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1 Business and Taxation Guide

Business and Taxation

Business and Taxation Guide to

Romania


Preface This guide was prepared by LeitnerLeitner in Romania in 2012. LeitnerLeitner has offices in: Vienna Linz Salzburg Sarajevo Zagreb Budapest Bucharest Bratislava Belgrade Ljubljana.

Developments in tax legislation are rapid. The information given in this guide reflects the tax legislation as of January 2012. Before taking specific decisions, it’s recommended that professional advice and guidance be sought. This guide provides a brief overview. More detailed information on matters discussed in this publication can be obtained from the persons responsible for the tax and advisory service areas within LeitnerLeitner in Romania: Partner – Rene Schöb - [email protected] Partner – Dino Ebneter - [email protected] © Praxity 2011 This guide is intended as a general guide only and should not be acted upon without further advice.


Contents Page 1. General information 5

1.1 Opportunities and possible obstacles for foreign investors 1.2 Area and population 1.3 Government and law 1.4 Key economic indicators 1.5 Financial status 1.6 Currency 1.7 Immigration rules

2. Regulation of foreign investment 7 3. Government incentives 8

3.1 Tax exemptions applied to reinvested profits 3.2 Accelerated depreciation 3.3 Research and development activities 3.4 EU funds 3.5 Local incentives

4. Business organisations available to foreigners 9 5. Setting up and running business organisations 10

5.1 General information 5.1.1 Establishment 5.1.2 Share capital 5.1.3 Management

5.2 Limited Liability Company (LLC) 5.2.1 Share capital 5.2.2 Shareholders

5.3 Joint stock company 5.3.1 Share capital 5.3.2 Management

6. Corporate taxes and social charges 12 6.1 Taxpayers and residence 6.2 Corporate income tax base

6.2.1 Non-taxable revenues 6.2.2 Deductibility of expenses 6.2.3 Provisions and reserves 6.2.4 Depreciation

6.3 Tax rates 6.4 Tax payment and filing of returns 6.5 Mandatory social security contributions

7. Personal taxation 17 7.1 Sole entrepreneurs

7.1.1 Income from freelance activities 7.1.2 Income from Intellectual Property (IP) rights 7.1.3 Income from commercial activities

7.2 Inheritance and gift tax 7.3 Late payment interest and penalties


8. Double taxation agreements 19 9. Value Added Tax (VAT) 20

9.1 VAT definitions/categories 9.1.1 Taxable persons 9.1.2 Supply of goods and services 9.1.3 Import 9.1.4 Intra-community acquisitions

9.2 Place of supply 9.2.1 Supply of goods 9.2.2 Supply of services 9.2.3 Taxable amounts

9.3 VAT rates 9.4 VAT exemptions 9.5 Input VAT deduction 9.6 VAT grouping 9.7 Resident taxable persons 9.8 Foreign taxable persons

10. Portfolio investment for foreigners 26 10.1 Cash investments 10.2 Real estate investments 10.3 Securities

11. Trusts 27 12. Practical information 28

12.1 Transport 12.2 Language 12.3 Time relative to Greenwich Mean Time (GMT) 12.4 Business hours 12.5 Public holidays


1. General information

1.1 Opportunities and possible obstacles for foreign investors Romania benefits from being an EU member, leading to a harmonisation of capital market regulations and taxation accounting rules. Exporting procedures towards EU member states are simplified in business administration, foreign currency exchange risks and conversion charges are diminished, together with accessibility to an extended market. Being one of the largest EU members in terms of size (9th in the EU 27) and population (7th in EU 27), Romania is anticipated to become increasingly appealing to investors. The following aspects require careful consideration by potential foreign investors considering investing in Romania and may, in some circumstances, be regarded as drawbacks: The necessity of current market expertise Romania’s lack of infrastructure Low absorption rate for EU-funds An unstable political and economic environment.

1.2 Area and population With a land area of 238,400 square kilometres, Romania is the ninth largest country of the EU by area, and has the seventh largest population of the EU, with a population of approximately 21.9 million people. Its capital city is Bucharest, the sixth largest city in the EU, home to approximately two million people. 1.3 Government and law

The Constitution of Romania is mainly based on the Constitution of France's Fifth Republic and was approved in a national referendum on 8 December 1991. A plebiscite held in October 2003 approved certain amendments to the Constitution, with closer conformity to EU legislation. The country is governed using a multi-party democratic system, with the segregation of legislative, executive and judicial powers. Romania is a semi-presidential republic where executive functions are held by both the Government and the President. The President is elected by popular vote for a maximum of two terms and, starting with the amendments in 2003, each term lasts five years. The President appoints the Prime Minister, who in turn appoints the Government. The legislative branch of the Romanian government, collectively known as the Parliament, comprises two chambers: The Senate with 140 members The Chamber of Deputies with 346 members.


