Personal Income Tax:
Annual tax returns are due by 25 May of each year for the previous year.
In certain cases, such as for employment income derived from non-Romanian employers, tax returns are due on a monthly basis by the 25th day of each month for the previous month. The tax year is calendar year.
Romanian citizens domiciled in Romania are considered Romanian tax residents and are taxed on their worldwide income (except for salary income received from abroad for work performed abroad, which is tax exempt).
Romanian citizens domiciled in Romania that become residents of a state that does not have in place a double tax treaty (DTT) with Romania continue to be taxable in Romania on their worldwide income for the calendar year in which the change of residence occurs, as well as for the next three calendar years.
Romanian citizens not domiciled in Romania and foreign individuals, regardless of their domicile, are taxed in Romania only on income sourced in Romania, until the moment they become Romanian tax residents taxable on their worldwide income, if the case.
Non-resident individuals who meet the residence conditions become taxable on their worldwide income starting with the date when any of the mentioned criteria is met (while respecting the provisions of the DTTs, where applicable).
Personal income tax rates:
A flat personal income tax (PIT) rate of 16% is generally in place. However, there are certain exceptions from this rule (e.g. the tax rate for dividends, the tax rate for income from the transfer of immovable property, the tax rate for income from gambling activities depends on the income level).
An individual is considered a Romanian tax resident if he/she meets at least one of the following conditions:
· the individual has his/her domicile in Romania
· the individual has his/her center of vital interests in Romania
· the individual is present in Romania for a period (periods) exceeding 183 days during any 12-month period, ending during the corresponding calendar year.
There are exceptions to this rule for Romanian citizens working outside Romania as employees of the Romanian government, who remain Romanian tax residents irrespective of whether they meet the above-mentioned conditions or not, as well as for non-Romanian citizens working in Romania as employees of foreign governments, who are not treated as Romanian tax residents, irrespective of whether they meet the above mentioned conditions or not.
As a general rule, Romanian tax residents are liable to Romanian tax on their worldwide income, whereas Romanian tax non-residents are liable to Romanian tax only on Romanian-sourced income.
However, the non-Romanian individual who qualifies as a Romanian tax resident according to Romanian tax legislation may remain liable to Romanian income tax only on the Romanian-sourced income, if he/she can provide a tax residence certificate from a country with which Romania has concluded a treaty for the avoidance of double taxation.
Romania has an extensive network of double tax treaties which determine the circumstances under which non-Romanian individuals are treated as Romanian tax residents. If an individual can demonstrate that during his/her assignment to Romania, he/she remains a tax resident of another state with which Romania has concluded a tax treaty, then the provisions of the treaty will prevail.
All individuals who spend more than 183 days in Romania within any twelve month period ending in the fiscal year concerned, must submit a special Questionnaire, together with relevant documentation, no later than 30 days after the end of the 183-day period. Within 30 days of submission of this form, the tax authorities will notify the individual as to whether he/she has full tax liability in Romania or if he/she is taxable only on income derived from Romania. As of 1 January 2018, fines are imposed by the Romanian authorities for late filing of the Questionnaire upon arrival to Romania (between 50-100 RON).
Taxation of residents:
Salary is defined as income in cash and/or in kind received by resident or non-resident individuals, based on an individual employment agreement, a job relation, secondment agreement, or a special statute provided by the law, and is taxed at a flat tax rate of 16%.
Salary assimilated income includes remuneration paid according to non-competition clauses and taxable benefits, such as meal tickets, nursery tickets, holiday tickets, amounts representing compensatory payments, subscription to private healthcare facilities (other than mandatory labour medicine and subscriptions, within prescribed limits, defined by Law 95/2006 regarding the healthcare reform), private use of company cars (under certain conditions) and telephones, etc. Moreover, administrators’ fees received by members of the General Meeting of Shareholders, the Management Council, the Board of Directors, and the Supervision Council are treated as salaries.
From a salary income tax perspective, individuals such as the following, are considered taxpayers:
· Local employees (and Directors remunerated based on mandate agreements) of Romanian companies, branches, and representative offices of foreign companies; their employers are liable to calculate, withhold, and transfer the salary taxes on a monthly basis.
· Foreign individuals performing activities in Romania based on foreign employment agreements; these individuals are liable to submit a monthly income statement and pay monthly income tax for salaries obtained from the employer established abroad for activities rendered in Romania.
