also, new tax rules have been introduced for the treatment of income derived from professional activities. The new criteria applied as of July 2010 include: 7

16 whether the income beneficiary uses the materials and tools put at his disposal by the income payer whether the income beneficiary contributes only his or her physical and intellectual capacity (and not capital) whether the income payer pays for expenses incurred by the income beneficiary such as travel expenses, vacation allowance etc. Where independent (i.e. self employed) activities are deemed as dependent (i.e.employed), the beneficiary and the income payer will be both held responsible and will be required to pay any related income tax and social security contributions plus late payment interest. Copyright royalties and similar to be treated as income from professional activities which are subject to the following: The social security contributions 10.5% The unemployement benefits 0.5%. The income payer is obliged to declare, calculate, withhold and pay individual contributions (except health contributions) on a monthly basis in the month following the one during which the income was paid. With effect from July 2010, net income from intellectual property rights is computed by deducting from gross income 20% of the total expenses incurred to obtain the said gross income and social security contributions withheld and paid in this respect. A 25% deduction applies to income derived from the creation of monumental art works. In addition, meal tickets are subject to 16% income tax. TAx REsIDENCy In the absence of a tax residency certificate issued by another state based on a double tax treaty, foreign citizens are liable to income tax in Romania on their worldwide income as of 1 January of the calendar year following the one they meet at least one of the following criteria: their centre of vital interests is located in Romania; or they spend herein a period or periods that exceed in aggregate 183 days during any period of 12 consecutive months ending in the calendar year concerned. Foreign individuals previously faced this treatment from the fourth year of meeting any of the above mentioned conditions. Also, individuals who met the conditions above during the period 2010 and 2011 respectively, will be subject to income tax on their worldwide income starting with Romanian tax residency is determinedon a calendar year basis. QUARTERLy REPORTING AND PAyMENT From October 2011, certain categories of salary income payers (e.g freelancers, microenterprises whose average number of employees during the previous year did not exceed three employees, excluded, etc) are liable to pay salary income tax and social contributions and file relevant statements on a quarterly basis, by the 25th of the month following the end of the quarter to which the liabilities relate. These income payers can also opt for monthly filing of relevant statements due. REPORTING OBLIGATIONs FOR INCOME PAyERs A new submission deadline has been introduced for returnsof tax withheld and paid by residents on behalf of non-residents. The return must be submitted no later than the last day of February following the year in which the tax was witheld (previously 30 June.) These provisions will come into force from 1 January REGULATIONs APPLICABLE TO INCOME OBTAINED FROM FIDUCIARy OPERATIONs New regulations concerning income obtained from fiduciary operations have been introduced from 1 October Under the new rules, the transfer of the fiduciary portfolio from the constitutor to a fiduciary, at the moment of transfer, will not generate taxable income for either of the two parties involved. The fiduciary s remuneration (advocate or public notary) obtained from the administration of the portfolio will be treated as income from an auxiliary activity, subject to the same tax rules applicable to the rest of the advocate or public notary s activities. However, the income obtained from the administration of the fiduciary portfolio, other than the fiduciary s remuneration, will be taxed according to the rules 8