Members of both chambers are elected every four years using a system of party-list proportional representation. The justice system is independent of the other branches of government, and is made up of a hierarchical system of Courts. The Supreme Court of Justice is the highest Court of Romania. There are also Courts of appeal, county Courts and local Courts. The Romanian judicial system is strongly influenced by the French model, in that it is based on civil law and is inquisitorial in nature (where the judge endeavours to discover facts while simultaneously representing the interests of the state in a trial). The Constitutional Court is responsible for judging the compliance of laws and other regulations to the Romanian Constitution, which is the fundamental law of the country. The constitution, which was introduced in 1991, can be amended only by a public referendum, the last of which took place in 2003. After this amendment came into force, the Constitutional Court's decisions cannot be overruled by any parliamentary majority. The country's accession to the European Union in 2007 has had a significant influence on its domestic policy. As part of the process, Romania has instituted reforms including judicial reform, increased judicial cooperation with other member states, and measures to combat corruption. 1.4 Currency The unit of currency in Romania is the ‘leu’. The International Standards Organization (ISO) currency code is RON. One ’leu’ is divided into 100 bani.

1.5 Immigration rules

Romania’s immigration laws set different rules according to the nationality of the individual, the purpose of travel to Romania and the duration of stay in Romania. Nationals from non-EEA1 countries travelling to Romania are typically required to obtain a visa, except for those individuals arriving in Romania from countries with which Romania has concluded special visa abolition agreements.

1European Union, Norway, Iceland and Liechtenstein


2. Regulation of foreign investment Romania does not impose controls on currency exchange. Consequently, a foreign investor or exporter is not restrained from repatriating the capital or profits generated from a business or investment in Romania. This is subject to any withholding tax required by Romanian tax legislation, in accordance with the double taxation agreements that Romania has signed, as well as the relevant European Directives implemented into Romanian law.


3. Government incentives 3.1 Tax exemptions applied to reinvested profits In accordance with the provisions of the Romanian Tax Code, profits reinvested in the production and/or the acquisitions of certain technological equipment are exempt from corporate income tax. 3.2 Accelerated depreciation Under the Tax Code, machinery and equipment, computers and peripheral devices, as well as patents, may be depreciated by applying the accelerated depreciation method. Using this method, a maximum of 50% of the fiscal asset’s value may be deducted during the first year of use, while the rest of the asset’s value can be depreciated over its remaining useful life. 3.3 Research and development activities According to the Tax Code, for the purposes of calculating profit tax, an additional deduction of 20% is allowed for expenses that relate to research and development (R&D) activities. The accelerated depreciation method is applied to equipment used in R&D activities. 3.4 EU funds As Romania is a part of the European Union, EU funds are available to Romanian entities. The Romanian State, through its relevant authorities, provides assistance and funding for a wide range of projects. 3.5 Local tax incentives Municipalities may offer different forms of incentives, which are negotiated on a case-by-case basis. These incentives are entirely managed and controlled within the jurisdiction of local communities. Local councils have the capacity to grant legal entities an exemption from the payment of tax on buildings and land through state aid schemes that are aimed at regional development and stimulating local economies.


4. Business organisations available to foreigners __________________________________________________________________________________

Individuals and legal entities are allowed to set-up companies to develop business activities in Romania. According to the provisions of the Company Law2 (the Company Act), there are five types of companies recognised in Romania, including: Limited liability company (societate cu raspunderelimitata) Joint stock company (societate pe actiuni) General partnership (societate în nume colectiv) Limited partnership (societate în comandita simpla) Limited partnership by shares (societate în comandita pe actiuni).