The mandatory employee social contributions are deductible for Romanian tax purposes.
Income from pensions:
Pensions are taxable at a flat tax rate of 16%, the taxable pension income being set by deducting from the pension income the non-taxable amount of RON 2,000 per month.
The health fund contribution at 5.5% is also due; however, it is covered by the state.
Income from independent activities:
Income from independent activities is taxed at a flat rate of 16% (mandatory social contributions are deductible) and covers, among others:
· income from freelance activities (authorisation needed), including income from liberal professions, and
· income from intellectual property (IP) rights.
Individual social security (pension) and health insurance contributions due for income from independent activities are capped at the level of five times the average gross salary, which as of 1 February 2017 is of RON 3,131.
Income from freelance activities is assessed based on the bookkeeping ledgers that providers of independent activities are compelled to keep. Net income is calculated under the real system as gross income minus deductible expenses (which includes mandatory social contributions).
Certain expenses are non-deductible, as follows: fines, late-payment penalties (other than contractual penalties), donations, private scholarships, sponsorship and protocol expenses in excess of the upper limits set by law, 50% of the expenses incurred with company cars that are not used exclusively for business purposes, and other expenses exceeding limits provided by current law, as well as the expenses incurred for the personal usage of the taxpayer's family members. The list is not exhaustive.
Alternatively, specific categories of income from independent activities (except from liberal professions and from IP rights) are taxed on the basis of a fixed income quota, as communicated yearly by the local tax authorities.
Individuals authorised as freelancers earning income from independent activities have to make quarterly advance tax payments for the tax due during the fiscal year (up to and including the 25th day of the last month of each quarter).
Intellectual property (IP) rights:
Payers of royalties must calculate, withhold, and pay 10% advance income tax, individual social security contribution (10.5%), and individual health insurance contribution (5.5%) by the 25th day of the month following the one in which the income was derived.
The beneficiaries of IP rights income include the income in their annual declaration regarding the realised income. The declaration is the basis on which the tax authority sets the amount of the final tax (the final tax rate is 16% calculated on the gross income minus deductible expenses).
The taxable basis for the income earned from IP rights and from the creation of monumental art is calculated as the gross income minus a lump sum equal to 40% of the gross income (representing deductible expenses).
The base for computing the individual social contributions (10.5% and 5.5%) are capped to five times the average national salary.
There is also the possibility to opt (at the moment the contract is signed) for a final 16% withholding tax (WHT) on the gross income (out of which the mandatory social contributions are withheld and the fixed quota of 40% deductible expenses are deductible).
Taxpayers who obtain income from independent activities taxable on fixed income quota or income from IP rights can opt for their income to be determined under the real system, and the option has to be maintained for a period of two consecutive fiscal years, and it shall be considered renewed if the taxpayer does not switch to the previous taxation system.
Income from agricultural activities, forestry, and fishery:
The following activities are considered agricultural activities and taxable as such, provided certain thresholds are exceeded:
· Exploitation of vineyards, tree nurseries, and the like.
· Growth and exploitation of livestock, including the selling of unprocessed products.
Within certain thresholds specifically set by the Romanian legislation, the income from agricultural activities is tax exempt.
Income from agricultural activities is determined either on a fixed income quota basis or as income from independent activities, while income from forestry and fishery is determined as per the rules applicable to income from independent activities.
The fixed income quota may be reduced if natural calamities are affecting more than 30% of production surfaces.
In case of agricultural income determined on a fixed income quota basis, the taxpayer has the obligation to submit an annual tax return by 25 May for the current year, and the income tax due is computed by applying the 16% income tax rate to the annual income, and it is considered final tax. The annual tax due is payable upon the issuance of the tax decision, in two equal instalments due by and including 25 October and by and including 15 December.
Any agricultural income that is obtained from processed products (any other form than natural products) that has no income quota and is not mentioned as exempted income is taxed as income from independent activities, similar to income from forestry and fishery.
Capital gains in Romania are taxed at the 16% tax rate. The following rules apply in respect of this income:
· The tax authorities generally assess the income tax due on the capital gain, based on the annual income return submitted by the taxpayer by 25 May of the year following the one in which the income was obtained.
· The gain/loss derived from the transfer of securities, other than from derivatives, and from transactions with financial gold is obtained by considering the sale value/sale price and the fiscal value, including the transaction costs.
