Last reviewed 09 Mar 2023
Profit - for corporate tax payers / Income - for microenterprise tax payers
Corporate tax: 16%; exceptions: night clubs, bars, discos, casinos pay the higher of 16% of the net profit and 5% of revenues
Microenterprise tax regime: 1%
Starting January 2023, microenterprise tax applies for Romanian companies which fulfil the following conditions:
■ annual turnover of maximum EUR 500,000 and at least 1 employee
■ revenues from activities other than consultancy and/or management represent more than 80% of the total revenue (exemptions may apply)
■ the company is not being liquidated
■ the share capital is held by entities other than the state or local authorities
■ an entity holds more than 25% of the shares or voting rights of maximum three companies that qualify as microenterprises for tax purposes.
The microenterprise tax regime is optional; once a microenterprise switches to the corporate income tax regime, this latter regime will permanently apply.
Romanian legal entities, legal entities established according to European legislation, having their headquarters in Romania and foreign legal entities with the place of effective management in Romania on their worldwide income.
Branches and permanent establishments of foreign companies: on their Romanian-sourced income. Non-resident taxpayers carrying out activities in Romania through one or more permanent establishments are required to designate a permanent establishment to fulfill their corporate income tax obligations.
Calendar year. By exception, all Romanian companies and branches of foreign companies (except for credit institutions, non-banking financial institutions etc.) may choose a financial year that is different from the calendar year. Taxpayers that choose a financial year different from the calendar year can also opt for the fiscal year to correspond with the financial year.
Romanian listed companies and banks are required to apply IFRSs.
All other companies – generally double entry bookkeeping, as specified in Romanian Accounting Act (in line with EU Directives).
N/A
Possible: no limits to amounts of loss carry-forwards, deductible immediately in full or in part from future profits (100%).
Time limit: 7 years
Likely to be scrutinized based on substance over form principle; risks of the transaction being considered artificial.
Expenses incurred to procure, secure, or maintain the business.
For tax purposes, where a person has a direct or indirect interest of at least 25% in the share capital or the voting rights of one or more legal persons, then the parties involved are all associated parties.
Romanian legislation follows OECD transfer pricing guidelines. Prices charged in related-party transactions should be established on market terms (arm’s length basis). The following methods may be used in determining market prices for transactions between associated companies:
■ price comparisons with independent companies
■ cost plus method
■ resale price method
■ other methods specified in the OECD’s transfer pricing guidelines.
Special rules apply depending on the size of taxpayers (i.e. large, medium or small). Materiality thresholds are defined for three groups of entities and these will affect the deadline for the preparation of transfer pricing documentation and its content, as follows:
(i) Large taxpayers must prepare the transfer pricing file by the date of filing the annual corporate tax return (e.g. 25 June 2023 for the year 2022, unless they opted for a fiscal year different than the calendar year), if the value of related party transactions performed exceeds the following thresholds:
■ EUR 200,000 (ex. VAT) – for interest collected/paid on financial services
■ EUR 250,000 (ex. VAT) – for the value of services rendered/acquired
■ EUR 350,000 (ex. VAT) – for the value of goods sold/purchased.
(ii) Large taxpayers whose related-party transactions fall below the upper thresholds and small and medium-sized taxpayers are required to prepare the transfer pricing file at the request of the tax authorities made during a tax audit and within the deadline established by the tax inspectors (i.e. 30-60 days, with a single 30-day extension), if the value of related party transactions performed exceeds the following thresholds:
■ EUR 50,000 (ex. VAT) – for interest collected/paid on financial services
■ EUR 50,000 (ex. VAT) – for services rendered/acquired
■ EUR 100,000 (ex. VAT) – for goods sold/purchased.
(iii) If the values of transactions fall below these thresholds, the taxpayers will need to document the arm’s length nature of their transactions during a tax audit, in line with the general accounting and tax provisions in force.
Each member of a fiscal group for profit tax purposes should prepare transfer pricing documentation.
Multinational groups of companies with consolidated revenues in excess of EUR 750 million are required to submit a Country-by-Country (CbC) Report. The obligation to file the CbC Report pertains to the ultimate parent company or designated reporting entity which resides in Romania for tax purposes.