2Law no. 31/1990, subsequently amended and completed


5. Setting up and running business organisations ________________________________________________________________________________

5.1 General information 5.1.1 Establishment All companies must be registered with the Romanian Trade Registry Office. 5.1.2 Share capital According to the Company Law, contributions to the share capital of a company may be in cash, in kind and in receivables. The cash contribution is compulsory upon the incorporation of any type of company. 5.1.3 Management Companies, irrespective of type, are managed by one or several directors. In joint-stock companies, these directors form the Board of Directors. In limited liability companies a Board of Directors will only be established if the Articles of Incorporation states this as a requirement. Directors can be individuals or legal entities, appointed either under the Articles of Incorporation, or by the Ordinary General Meeting of Shareholders. There are no special requirements with respect to the citizenship of company directors. However, individuals convicted for certain criminal offences, such as offences listed under the Law for the Prevention and Punishment of Money Laundering and the Adoption of Measures for the Prevention and Control of Terrorist Acts can not legally be directors, managers, members of the Supervisory Board or the Management Board, or even founders. 5.2 Limited Liability Company The obligations of an LLC entity are secured by the assets owned by the Company. The shareholders are liable only for the payment of their contributions to the share capital. A limited liability company (S.R.L.) may be set up by a number of shareholders, which cannot exceed 50. The Company Law allows for the incorporation of a company with one shareholder. However, in such cases, an individual or a legal entity cannot be a sole shareholder in more than one LLC. 5.2.1 Share capital The share capital of a S.R.L. must not be less than RON 200 (approximately €50) and it is divided into shares with a registered value of at least RON 10 each. Shares can be traded among shareholders but they are not marketable titles.


5.2.2 Shareholders The General Meeting of Shareholders is the main decision-making body of a LLC company and has the following obligations: Approving the annual financial statements and the distribution of profits Appointing the directors and censors or, as applicable, the internal auditors Deciding upon the liability of the directors and censors or, as applicable, of the internal

auditors, for any prejudice caused to the company Amending the Articles of Incorporation.

5.3 Joint stock companies The obligations of a joint stock company are secured by the company’s assets. The shareholders are liable only up to the value of their subscribed contribution to the share capital. A joint stock company (S.A.) can be set-up by at least two shareholders. 5.3.1 Share capital The share capital of an S.A. must not be less than RON 90,000. The share capital is divided into shares, each with a value of at least RON 0.1. The initial capital paid by each shareholder must not be lower than 30% of the subscribed capital. The remaining 70% of the subscribed share capital can be paid over a set period, which must not exceed: 12 months after the incorporation date, where the shares have been issued in exchange for

contribution in cash or 2 years where the shares have been issued in exchange for contribution in kind.

5.3.2 Management Joint stock companies now have the option to choose between two alternative management systems - the one-tier or the two-tier management system. Under the one-tier management system, joint stock companies should have an odd number of administrators (at least 1). Joint stock companies whose annual financial statements are not subject to a financial audit under the law or by decision of the shareholders must appoint at least three administrators and three censors. Censors must certify the annual financial statements and present a report to the annual General Meeting of Shareholders. The financial statements of the companies subject to a financial audit must be verified and certified by financial auditors registered with the Romanian Chamber of Financial Auditors. In this case the provisions regarding the appointment of censors no longer apply.


6. Corporate taxes and social charges ______________________________________________________________________ 6.1 Taxpayers and residence The following entities are subject to corporate income tax (profits tax) if they undertake a business in Romania: Romanian legal entities (companies resident in Romania) Non-resident entities conducting business through a permanent establishment in Romania Non-resident entities deriving revenues from, or connected to, real estate transactions, or

from transactions with shares in Romanian companies Non-resident entities/individuals conducting business in Romania through an association

with or without legal capacity Resident individuals entering into an association without legal capacity with Romanian

companies (for revenues derived in or outside of Romania) Entities with their seat in Romania, but established in accordance with the European

legislation. A company is considered to be resident in Romania if it: Is a Romanian legal entity Has its place of effective management in Romania or Has the seat in Romania but is established in accordance with the European legislation.

6.2 Corporate income tax base The taxable profit of a company is calculated as the difference between the revenues derived from any source and the expenses incurred with a view of obtaining revenues throughout the tax year, adjusted for tax purposes by deducting non-taxable revenues and adding non-deductible expenses. Other elements similar to revenues and expenses are also to be taken into account when calculating the taxable profit. As such, taxable profits are determined by reference to accounting profits recognised in accordance with Romanian accounting standards, subject to certain specific adjustments, as provided by corporate tax law. As of 1 January 2012, International Financial Reporting Standards must be applied to the calculation of the taxable income in the case of taxpayers (e.g. banks). 6.2.1 Non-taxable revenues The most relevant non-taxable revenues stipulated by the Fiscal Code are:

Revenues from dividends received from another Romanian company


Revenues from dividends received by a Romanian company from a subsidiary situated in an EU Member State if the EC Parent-Subsidiary Directive is applicable

Revenues from reversal or cancellation of provisions/expenses that were previously non-deductible and recovery of expenses that were previously non-deductible

Non-taxable income expressly provided for under agreements and memorandums.

