Romanian legal and fiscal framework

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Tax presentation for Mihaela Bucurenciu

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Romanian fiscal and legal framework 13 November 2013 :

Romanian fiscal and legal framework 13 November 2013

I. Legal framework :

I. Legal framework Types of business Limited Liability Company (SRL ) Joint Stock Company (SA) Branch of a foreign company Partnership - legal form with legal personality seldom used in Romania: General partnership (societate în nume colectiv) Limited partnership (societate în comandită simplă ) Partnership limited by shares (societate în comandită pe acţiuni ) Consortium - conclusion of a joint venture agreement (contract de asociaţiune în participaţiune ) under which the parties act together for the accomplishment of a common business goal This form of doing business in Romania does not create a legal entity

I. Legal framework :

I. Legal framework Entities commonly used by investors Limited liability companies - the most popular vehicles for business in Romania: Simple administrative requirements Greater flexibility compared to other types of companies Low share capital requirement - RON 200 (approximately EUR 45, calculated at the exchange rate of RON 4.4/EUR ) The shareholder liability is in general limited to the amount subscribed in the company’s share capital A person, either natural or legal, cannot be the sole shareholder of more than one SRL Joint stock companies remain an attractive option for investors which plan to list their companies on the stock exchange

II. Overview of Romanian tax system:

II. Overview of Romanian tax system Taxes payable in Romania Corporate income tax: 16% Micro enterprise tax: 3% Value added tax (“VAT”): 24% / 9% / 5% Income tax: unique quota of 16% Withholding tax (“WHT”): 16% Local taxes - building tax: 1.5% / 40% Customs duties Excise duties Fiscal year = calendar year

II. Overview of Romanian tax system 1. Corporate income tax:

II. Overview of Romanian tax system 1. Corporate income tax 16% * (Total Revenues – Total Expenses) + Fiscal adjustments Fiscal adjustments: Non-deductible expenses and Non-taxable revenues Expenses are deductible only if they are incurred with the view of realizing taxable revenues Accelerated depreciation available for equipment Land is not a depreciable asset 50% additional deduction for R&D expenses Fiscal losses available for carry forward for 7 years. A change in the shareholding structure does not have an impact at the level of the Romanian company as regards the fiscal losses available for carry forward Financing: Expenses incurred in relation to loans obtained from banks and financial institutions are fully deductible The deductibility of the expenses related to other types of loans is limited: Interest rate safe harbour : 6% for loans granted in foreign currency and the NBR exchange rate for loans granted in Romanian currency Thin capitalisation rules (debt to equity), interest expenses deductible if debt to equity positive and lower than or equals 3

II. Overview of Romanian tax system 2. Micro enterprise tax:

II. Overview of Romanian tax system 2. Micro enterprise tax Conditions for qualifying for the micro enterprise tax : Deriving certain types of revenues Revenues < EUR 65,000 Several other conditions (e.g. number of employees less than 9) 3% * Total Revenues with certain types of revenues that are not included in the computation

II. Overview of Romanian tax system 3. Withholding tax (WHT):

II. Overview of Romanian tax system 3. Withholding tax (WHT) Revenues realised by non-residents from Romania subject to WHT: Various services Dividends Interest Royalties Commissions, etc. 16% WHT rate, which can be reduced based on Double Tax Treaties and on the European legislation (Parent-Subsidiary Directive and Interest and Royalties Directive) Increased 50% WHT rate in certain cases (no legal exchange of information with the other country and ‘unreal’ transactions)

II. Overview of Romanian tax system 4. VAT:

II. Overview of Romanian tax system 4. VAT Turnover < EUR 65,000 - no VAT tax registration obligation Turnover < EUR 100,000 - fiscal period = quarter (generally the VAT fiscal period is the month) VAT registration in Romania is required for any taxable and/or exempt with right of deduction operations e.g. local supplies, export, intra-community supplies, etc. Local supply of goods: 24% VAT rate Reduced VAT rate for certain types of bread and flour: 9% VAT rate Reverse charge mechanism for cereals and technical crops – no cash flow impact Romania did not implement the special schemes for farmers Supply / rent of land – VAT exempt, but with option for taxation VAT refund of the negative balance (Input VAT – Output VAT) normally after an audit check or can be carried forward to next periods

II. Overview of Romanian tax system 5. Local taxes:

II. Overview of Romanian tax system 5. Local taxes Building tax: 0.25% - 1.5% applied on the inventory value of the building 40 % for the buildings that have not been revaluated during the last 5 years Land tax payable by owners of land and by the concessionaires of state land 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

II. Overview of Romanian tax system 6. Deadlines for tax reporting and payment:

II. Overview of Romanian tax system 6. Deadlines for tax reporting and payment VAT, income tax, WHT: 25 th day of the following month (i.e. for the tax period September 2013 the deadline is 25th October 2013 ) Corporate income tax and micro enterprise tax: 25 th day of the first month following the quarter-end Annual corporate income tax return filing and payment: 25 March of the following year Local taxes: payable annually, in two equal installments, by 31 March and 30 September

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Thank you! Mihaela Bucurenciu Tax Manager m ihaela.bucurenciu@ro.ey.com

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