Submission obligations:
■ the CbC Report is to be drawn up for the fiscal year of the multinational group
■ the report must be submitted to the tax authorities within maximum 12 months after the year-end.
Where a Romanian company is part of a multinational group but is not the parent company or designated reporting entity of the group, it is still required to notify the tax authorities in respect of its position within the group and the group’s reporting entity and tax jurisdiction. This notification is to be prepared by using the template provided in the legislation and submitted until the last day of the financial year of the group, but no later than the last day when the company is required to submit its corporate income tax return for the previous year.
Financing costs subject to deductibility restrictions limitations include a wide area of costs, such as: interest on financial leases, payments under profit participating loans, interest capitalized in the book value of an asset or the depreciation of capitalized interest, notional interest under derivative financial instruments, financing related commissions, foreign exchange variations etc. These financing costs represent net amounts, i.e. financial expenses less interest income and other similar income.
Financing costs may be deducted up to a limit of EUR 1,000,000 per fiscal year. The deductibility of the amounts exceeding this threshold is limited to 30% of the borrower’s gross profit, adjusted for certain items (minus non-taxable income, add back financing costs and tax depreciation).
These deductibility restrictions do not apply for taxpayers which are not part of a group and have no affiliates or permanent establishments.
Interest arising from the acquisition of shares might be subject to the below financing costs deductibility or is fully non-deductible if the income obtained from the shares (i.e. dividends or capital gains) is non-taxable.
No legally defined limits.
Depreciation for accounting and tax purposes: straight-line, accelerated, or reducing balance method, depending on the type of asset (e.g. straight-line for buildings).
Annual depreciation: Depreciation is spread over a period of years (the enterprise chooses the depreciation period within the specified range, which depends on the category of the asset). Depreciation is claimed on a monthly basis, starting the month following the month of first use in the business (including in the first and in the last year of the useful life). Examples of assets subject to depreciation:
■ group 1 - buildings
■ group 2 - machinery, vehicles, animals and plantations
■ group 3 - furniture, safety equipment, office equipment and other assets.
Non-depreciable assets:
■ land, works of art, goodwill
■ artificial lakes and ponds
■ publicly financed public goods
■ other assets not subject to loss of value in normal use due to the passage of time
■ private sector rest homes, lodgings, ships, aircraft, yachts.
Examples of tax allowable provisions include:
Bad debt provisions of up to 100% are allowable, provided certain conditions are met (one of the conditions to qualify for maximum allowance is that the bankruptcy/insolvency procedure of the client was opened).
Provisions for customer guarantees are allowable.
Provisions for impairment of depreciable fixed assets are allowable in the following situations:
1. assets which are destroyed as a result of natural disasters or other causes of force majeure
2. assets for which insurance contracts were concluded.
Depreciation over 4–6 years
Acquisition cost: no ceiling
Expenses (including non-deductible VAT) related to vehicles that have a maximum weight of 3,500 kg and no more than nine seats, that are used exclusively for business purposes or for certain types of activities (e.g. emergency services, cab services, driving schools, vehicles used by sales / acquisition agents etc.), are fully deductible for profit tax purposes.
Otherwise, these expenses (excluding depreciation) are only 50% deductible for profit tax purposes.
The VAT deduction right related to the acquisition of such vehicles and for other car related expenses (e.g. fuel, spare parts) of these vehicles is also limited to 50%, under the same conditions.
Depreciation expenses are deductible up to the limit of RON 1,500/month, unless the vehicle falls under one of the categories for which car related expenses are fully deductible (e.g. vehicles used for emergency services, sales agents etc.).
The provisions also apply in the case of rental/leasing of vehicles.
Expenses which are not incurred for business purposes.
Interest/penalties for delay, fines, penalty surcharges due to Romanian/foreign public authorities.
Expenses not adequately documented.
Expenses generated by transactions performed with persons resident in a state included on the list of non-cooperative jurisdictions.
Expenses relating to the depreciation of cash registers for which a tax credit is obtained are non-deductible, expenses incurred for the benefit of the shareholders, expenses related to non taxable income, withholding taxes borne by Romanian taxpayers for the benefit of non-residents, 50% non-deductibility for expenses with bad debt allowances.
Sponsorship expenses are not deductible for tax purposes, but under certain conditions taxpayers may use them as tax credits from sponsorship within the following limits:
■ 0.75% from turnover
■ 20% of corporate income tax liability.