6.2.2 Deductibility of expenses According to the general principle of tax deductibility, expenses are considered to be deductible for corporate income tax purposes if they are incurred for the purposes of deriving taxable income. From a deductibility standpoint, expenses can be classified in three categories:

1. Deductible expenses 2. Expenses with limited deductibility and 3. Non-deductible expenses.

Expenses with limited deductibility The following expenses are deductible subject to certain limitations:

Interest and foreign exchange losses under thin capitalisation rules Depreciation of assets under fiscal depreciation rules (see section 6.2.4) Protocol expenses up to the limit of 2% of the difference between taxable revenues and

expenses related to taxable revenues, except for protocol and profit tax expenses Daily allowances for expenses from domestic and foreign travel by employees are deductible

up to the level of 2.5 times the threshold set for public institutions Social expenses up to 2% of salary expenses. They may include:

- maternity allowances - expenses for nursery tickets - funeral benefits - allowances for serious or incurable diseases and prostheses - expenses incurred for the proper functioning of certain activities or units under the

taxpayers’ administration (e.g. kindergartens, nurseries, health services supplied for occupational needs, etc

Expenses for provisions and reserves. Non-deductible expenses

Expenses that are specifically non-deductible include, but are not limited to, the following:

Domestic profit tax and profit tax paid in foreign countries Withholding tax assumed by Romanian taxpayers on behalf of non-residents under so-called

‘gross-up clauses’, stipulated in the relevant agreements Interest, fines and penalties due to Romanian or foreign authorities Expenses related to management, advisory and other services if such expenses are not

justified by a written agreement and by documents that can prove that the services were actually rendered


Expenses recorded in relation to bad debts written off (they may be partially or fully deductible under certain circumstances – see section 6.2.3)

Sponsorship expenses (a tax credit may be claimed for sponsorship expenses up to a certain threshold: for example up to 0.3% of turnover and 20% of the profit tax due)

50% of the fuel expenses for vehicles used exclusively for the transport of persons with a maximum authorised weight of 3,500 kilograms, and which do not have more than nine seats are non-deductible for corporate income tax purposes (several exceptions to this rule are provided for).

6.2.3 Provisions and reserves

Amounts used for setting up or increasing reserves or provisions are deductible as follows:

Setting up or increasing the legal reserve fund to a limit of 5% of the yearly accounting profit

before tax (with adjustments) until it reaches 20% of the share capital are treated as a deduction for corporate tax purposes.

Provisions for doubtful debts are deductible up to 30% if the related receivables meet the following conditions simultaneously:

o booked after 1 January 2004 o not collected for a period exceeding 270 days from the due date o not guaranteed by another person o due by a person who is not affiliated with the taxpayer and o the receivables were included in the taxable income of the taxpayer.

Bad debt provisions are fully tax deductible if all of the following conditions are met: o the receivables are booked after 1 January 2007 o the debtor is a company, the bankruptcy procedure of which was started in court o the receivables are not guaranteed by another person o the debtor is not a related party, and o the receivables were included in the taxable income of the taxpayer.

The reduction or cancellation of any provision or reserve previously deducted should be included in the taxable revenues and taxed accordingly. This is regardless of whether the reduction is due to changing the destination of the provision or reserve, distribution to shareholders in any form, liquidation, spin off, merger, or any other reason.

6.2.4 Depreciation

The Fiscal Code makes an explicit distinction between accounting and fiscal depreciation. For fixed assets, the fiscal depreciation is calculated using the rules set out by the Fiscal Code (its deductibility no longer depends on the level of depreciation recorded in the accounts under the accounting regulations).

Fiscal depreciation should be calculated based on the asset’s fiscal value and useful life for tax purposes, by applying one of the permitted depreciation methods:

Straight-line method Accelerated depreciation, or Declining balance method.


Technical equipment, computers and their peripheral accessories may be depreciated by using any of the depreciation methods listed above. For all other fixed assets (except for buildings which may only apply the straight-line method), only the straight-line or declining balance method may be used. 6.3 Tax rates The standard profits tax rate is 16%. Taxpayers deriving revenues from nightclubs, bars, casinos and betting activities must pay the higher of the profits tax, or 5% applied to such revenues. A ’micro-enterprise’ tax regime may apply to certain companies. Such companies must have: Between one and nine employees The annual revenue must not exceed € 100,000 and The share capital should be private.