17 applicable to each type of income obtained. Losses incurred by the constitutor are final losses, being non-deductible for tax purposes. If the constitutor is a taxpayer according to Title III of the Fiscal Code, his or her financial obligations related to the income obtained from the fiduciary portfolio administration will be handled by the fiduciary. Also, the same article mentions that the income obtained by the beneficiary, as an individual, at the moment of the transfer of the fiduciary portfolio will be subject to income tax regulations as Income from other sources, according to Title III, chapter IX of the Fiscal Code. However, if the beneficiary is the same person as the constitutor, the income obtained from the transfer of the fiduciary portfolio will not be taxable. From 1 January 2012 compulsory social contributions must be made for certain categories of individuals who obtain income from independent activities. The deadline for filing annual personal income tax returns is now 25 May following the end of the tax year (formerly 15 May). These provisions will come into force from 1 January i. treaty and non-treaty withholding taxes The table below contains the withholding tax rates applicable to dividend, interest and royalty payments by Romanian companies to non-residents under the tax treaties currently in force. In a specific case, where a treaty rate is higher than the domestic rate, the latter will apply. Individuals Companies % Dividends Interest (1) Royalties Qualifying (2) Companies % % % Treaty Countries: Albania Algeria Armenia Australia 15 5 (3) Austria 5 0 0/3 3 Azerbaijan Bangladesh (3) Belarus Belgium Bosnia - Herzegovina (4) Bulgaria Canada 15 5 (3) 10 5/10 China (People s Republic) Croatia Cyprus Czech Republic Denmark Ecuador Egypt Estonia Ethiopia Finland /5 (5) France

18 Individuals Companies % Dividends Interest (1) Royalties Qualifying (2) Companies % % % Georgia Germany 15 5 (3) 0/3 (6) 3 Greece /7 (7) Hungary 15 5 (8) Iceland India Iran Ireland /3 (9) Israel /10 (10) 10 Italy Japan /15 (11) Jordan Kazakhstan Korea (DPRK) Korea, Republic of /10 (12) Kuwait Latvia Lebanon Lithuania Luxembourg Macedonia Malaysia Malta Mexico Moldova /15 (13) Montenegro Morocco Namibia Netherlands 15 5 (3) 0/3 (14) (15) 0/3 (14) Nigeria Norway Pakistan Philippines /15/25 (16) Poland Portugal (17) Russia San Marino 10 0/5 3 3 Serbia (4) Singapore Slovak Republic /15 (18) Slovenia South Africa

19 Individuals Companies % Dividends Interest (1) Royalties Qualifying (2) Companies % % % Spain Sri Lanka Sudan Sweden Switzerland Syria Thailand /20/25 (19) 15 Tunisia Turkey Turkmenistan Ukraine /15 (18) United Arab Emirates United Kingdom /15 United States /15 (20) Uzbekistan Vietnam Zambia Many treaties provide for an exemption for certain types of interest such as interest paid to the State local authorities, central bank, export credit institutions or in relation to sales on credit. Such exemptions are not considered in this column. 2 Unless otherwise indicated, recipient companies qualify for the reduced rates if they hold at least 25% of the capital or the voting power in the Romanian company, depending on the applicable treaty. 3 This rate applies to participations of at least 10%. 4 The treaty concluded with the former Yugoslavia. 5 The lower rate applies to royalties for computer software and industrial, commercial or scientific equipment. 6 The lower rate applies if, and as long as, Germany, does not levy withholding tax on interest paid to a resident Romanian under its domestic law. 7 The higher rate applies to industrial royalties. 8 The rate applies to participations of at least 40%. 9 The lower rate applies to copyright royalties. 10 The 5% rate applies to interest paid in connection with the sale on credit of any industrial or scientific equipment, or of any merchandise by one enterprise to another enterprise or on a loan granted by banks. 11 The 10% rate applies to cultural royalties and the 15% to industrial royalties. 12 The lower rate applies to industrial royalties, know-how and equipment leasing. 13 The lower rate applies to industrial royalties (excluding patent royalties) and know-how. 14 The lower rate applies if, and as long as, the Netherlands does not levy a withholding tax on interest/royalties paid to a resident of Romania. 15 Interest paid to a bank or financial institution and interest paid on a loan made for a period of more than two years are exempt. 16 The 10% rate applies to royalties paid by companies registered at the Romanian Agency for Development and carrying on specific activities. The 15% rate applies to film royalties. 17 A minimum holding period of two years applies. 18 The lower rate applies to industrial royalties. 19 The 10% rate applies to interest paid to financial institutions; the 20% rate applies to interest on credit sales. 20 The lower rate applies to copyright royalties. 11

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