· In case of income from derivatives, the gain/loss is represented by the difference of income realised during the first and last transaction days within the tax year and the related expenses incurred, for each type of contract, irrespective of whether the contract reached the term.
· A 16% income tax is applied on gains obtained by shareholders from the liquidation of a company, the legal person being required to calculate, withhold, and pay the income tax by the date the financial statements prepared by liquidators are filed with the Trade Registry.
· The annual gain derived from the transfer of securities, from derivatives, and from transactions with financial gold is determined by the tax authorities by also considering the losses reported from previous years, based on the annual declaration regarding the realised income.
· Any net annual loss resulting from the transfer of securities, from derivatives, and from transactions with financial gold can be carried forward for up to seven consecutive tax years.
Income from real estate transactions:
Income from the transfer of real estate is taxed at a 3% income tax rate applicable on the taxable income determined by deducting the non-taxable amount of RON 450,000 from the transaction value, irrespective of the period for which the property was owned/held.
No income tax is due for ownership of real estate acquired under special laws, for donation deeds between relatives or in-laws up to the third degree inclusively, between spouses, and in cases of inheritance, provided the procedure is finalised within two years as of the date of death of the author of the inheritance (an income tax of 1% of the value of the real estate is levied if the procedure is not completed within those two years).
Income tax due for transfer of real estate ownership is withheld by the public notary and calculated based on the value declared by the parties within the transaction documents. If the value declared by the parties is lower than the estimated value established by the expert appraisal conducted by the Chamber of Public Notaries, the public notary notifies the Romanian tax authorities on this transaction.
The tax is to be remitted by the 25th day of the month following that when the income tax was withheld.
Dividend income distributed as of 1 January 2016 is taxed at a 5% income tax rate. Individual health insurance contributions of 5.5% may be due in certain circumstances.
Interest income is subject to the 16% flat tax rate, withheld by the payer of the income, the tax being final. Individual health insurance contributions of 5.5% may be due in certain circumstances.
Gross annual rental income represents the income earned by the owner during the year as stipulated in the rental agreement registered with the Romanian tax authorities.
Net taxable rental income is determined by deducting a 40% expense allowance (no supporting documentation is required) from the gross rental income and is taxed at a flat rate of 16%. The taxpayer can also choose to determine the taxable income by applying the real system taxation, which may be elected by submitting a form with the Romanian tax authorities by 31 January of the year concerned or within 30 days after renting out the property, for rental contracts started during the year. The option applies for two years, and it shall be automatically extended if the taxpayers do not apply for the previous tax system.
Individuals earning such income have to make quarterly advance tax payments during the fiscal year.
Home owners deriving income from the renting out of up to five rooms for touristic purposes owe income tax established based on an annual income quota, and the payment of the income tax is made in two annual instalments (by 25 July and 25 November respectively), the tax being final. For these individuals, there is the option to determine the income tax using the real system. In this case, the tax paid during the year will represent anticipated payments for the annual income tax.
Individuals obtaining income from renting out more than five rooms for touristic purposes will determine the net annual income in the real system and make anticipated payments in two instalments. Subsequently, these individuals will submit a statement regarding the realised income based on which a tax regularisation will be made to determine the annual tax due.
Rental income is also subject to the individual health insurance contribution of 5.5%, the monthly calculation base being capped to five times the average gross salary (currently set at RON 3,131).
Income earned by taxpayers from five or more rental contracts and, respectively, income from renting more than five rooms for touristic purposes is considered income from independent activities and taxed accordingly.
Income from prizes:
Tax on income from prizes is withheld at source and determined by levying 16% on the amount exceeding RON 600 paid for each prize.
Income from gambling:
Income from gambling activities is taxed at source at 1% for each gross income up to RON 66,750 inclusively received by a participant from an organiser of gambling activities. If the income exceeds RON 66,750, up to RON 445,000 inclusively, the income is taxed at a fixed amount of RON 667.50 plus 16% on the amount exceeding RON 66,750. If the income is above RON 445,000, the income is taxed at a fixed amount of RON 61,187.50 plus 25% on the amount exceeding RON 445,000.
The tax calculated and withheld upon disbursement is final.