Instead of paying the regular corporate tax on profit, micro-enterprises may choose to pay a tax of 3% of the total gross revenues. Romanian legal entities which conduct activities in the field of consulting and management, banking and insurances, stock exchange or gambling, are not eligible to pay this kind of income tax. 6.4 Tax payment and filing of returns Tax returns have to be submitted on a quarterly basis along with the appropriate tax payment, by the 25th day of the first month of the following quarter. Romanian banks and branches of foreign banks started using the corporate income tax system with advance payments made on a quarterly basis. Starting from 1 January 2013, regular taxpayers may also opt to apply this system. Starting with the reporting for the year 2012, annual profit tax returns have to be filed with the Romanian tax authorities by 25 March of the following year (i.e. 25 March 2013 for the year 2012).


6.5 Mandatory social security contributions Employers are required to withhold Social Security Contributions from wages paid to employees and pay additional contributions from its own funds. The rates withheld and paid by individuals and employers include: Individual contribution Employer contribution Social insurance Normal work conditions 10.5% 20.8% Special work conditions 10.5% 25.8% Hard work conditions 10.5% 30.8% Health insurance 5.5% 5.2% Unemployment fund contribution

0.5% 0.5%

Vacation contributions 0.85% Insurance contribution for labour accidents and professional diseases

0.15% to 0.85% (depending on the legal risk category)

Salaries Guarantee Fund contribution 0.25%


7. Personal taxation ______________________________________________________________________ 7.1 Sole entrepreneurs A sole entrepreneur will be subject to unlimited personal income tax liability on their worldwide income if: His/her domicile or centre of vital interests is in Romania or He/she is physically present in Romania for a period (or several periods) exceeding in total 183

days during a 12-month period ending in the respective calendar year. The applicable tax period starts on 1 January of the year following the one when these individuals become residents of Romania. Residents of the States with which Romania has concluded double tax treaties may be exempted from this provision (see section 8). According to the Romanian Fiscal Code, the income of sole entrepreneurs, called ’income from independent activities’, is taxed at a flat rate of 16% and includes income from:

Freelance activities (lawyers, public notaries, tax consultants, financial auditors, etc.) Intellectual property rights Commercial activities (production activities, income from commercial mandates and

commission agreements, etc.) A brief explanation of the tax treatment for these income categories is presented below. In Romanian tax practice, the most important category of income derived by sole entrepreneurs is income from freelance activities. 7.1.1 Income from freelance activities The income from freelance activities is assessed using the single-entry bookkeeping ledgers that providers of independent activities are obliged to keep. As a general rule for independent activities, the taxable income (net income) is calculated as gross income less deductible expenses.

Among others, the following expenses are non-deductible:

Fines and late-payment penalties (other than contractual penalties) Donations Private scholarships and sponsorship and representation expenses in excess of the

thresholds provided by law Per diem and other expenses exceeding the thresholds provided by current law, etc. 50% of the expenses incurred on the acquisition of fuel for vehicles, with certain exceptions

(for example, taxi, vehicles for sales agents, etc).


Alternatively, specific categories of freelancers are taxed on the basis of an income quota, as published yearly by the Romanian Ministry of Finance (e.g. IT activities). Freelancers deriving income from independent activities have to make quarterly tax pre-payments during the fiscal year. 7.1.2 Income from Intellectual Property (IP) rights Payers of income from intellectual property rights should compute, withhold and pay 10% tax in advance. The beneficiaries of such income include this income in their annual tax return on the basis of which the tax authority assesses the amount of final tax (final tax rate of 16%). 7.1.3 Income from commercial activities Taxpayers who derive commercial income, such as income from trade, from performing services, from the practice of a profession, other than income from freelance activities, could calculate their annual net income based on the income norms.

7.2 Inheritance and gift tax If the inheritance procedures are fulfilled within two years of the death of the donor, no inheritance taxes are due. Once this period is exceeded, the beneficiaries pay a tax, which is 1% of the value of the inheritance. 7.3 Late payment interest and penalties Failure to pay tax by the due date would result in the following late payment interest and penalties: Late payment interest: 0.04% per calendar day of delay Late payment penalties:

o Less than 30 days of delay: no late payment penalties due o Between 30 – 90 days of delay: 5% applied to the paid amount o More than 90 days of delay: 15%.


8. Double taxation agreements The standard Withholding Tax rate is 16%. This rate can be reduced under Double Tax Treaties or by EU Directives. Under the Parent-Subsidiary Directive / Interest and Royalty Directive, the Withholding Tax rate can be reduced to zero. Romania has concluded approximately 85 tax treaties in the area of personal and corporate income tax.


