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Romania

25 December 2013

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Tax Code amendments approved – Direct taxes

On 14 November 2013, the government approved an Emergency Ordinance for amending the Tax Code and other tax measures. The amendments will enter into force on 1 January 2014. The major proposals (as published on the Ministry of Finance website) are summarized below.

Corporate taxation

A special tax regime will be introduced for holding companies, under which the following income is exempt:

-   dividends received from companies situated in third countries with which Romania has concluded a double tax treaty;
-   capital gains on the sale of shares held in resident companies or in companies situated in countries with which Romania has concluded a double tax treaty; and
-   income from liquidation of a company.

The exemptions are granted provided the holding company holds at least 10% of the subsidiary's shares for an uninterrupted period of 1 year.

Dividends derived by a resident company from another resident company or from a company situated in an EU Member State will be exempt provided the recipient company holds at least 10% of the distributing company's shares for an uninterrupted period of 1 year. Currently, dividends derived by a resident company from another resident company are always exempt and for exemption of dividends derived from a company situated in an EU Member State, a holding period of 2 years is requiredunder domestic law implementing the Parent-Subsidiary Directive (recast) (2011).

Dividends paid by resident companies to other resident companies will be exempt from withholding tax if the recipient company has held at least 10% of the distributing company's share capital for an uninterrupted period of 1 year (currently 2 years).

The possibility to opt for a tax year other than the calendar year will be introduced for taxpayers with a different financial period.

The unused tax credit for sponsorship and patronage expenses may be carried forward for 7 years. Currently, expenses incurred for sponsorship and patronage give rise to a tax credit equal to 0.3% of the turnover or 20% of the corporate income tax due, whichever is lower, but unused credit cannot be carried forward.

An ordinary tax credit will be granted for the avoidance of juridical double taxation of foreign-source income derived by a permanent establishment in Romania of a non-resident company situated in an EU or EEA country (the measure is introduced as a result of a reasoned opinion in this respect sent to Romania by the European Commission).

The right to carry forward non-deductible interest expenses and foreign exchange losses until they are fully deductible will be transferred to the newly created company in the case of reorganization of a company. This option is not available currently.

The provisions of the Parent-Subsidiary Directive (recast) (2011) and the Interest and Royalties Directive (2003/49) will not be applicable anymore in respect of payments to and from companies residing in Iceland, Liechtenstein and Norway.

Personal taxation

It is provided that, when determining the taxable base for employment income, social contributions will be deducted from gross salary, regardless of where such contribution are paid (i.e. in Romania or in another EU Member State).

It is clarified that samples, bonus points and other advertising items granted to individuals are not taxable income.

Non-resident individuals who earn income in Romania will benefit from the same personal deductions as resident taxpayers (the measure is introduced as a result of a reasoned opinion in this respect sent to Romania by the European Commission.

It is clarified that foreign-source income of resident individuals is exempt if the same type of income is exempt when derived from domestic sources.

Micro-enterprise tax regime

A company which derives less than 20% of its income from consultancy or management activities will apply the micro-enterprise tax regime, provided the other conditions for the regime are met. If more than 20% of the company's income is derived from consultancy or management activities, the company will pay corporate income tax. Currently, companies deriving income from consultancy or management activities do not qualify for the micro-enterprise tax regime.

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