Income tax withholding is not applicable for gambling income derived from online gambling and poker festivals. In this case, the taxpayer has to declare the income by 25 May of the following year and the tax (computed as above) is established by the authorities. The organisers of such games have to comply with certain declarative requirements.
Income derived from gambling activities specific to casinos, poker clubs, slot-machines, and lottery tickets, up to RON 66,750 (inclusive), for each gross income amount received by an individual, represents non-taxable income.
Other income subject to the 16% flat tax rate:
The following types of taxable income are included in this category (the list is not exhaustive):
· Insurance premiums borne by freelancers or any other entities for the benefit of individuals with whom no employment relationship is in place.
· Income derived from debt assignment by assignors and assignees, respectively.
· Gift tickets granted outside an employment relationship, in certain conditions.
· Income derived occasionally by individuals who are not registered as freelancers from production, commerce, services, liberal professions, IPR, as well as agriculture, forestry, and fishing activities.
· Income granted to retired persons, former employees, in the form of differences on price for certain goods, services, and other entitlements, according to clauses in employment agreements or under special laws.
· Income derived by individual taxpayers in the form of fees from commercial arbitration.
Individual health insurance contributions of 5.5% may be due in certain circumstances.
In the categories of non-taxable income, among others, the following types of income are included:
· Allowances for maternity leave, maternity risk, child care, and sick child care leave paid from the health fund.
· Salary income obtained from a foreign employer from employment activities rendered abroad, irrespective of the tax treatment of the income in that foreign country.
· Amounts granted by employers for covering transport and accommodation expenses incurred during delegation/secondment of employees.
· Sponsorship and donations, under certain conditions.
· Income from independent activities; salaries; pensions; and income from agricultural, forestry, and fishery activities derived by seriously disabled individuals.
· Salary income and assimilated income related to the design and creation of software (specific conditions to be met by the employer and the employee).
· Salary and assimilated income related to R&D activities (specific conditions to be met by the employer and employee).
· Salary and assimilated income derived based on employment contracts concluded for 12 months with Romanian employers carrying out seasonal activities in areas such as hotels, restaurants, catering.
Taxation of non-resident individuals:
Income derived by non-resident individuals from activities performed in Romania or from income sourced in Romania is generally subject to 16% tax, with certain exceptions (exceptions may also apply if the tax rate is reduced or eliminated under an applicable DTT concluded by Romania with the country of residence).
Income sourced in Romania includes, among others, the following:
· Income derived from conducting independent activities through a permanent establishment (PE) in Romania.
· Income from dependent activities carried out in Romania.
· Other specified types of income derived in Romania.
WHT (16% flat tax rate) is currently levied on income such as the following types of income sourced in Romania:
· Interest, royalties, and commissions received from a resident.
· Interest, royalties, or commissions paid by non-residents, if they have PEs in Romania and the interest/royalty/commission is an expense of those PEs.
· Income derived from sports and entertainment activities performed in Romania.
· Income from the provision of management or consultancy services in any field if such income is obtained from a Romanian resident or if it is an expense of a Romanian PE.
· Income and fees representing remuneration received by administrators, founders, or members of the Board of Directors, of a Romanian company.
· Income from independent professions performed in Romania.
· Pension income higher than the monthly cap (currently, RON 2,000).
· Income from prizes from contests organised in Romania.
· Income from gambling in Romania.
· Income obtained by non-residents from liquidation of Romanian companies.
· Income attributed to a PE in Romania.
· Income derived by a foreign legal entity from real estate situated in Romania (e.g. from the sale or letting of the property) or from the sale of shares owned in a Romanian legal entity.
· Income from a partnership setup in Romania, including a partnership of a non-resident individual with a micro-enterprise.
On capital gains, non-resident individuals are subject to the same tax treatment as resident individuals. To fulfil this requirement, non-residents may appoint a Romanian fiscal representative or a tax agent.
Income from real estate transactions is taxed at the same specific rates as in the case of residents.
Where non-resident individuals can claim treaty protection, the more favourable rates/provisions under the relevant tax treaty can be applied by Romanian payers of income if the beneficiaries have provided the required tax residency certificate.
Corporate Income Tax:
Corporate income tax. Resident entities are subject to tax on their worldwide income. An entity is resident in Romania if it satisfies any of the following conditions:
· It is incorporated in Romania.
· Its place of effective management and control is located in Romania.
· It is a legal entity that has its headquarters in Romania and that is incorporated in accordance with the European legislation.