9. Value Added Tax (VAT) Romania has implemented into its domestic legislation the provisions of the EC Directive 2008/8/EC amending EC Directive 2006/112/EC on the common system of VAT and EC Directive 2008/9/EC regarding the refund of VAT paid in other Member States by entities established in the EU. 9.1 VAT definitions/categories 9.1.1 Taxable persons A taxable person is defined as a person who conducts, in an independent manner and regardless of location, economic activities irrespective of the scope and the result of such activities. Economic activities are defined as: Activities of producers, traders and service suppliers, including mining and agricultural

activities and free profession activities or Exploitation of tangible or intangible property for the purpose of obtaining income from it

on a continuous basis. 9.1.2 Supply of goods and services Supply of goods means the transfer of the right to dispose of tangible property as the owner. Supply of services means any transaction that does not constitute a supply of goods. Supply of services may result from a positive action (e.g. rendering of services) or tolerating actions of other persons (e.g. leasing of immovable property, use of rights and patents). The temporary use of goods that form part of the assets of a taxable person for purposes not related to its economic activity, or which are made available for the use of other persons for free (if the tax on such goods was fully or partly deducted) must be assimilated to a provision of services. 9.1.3 Import As a general rule, the transfer of goods from a country outside of the EU to Romania is subject to import VAT. 9.1.4 Intra-community acquisitions An intra-community acquisition of goods is defined as the owner’s acquisition of the right to dispose of movable tangible property dispatched or transported to the destination indicated by the person acquiring the goods, by the supplier or by another person on behalf of the vendor or the person acquiring the goods, to a Member State other than that from which the goods were dispatched or transported.


The supplier generally carries out a tax exempt intra-community supply, whereas the recipient makes an intra-community acquisition and has to pay VAT and may deduct the VAT under the general conditions. 9.2 Place of supply 9.2.1 Supply of goods The supply of goods and services is subject to Romanian VAT if the place of supply is considered to be Romania. The place of supply of goods is deemed to be the place where the goods are located at the time when the right to dispose of them as an owner is transferred to the recipient. This applies to goods that are not dispatched or transported. If the goods are dispatched or transported by the supplier, the recipient, or by a third person (carrier), the place of supply is the place where the goods are located at the time when dispatch or transport of the goods to the recipient begins. Special rules apply for ‘distance selling’, where goods are supplied to private customers and are dispatched by the supplier from one EU Member State to another EU Member State. For distance sales, the place of supply is not the place of departure of the goods, but the place where the goods are located at the end of transportation. Intra-community acquisitions are, in general, taxable where the dispatch or transport of the goods ends. The place of import of goods is the Member State, within the territory where the goods are when they enter the Community. 9.2.2 Supply of services When applying the rules concerning the place of supply of services, these general rules apply:

A taxable individual, who also carries-on activities or transactions that are not considered to be taxable supplies of goods or services, is regarded as a taxable person in respect of all services rendered to the individual in question

A non-taxable legal entity that is registered for VAT purposes is regarded as a taxable person. ‘Business-to-business’ services (B2B services) The rules for determining the place of supply of services introduced by the EC Directive 2008/8/EC have been implemented in Romanian legislation. Therefore, the place of supply for services rendered to taxable persons is considered the place where the recipient has established his/her business. Where the services are rendered to a fixed establishment of the recipient located in a place different from the place where the business is established, the place of supply is considered to be the place where the fixed establishment is located. This legislation provides certain exceptions from the application of the general rule, as follows:

For supplies of services connected to immovable property, the place of supply is considered to be the place where the immovable property is located. Accommodation in the hotel


sector or in sectors with a similar function, granting of rights to use immovable property are regarded as services connected to immovable property.

For supplies of passenger transport, the place of supply is the place where the transport takes place, proportionate to the distances covered.

For supplies of services relating to admission to cultural, artistic, sport, scientific, educational, entertainment or other similar events, the place of supply is the place where those services are actually carried out (i.e. extension to fairs and exhibitions).

For supplies of restaurants and catering services, the place of supply is the place where those services are actually carried-out.

For short-term hiring of means of transport, the place of supply is the place where the means of transport are actually placed at the disposal of the customer.

‘Business-to-customer’ services (B2C services) The general rule for determining of the place of supply in the case of B2C services provides that the place of supply is considered to be the place where the supplier has established its business. In the same manner, as outlined above, the Fiscal Code provides for exceptions from this general rule, with respect to services, such as:

Intermediary services Transport of goods Intra-community transport of goods and services ancillary to transport Work on movable goods, valuation of movable goods Catalogue services Supply of personnel Telecommunication, radio and television services Cultural, artistic, sport, scientific, educational, entertainment, or other similar services.