Starting January 2022, if the sponsorship tax credit available during a tax year exceeds the profit tax due for that fiscal period, the remaining amount may be redirected by the taxpayer towards sponsorships/private scholarships within a 6-month period starting as of the date of submission of the annual corporate income tax return.
The carrying forward of sponsorship expenses is no longer allowed starting with sponsorships performed as of January 2022. The carrying forward method is allowed only for sponsorship expenses incurred but not used by 31 December 2021 (valid up to and including 2028).
Expenses related to consultancy, management and other services provided by a person established in a country with which Romania has not concluded a legal instrument for exchange of information, in case the tax authorities assess the transaction as being artificial for tax purposes.
Financing costs are deductible up to 30% of the fiscal EBITDA and EUR 1 million. Interest rates should observe the arm's length principle.
General deductibility rules apply
Withholding tax rate is generally set at 16% (8% for dividends).
Payments to non-residents established in a state with which Romania has not concluded a juridical instrument for exchange of information are subject to 50% withholding tax, if transactions are qualified as being artificial.
Double Taxation Agreements (“DTAs”) and EU Directives can provide lower rates of withholding tax. Relief is granted in the form of a tax credit or tax exemption (detailed documentation required for DTA relief).
The withholding tax rate is 0%, provided the beneficiary is a legal entity residing in an EU Member State, with a minimum shareholding of 25% in the Romanian company held for at least 2 years (on the basis of the EU Interest & Royalty Directive); otherwise, the domestic rate is 16% (0% for interest on savings of natural persons domiciled in EU countries with which Romania concluded information exchange agreements).
The domestic 16% withholding tax rate may be reduced or even eliminated by virtue of DTAs.
The withholding tax rate is 0%, provided the beneficiary is a legal entity residing in an EU Member State, with a minimum shareholding of 25% in the Romanian company held for at least 2 years (on the basis of the EU Interest & Royalty Directive; other conditions also apply); otherwise, the domestic rate is 16%.
The domestic 16% withholding tax rate may be reduced or even eliminated by virtue of DTAs.
No withholding tax, provided the recipient is a legal entity resident of Romania or of an EU Member State, and has held a minimum 10% interest for at least 1 year (on the basis of the EU Parent-Subsidiary Directive). Otherwise, the withholding tax is of 8% as from 1 January 2023.
DTAs can provide for lower rates of tax or may eliminate Romanian withholding tax.
Taxation of certain income of foreign corporations/permanent establishments at the level of the controlling Romanian corporation. The CFC rules will not apply if the CFC performs substantial economic activity.
Requirements:
■ control of the foreign entity
■ specific categories of income (e.g. interest, royalties, dividends, insurance/banking income, certain transactions with related parties) account for more than 1/3 of the foreign corporation’s income.
Mismatches which, due to differing fiscal recognition methods, lead to a different tax treatment in different countries and may, under certain circumstances, lead to profit shifting or profit reduction must be neutralized, i.e. as a rule, the related expenses are treated as non-tax-deductible.
Dividends paid between Romanian legal entities are tax-free, provided the minimum holding conditions are met (min. 10%, min. 1 year).
Capital gains may be tax-free under the same holding conditions (min. 10% of shares in the company whose shares are being sold, min. 1 year).
Dividends paid to non-EU entities are subject to 8% tax (may be reduced based on DTA).
Capital gains earned by a non-EU entity residing in a country with which Romania has concluded a DTA may be tax free, provided minimum holding conditions are met (10% holding, 1 year).
Dividends paid to entities residing in a EU member state are tax free, subject to fulfilling the conditions provided by EU parent-subsidiary directive (e.g. 10% holding, 1 year etc.)
Capital gains are tax free, provided minimum holding conditions are met (10%, 1 year) and a DTA is in place.
Not deductible for tax purposes.
In place starting with 2021.
The corporate tax group generally includes Romanian tax resident companies under common control (permanent establishments may be included in certain limited cases). For this purpose, the control threshold is 75% of the shares or voting rights. The system is optional and has an initial application period of 5 fiscal years.
One of the members is designated to calculate, declare, and pay the corporate tax for the group, whose members should perform their own tax calculations.
Only current tax losses are allowed in determining the group tax liability.
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