Associations or consortia, which are not considered separate legal persons in Romania, are tax transparent. Different tax rules apply depending on the members of the associations or consortia (for example, whether the members are Romanian, nonresident, individuals or companies).
Nonresident companies that do not have an effective place of management in Romania are subject to tax on their Romanian-source income only, including capital gains derived from specified transactions.
Rates of corporate income tax:
The standard rate of income tax for Romanian companies is 16%, regardless of whether the companies have foreign participation. Income derived by companies from night bars, nightclubs, discos and casinos directly or in association is also normally taxable at a rate of 16%, but the amount of the tax payable may not be less than 5% of the gross income derived from such activities.
Nonresident companies that do not have their place of effective management in Romania are taxed in Romania at the standard rate of 16% on earnings derived from their operations in Romania through branches, permanent establishments or certain consortia. A permanent establishment of a foreign company in Romania may be constituted in certain forms, including the following:
· An office
· A branch
· An agency
· A factory
· A mine
· A place of extraction for gas or oil
· A building site that exists for a period exceeding six months
· The place in which an activity continues to be carried out with the assets and liabilities of a Romanian legal person subject to a cross-border reorganization
Foreign companies are also normally taxable in Romania at the standard corporate income tax rate on profits derived in Romania from real estate located in Romania and the exploitation of natural resources, as well as on certain capital gains.
Representative offices are subject to an annual tax equal to the equivalent in Romanian lei of EUR4,000, payable in two installments.
Law on specific tax for some activities:
Effective from 1 January 2017, instead of the corporate tax, a specific tax applies to Romanian legal persons that perform certain activities in the hotels and accommodation, restaurant and other food services, bars and beverage-serving sectors.
The specific tax applies only to Romanian legal persons that on 31 December of the preceding year performed one of the activities mentioned above, according to their Articles of Incorporations, and that are not in liquidation.
Formulas determine the specific tax. If the taxpayer performs more than one of the activities listed above (except for hotel complexes), the specific tax equals the tax determined by applying the specific formulas to each of the activities performed.
In the event that the taxpayer derives income from other activities that are not subject to this specific tax, the taxpayer must apply the corporate income tax system to such income.
Taxpayers that applied the specific tax for some activities and previously incurred tax losses have the right to recover those losses in the seven consecutive years from the date on which they returned to the corporate income tax system. The period runs from the date on which the tax loss was incurred.
Romanian legal persons fulfilling certain conditions must pay microenterprise tax, which is calculated by applying the following rates to the taxable revenues with exemptions for certain revenues:
· 3% if the legal person has no employees
· 1% if the legal person has one or more employees
The reduced microenterprise tax rate of 1% applies also to newly established Romanian legal persons that meet all of the following conditions:
· They have at least one employee.
· They are established for a period of more than 48 months.
· Their shareholders or associates do not hold participation titles in other legal persons.
This reduced tax rate applies for the first 24 months since the registration date of the Romanian legal persons.
The microenterprise regime applies to companies that derived income of less than EUR500,000 in the preceding year and the derived income was from activities other than banking, insurance and reinsurance, capital market (except for intermediaries), gambling and activities relating to the exploitation of oil deposits and gas. It also applies if the revenues from consultancy and management are less than 20% of the total revenues (less than EUR500,000).
A company can choose to exit the microenterprise regime and become a corporate income tax taxpayer if it has registered and paid share capital of RON45,000 (approximately EUR10,000).
If during a tax year, a taxpayer assessed as microenterprise fulfills the conditions to become a corporate income taxpayer (for example, it has income exceeding EUR500,000), it pays corporate income tax based on revenues and expenses recorded from the beginning of the quarter in which it no longer meets the conditions to qualify as a microenterprise.
A tax loss incurred by the taxpayer in the period in which the microenterprise income tax is applied is not taken into account (the taxpayer’s tax result is not calculated).
Fiscal losses incurred by legal persons before applying the microenterprise tax regime can be carried forward until the legal entity fulfills the conditions to become a corporate income taxpayer, but only within the seven-year period stated by the law.
Romania offers certain tax incentives, which are summarized below.
Corporate income tax:
The Tax Code contains measures allowing companies to claim accelerated depreciation in certain circumstances.