’Use and enjoyment’ rule The Fiscal Code provides that for certain types of services (i.e. services ancillary to transport, work on movable goods, movable goods valuation, transport services performed in Romania) which are rendered to a taxable person who is not established within the EU, the place of supply is considered to be Romania if the use and enjoyment of those services takes place in Romania. For the transport of goods performed outside of the community (departure and arrival outside the EU), when the transport is provided to a taxable person established in Romania, the place of supply is considered to be outside of the community if the use and enjoyment of these services takes place outside the of community. 9.2.3 Taxable amount The taxable amount is the full amount that the recipient has to pay in order to obtain the goods or services (without VAT). 9.3 VAT rates In Romania, the following VAT rates are applied:


24% - standard VAT rate 9% - admittance to castles, museums, memorial places, historical monuments, architectural

and archaeological monuments, zoos, botanical gardens, fairs, exhibitions, cinemas 5% - supply of buildings that form part of the social security policies

9.4 VAT exemptions The numerous exemptions from VAT can be classified into two categories, depending on whether they preclude the deduction of input VAT or not. The most important exemptions are listed below. Zero-rated supplies The following supplies do not affect the right to deduct input VAT:

Intra-community supplies if the Romanian supplier can prove that the goods have been transported outside of Romania and the buyer provides a valid VAT number issued by another Member State

Export of goods, transportation and services connected to export International transport of persons and related services Supply of services, including transport and transport-related services directly linked to the

export of goods or goods placed under suspended customs arrangements Transport, transport-related services and other services directly linked to the import of

goods, providing that their value is included in the VAT tax base of a certain import of goods Supplies of services performed for the direct needs of ships and/or for their cargo only, for

ships used for international transport of persons or cargo and fishing vessels Supplies of goods and services for foreign embassies, consular offices and representative

offices of other international organisations in Romania Supplies of goods and services for the armed forces of States that are NATO members.

Exempt supplies VAT exemptions, which preclude the deduction of input VAT, include, but are not limited to: Education Healthcare/medical services Insurance and reinsurance Banking and financial activities (for example, issue and transfer of shares and other financial

instruments, granting of credits) Rental, concession of immovable goods (with the exception of rental of equipment and

machinery fitted in immovable goods, rental of safes, parking services) Transfer of ’new’ building and land for construction purposes Services supplied by dentists, doctors or psychotherapists.

9.5 Input VAT deduction In order to benefit from the right to deduct VAT, the Romanian Fiscal Code provides for several conditions to be met by the taxable person. In general, the conditions to be met include:


An original invoice drawn up in accordance with the provisions of the Fiscal Code must exist, and

A customs declaration must be provided for the VAT relating to the import of goods.

9.6 VAT grouping VAT grouping is no longer limited to large taxpayers. However, VAT grouping can be applied only when the taxpayers that are managed by the same fiscal authorities. This means that no VAT grouping can be applied for taxpayers established in different counties.

9.7 Resident taxable persons Registration as a VAT payer, with the local tax administration, is compulsory for all Romanian taxpayers established in Romania with a turnover higher than the RON equivalent of EUR 35,0003. The threshold was increased to EUR 65,000 as of 1 July 2012. When calculating the threshold, revenues derived from operations not entitled to deduction are also taken into consideration. Businesses with a turnover under this threshold may opt to apply VAT. The threshold should be calculated using the exchange rate from the date when Romania joined the EU (i.e., 1 EUR = RON 3,3817). As of 1 January 2011, the tax authorities can potentially apply an additional criteria, based on which registration for VAT purposes a taxable person may be conditioned. In addition, taxable persons established and registered in Romania for VAT purposes who, during a calendar year, did not exceed the EUR 35,000 threshold, may request between the 1st and the 10th of any month following the relevant fiscal period (providing that the exemption threshold is not exceeded in the current period) their de-registration for VAT purposes. If at a later date such persons exceed the above threshold, they must subsequently request the authorities to re-register them for VAT purposes. As of 1 January 2012, new provisions have been introduced with regard to the cases when the tax authorities may cancel by default a VAT registration. The most important revised provisions cover:

The inactivity/temporary inactivity of the taxpayer Failure to submit any VAT statements during a calendar semester No activity reported during a calendar semester (nil statements).

Businesses with an annual taxable income exceeding EUR 100,000 must file their monthly VAT returns by the 25th of the month following the month when the VAT became chargeable. Businesses with a turnover under this threshold must file quarterly VAT returns by the 25th of the first month following each quarter. When an intra-community acquisition of goods takes place, the taxpayer should change the fiscal period from the quarter to the calendar month. When the input VAT exceeds the output VAT, VAT payers may apply for reimbursement of the VAT credit if the VAT credit exceeds RON 5,000.

3RON 119,000.


In addition, taxable persons carrying out intra-community supplies/acquisition of goods/services have to file, on a monthly basis, recapitulative statements (EC lists). The deadline for the submission of the recapitulative statement is the 25th of the following month. Please note that when performing intra-community operations, the Romanian tax authorities require that the taxable persons should be registered with the Intra-Community Operators Registry. Failure to register would lead to cancellation of the VAT number from the VIES database. As of January 2012, the reporting period for the statement (code 394) regarding the domestic operations should be the same as the VAT returns. Prior to this date, statements could be submitted on a half-yearly basis. 9.8 Foreign taxable persons EU entities that carry out taxable activities for which they are liable to pay VAT may register in Romania for VAT purposes, either directly or through a fiscal representative. The direct VAT registration procedure takes approximately 10 working days from the date when the documents are submitted to the relevant tax authorities. Taxable persons that are not established or registered for VAT purposes in Romania may opt for the VAT registration if they conduct in Romania one of the following transactions:

Import of goods Rental or leasing of immovable goods, if they opt for the taxation of such transactions Supply of building/part of buildings and/or land if such supplies are taxable according to the

Tax Code if they opt for the taxation. Non-EU entities carrying out taxable activities for which they are liable to pay VAT in Romania, other than those for which VAT is paid by the Romanian customer according to place of supply rules and which do not have a fixed place of activity or residence in Romania, must appoint a fiscal representative (Romanian taxable person).


10. Portfolio investment for foreigners 10.1 Real estate investments Land plots may only be owned by Romanian residents or legal entities until 2012. Consequently, it is customary for foreign investors to establish a 100% owned Romanian limited liability company as the investment vehicle for ownership of Romanian real-estate. As of 2012, natural persons or legal entities registered in EU member states may acquire such property (i.e. land). The total taxes (notary fee and Land Book fee) amount to 1.5% of the value of the transferred real-estate. VAT is payable on the purchase of real estate property at the rate of 24% of the purchase value. In certain cases, the sale could be VAT exempt. However, in this situation, the seller should consider several factors, including adjustment to the input VAT deducted at the date the purchase was made. Company tax - Romanian resident companies are liable for tax on profit at the rate of 16% (the revenues from rent are included in the taxable profit of such companies). Income tax - non-resident individuals are liable for income tax of 16%. The definition of the royalty in the Tax Code in Romania considers rentals as royalty in the domestic legislation. Therefore, rentals paid to a non-resident owner take into account the provisions of the Double Tax Treaty (DTT) concluded between Romania and the country of residence of the non-resident. The taxation would be performed either considering the provisions of the Tax Code (16% tax), or the provisions of the DTT, considering the existence or not of the fiscal residency certificate. The gains made by legal entities on disposal of real estate property are subject to a 16% tax in Romania. For individuals (both resident and non-resident) the tax is between 1% and 3%, plus a fixed amount.


11. Trusts Romanian legislation does not provide specific regulations with respect to trusts.


12. Practical information

12.1 Transport Air travel is the one of the most important means of passenger transport between the main centres of business in Romania. Most international airlines serve the capital (Bucharest), in addition to several of the biggest cities, such as Timisoara and Iasi. 12.2 Language The official language is Romanian. However, English is by far the most common and widely spoken foreign language in Romania. 12.3 Time relative to Greenwich Mean Time (GMT) Romania is in the Eastern European Time Zone. EET is two hours ahead of Greenwich Mean Time (GMT+2). Like most states in Europe, Summer (Daylight-Saving) Time is observed in Romania, where the time is shifted forward by one hour - three hours ahead of GMT (GMT+3). After the Summer months, the time in Romania is shifted back by one hour to EET. 12.4 Business hours Business in Romania is normally conducted during an eight-hour day, with offices open between 9.00am and 6.00pm. A one-hour lunch period is typically allowed between midday and 1.00pm. 12.5 Public holidays The holidays observed by most businesses and government offices are: New Year’s Day – 1 and 2 January Easter - as per church calendar Labour Day – 1 May Whit Sunday – 2 and 3 June St Mary – 15 August National Day – 1 December Christmas Day – 25 and 26 December.

Documents

Business and Taxation Guide - praxity.com Guides/Tax Guide - Romania.pdf · Romania is a semi-presidential republic where executive functions are held by both the Government and the