The Tax Code allows “sponsorship” expenses to be claimed as a credit against corporate income tax due, subject to certain limitations. Under the Sponsorship Law, “sponsorship” is defined as “the juridical deed by which two persons agree upon the transfer of the ownership right upon certain material goods or financial means, in order to support the activity without lucrative scope, carried out by one of them.” The tax credit for sponsorship expenses is limited to the lower of the following:
· 0.5% of the company’s turnover
· 20% of the corporate income tax due
Sponsorship expenses that were not used for obtaining a tax credit can be carried forward for seven consecutive years.
The profit invested in the production and/or acquisition of certain technological equipment, computers and peripherals, tax registers, control and billing machines, as well as software and the right to use software, is exempt from tax. The reinvested profit represents the balance in the profit-and-loss account, which is the difference between the total income and total expenses booked in the trial balance of the company beginning with 1 January of the year in which such assets are commissioned. The assets must be retained for at least half of their useful economic life, but no longer than five years, with certain exceptions (for example, cases in which the assets are destroyed, lost or stolen). In addition, the accelerated depreciated method cannot be used for the respective assets.
Innovation and research and development, as well as ancillary activities:
Effective from 1 January 2017, a new exemption from corporate income tax is introduced. It applies for the first 10 years of activities to taxpayers that exclusively undertake innovation and research and development, as well as ancillary activities.
Research and development costs:
An additional allowance granted for research and development activities equals 50% of eligible costs under certain conditions.
Companies administering industrial parks (administrator companies) may benefit from the following incentives by observing the state-aid legislation:
· Exemption from taxes due on conversion of agricultural land to be used for industrial parks
· Buildings, constructions and land located inside industrial parks are exempt from building tax and land tax
· Other incentives, which may be granted by the local authorities
Incentives are available to titleholders of oil and gas concessions. Titleholders are granted the concessions by the government in exchange for the payment of a royalty. The following are the incentives:
· For rehabilitation projects, a deductible provision equal to 10% of the annual offshore exploitation profits derived by titleholders of oil and gas licenses that relate to offshore areas with water deeper than 100 meters (328 feet).
· Provisions set up for equipment decommissioning and environmental rehabilitation are deductible up to a limit of 1%, which is applied to the accounting result of the exploitation and production of natural resources, except for the result related to the offshore activities and other activities of the legal entity.
· Reserves for the development and modernization of oil and gas production and for oil refining and infrastructure are deductible. These are included in taxable income on the depreciation of the assets and their write-off, respectively, over the period in which the expenses financed from these reserves are incurred.
The following tax benefits are available to companies performing activities in free-trade zones:
· Value-added tax (VAT) exemption applies to supplies of non-Community goods to be placed in a free-trade zone and to supplies of the respective goods performed in a free-trade zone.
· Non-Community goods introduced into free-trade zones for storage purposes are not subject to customs duties.
· State aid is available for investments performed in free-trade zones.
Local councils may grant building and land tax exemptions to legal entities, subject to the state-aid regulations.
Capital gains are included in taxable income and taxed at the normal corporate income tax rate. Capital gains derived by nonresident companies are also subject to the standard 16% tax rate if they are derived from the disposal of the following:
· Immovable property located in Romania
· Participation titles (shares) in a Romanian company
Income derived by nonresident collective placement bodies without corporate status from the transfer of value titles (securities participation titles in open funds, and other financial instruments, such as derivatives) and participation titles held directly or indirectly in Romanian companies, as well as to income derived by nonresidents from the transfer on a foreign capital market of participation titles held in a Romanian company and of value titles.
Income derived from the sale or assignment of shares held in Romanian legal entities or in legal entities from countries with which Romania has entered into a double tax treaty is not included in taxable income if the taxpayer holds for an uninterrupted period of one year at least 10% of the share capital of the legal entity that issued the shares.
In general, the tax year is the calendar year. However, certain companies may opt for a tax year other than the calendar year.
Under the corporate income tax law, payers of corporate income tax (for example, companies, branches and permanent establishments) must file tax returns and pay corporate income tax quarterly (computed based on actual numbers) by the 25th day of the first month following the first, second and third quarters.
As an exception to the general rule, payments made by banks are advance payments based on the corporate income tax for the preceding year, adjusted by the inflation rate. These payments must be made quarterly by the 25th day of the first month following the first, second and third quarters, as well on 25 December, of the respective year. This rule does not apply to newly established banks and banks that recorded a tax loss in the preceding year. These banks apply the 16% rate to the accounting profit of the current quarter.
All other companies may opt for reporting and paying the annual corporate income tax through advance payments made on a quarterly basis.
The annual corporate income tax return must be filed and any balance of annual corporate income tax must be paid by 25 March of the following year. For the taxpayers using a non-calendar tax year, the annual corporate income tax return must be filed and any balance of annual corporate income tax must be paid by the 25th day of the third month following the tax year-end. Certain taxpayers, such as nonprofit organizations or taxpayers deriving most of their revenues from cereals and technical plants, must submit the annual corporate income tax return and pay the related tax by 25 February of the following year.
Companies ceasing to exist must submit a final tax return and pay the corporate income tax based on special rules.
The annual financial statements must be submitted within specified time periods after the year-end. The following are the time periods:
· Companies (in general), national companies and research and development institutes: 150 days
· Certain specified legal persons, individuals and bodies: 120 days
· Companies not performing any activities after their formation: 60 days
The failure of a company to file tax returns by the deadline may result in a fine ranging usually from RON500 to RON5,000. Companies are liable for the payment of the fines for late filing of returns even if they pay the tax due. For the late payment of tax liabilities, the following late payment interest and late payment penalties are due (except as otherwise provided):
· Late payment interest, computed at 0.02% per day of delay
· Late payment penalties, computed at 0.01% per day of delay
· Late payment penalties for local tax liabilities, computed at 1% per month or part of a month of delay
· Penalties for unreported or inaccurately reported obligations, computed at 0.08% per day of delay
Dividends paid by Romanian companies to resident companies are to subject to a 5% withholding tax. The 5% rate is effective from 1 January 2016. The 5% tax is considered a final tax and, accordingly, the dividends are not included in the taxable income of the recipient. However, as a result of Romania’s accession to the EU, no tax is imposed on dividends paid by a Romanian resident company to resident companies that held at least 10% of the shares of the payer for an uninterrupted period of at least one year that ended on the date of payment of the dividend.
Dividends paid by Romanian companies and legal entities having their social headquarters in Romania (that is, societas europea registered with the Romanian Trade Registry and set up according to European law) to resident individuals and nonresident companies and individuals are generally subject to a 5% withholding tax. However, dividends paid by a Romanian legal entity to a legal entity resident in another EU member state or to a permanent establishment of an entity residing in an EU member state are not subject to withholding tax if certain conditions relating to the legal entity receiving the dividends and to the Romanian income payer are satisfied. These conditions are described below.
The following conditions must be satisfied with respect to the legal entity receiving the dividends:
· The legal entity or permanent establishment receiving the dividends must be established in ones of the legal forms provided by the law and must be resident in the respective EU member state and, according to the double tax treaties entered into with third countries, may not be resident outside the EU from a tax perspective.
· The legal entity or permanent establishment receiving the dividends must be liable to pay corporate income tax or other similar tax under the tax law in its state of residence without the possibility of exemption or choice of the tax treatment.
· The beneficiary of the dividends must own at least 10% of the participation titles in the Romanian legal entity for an uninterrupted period of at least one year ending on the date of the payment of the dividends.
The Romanian entity paying the dividends must satisfy the following conditions:
· It must be a joint stock company, limited stock partnership (societate in comandita pe actiuni), limited liability company, general partnership (societate in nume colectiv) or limited partnership (societate in comandita simpla).
· It must be liable to pay corporate income tax without the possibility of exemption or choice of the tax treatment.
Dividends paid by Romanian legal entities to pension funds, as defined by the law of the respective EU member state, are exempt from withholding tax in Romania if a legal instrument for information exchange exists.
The deadline for payment of dividend withholding tax is the 25th day of the month following the month in which the dividends are paid. However, if the dividends are distributed but not paid to shareholders by the end of the year in which the annual financial statements are approved, the tax is due on 25 January of the following year.
Foreign tax relief:
Foreign taxes may be credited against Romanian taxes based on the provisions of a double tax treaty between Romania and the foreign state.
Romanian permanent establishments of foreign legal entities resident in an EU or European Economic Area (EEA) member state that derive income from another EU or EEA state benefit under certain conditions from a tax credit for the tax paid in the state from which the permanent establishment from Romania derived the income.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.