Author: Nadia Oanea, CA, Tax Advisor

NOA Tax & Training SRL

The 2023 summer in Romania was a hot one, with a lot of public discussions on the need to change the tax law, to manage the increased budgetary deficit. After many proposals being discussed in mass media, on September 19, 2023, the Romanian Government published a draft law on some fiscal and budgetary measures to ensure Romania’s long-term financial sustainability. On September 26, the Government assumed responsibility in Parliament for this bill. On 27 October 2023, the Law no 296 / 2023 was published in the Official Gazette and became effective.

Some measures are foreseen to apply from November 2023, but the vast majority from 1 January 2024. What is notable, the corporate income tax due by the companies will suffer major changes starting next year.

A first measure is the introduction of a minimum corporate turnover tax for companies with a turnover higher than EUR 50 million, as well as an additional tax for banks, respectively a special turnover tax for the oil and gas sector, starting with 2024 or with the amended fiscal year starting in 2024

The profit tax rate in Romania is 16% applied to the taxable profit. However, from 2024 (or the tax year starting in 2024), the profit tax cannot be lower than a minimum turnover tax (IMCA), as shown below.

Companies which, at the end of 2023 (or the fiscal year starting in 2023), will have a turnover above EUR 50 million, at the exchange rate valid at the end of the financial year in which the revenues were accrued, owe, from 1 January 2024 or the amended tax year starting in 2024, the corporate income tax which may not be lower than the minimum turnover tax (‘IMCA’),  calculated as 1% of total revenue, less:

• non-taxable income,
• income from subsidies,
• income from compensation from insurance companies,
• revenue from excise duties which have been reflected simultaneously in the expense accounts,
• income from inventories, or services, or fixed assets in progress,
• value of fixed assets in progress as of 2024/ first day of amended fiscal year beginning in 2024 and accounting depreciation at the level of historical cost of assets produced/acquired as of 2024/ first day of amended fiscal year beginning in 2024.

IMCA is also due by companies that exceed the minimum turnover threshold mentioned above and that register tax loss in the year, or as a result of recovering the tax losses carried forward.

Basically, at the quarterly / annual payment terms of the corporate income tax, IMCA will be compared with the profit tax due, calculated by multiplying the taxable profit (from which any tax loss carried forward is subtracted) by 16% tax rate, from which some deductions are allowed.

If, following the comparison between the corporate income tax and IMCA, it appears that the corporate income tax is due at the level of IMCA, no further deductions are allowed from IMCA (such as the reinvested profit, exempt of profit tax), except for the tax credit for sponsorship.

The introduction of IMCA poses some economic and fiscal problems:

• IMCA will be calculated by applying 1% on revenues exceeding turnover (e.g., income from exchange rate differences, income from sales of assets, etc.).
• IMCA will be calculated by all companies / permanent establishments in the logistics chain (manufacturer, distributor, retailer, etc.), if they exceed the turnover of EUR 50 million, without any deduction for the IMCA paid on the previous levels of the logistics chain, the tax paid leading, in the end, to the increase in the price to final consumers.
• IMCA will make Romanian groups of companies with more than one entity with a turnover higher than EUR 50 million to pay IMCA for intra-group transactions.
• IMCA makes the tax losses no longer lead to zero corporate tax. This is an anti-tax avoidance measure to oblige big companies to pay profit tax at minimum level of 1% from their revenues, fighting especially against the corporation constantly reporting losses.
• Although the draft law stipulates that the value of investments in assets, made starting with 2024, and their depreciation starting with 2024 will be subtracted from the computation base of IMCA, the assets taken into account and the date of their entry into patrimony for determining indicators I and A will be established by order of the Minister of Finance, and the selection of categories of eligible assets is made based on criteria related to the nature of the activity carried out, which raises a big question mark as to what investments will ultimately be subtracted from the IMCA computation formula. The depreciation to be deducted from the IMCA computation base is only the depreciation calculated at historical cost (without the influence of future revaluations).

Tax groups applying the calculation and consolidated payment of corporate income tax will compare the profit tax due by the tax group with the sum of the IMCA calculated at the level of each member of the tax group.

The provisions on IMCA do not apply to economic operators carrying out exclusively activities of distribution/supply/transmission of electricity and natural gas and which are regulated/licensed by the National Energy Regulatory Authority.

The provisions on IMCA described above do not apply to  credit institutions – Romanian legal entities and branches in Romania of credit institutions – foreign legal entities. In addition to corporate income tax, they owe a turnover tax calculated by applying a rate of 2% (from 2024 to 2025) and 1% (from 1 January 2026) on turnover. The additional tax represents income to the state budget and is administered by ANAF.

By exception to the provisions on IMCA, legal entities carrying out  activities in the oil and gas sectors, established by order of the Minister of Finance, which registered a turnover of over EUR 50,000,000 in the previous year, owe between 2024 and 2025 (or the amended fiscal year starting in 2024 – the fiscal year ending in 2026), in addition to the corporate income tax, a specific turnover tax (ICAS). Starting January 1, 2026/amended fiscal year starting in 2026, taxpayers in the oil and gas sectors will apply IMCA provisions instead of ICAS.

The taxpayers carrying out activities in the oil and natural gas sectors and activities of distribution/supply/transmission of electricity and natural gas and which are regulated/licensed by ANRE, do not include in the computation formula of IMCA, the elements (VT, Vs, I, A) related to the distribution/supply/transmission of electricity and natural gas activities.

Also, the micro-companies (i.e., the companies with total revenues lower than 500,000 EURO per year) will pay differentiated income tax rates, starting with 2024:

• 1%, for micro-enterprises that achieve revenues not exceeding EUR 60,000 inclusive and that do not carry out the activities for which, regardless of whether the ceiling of EUR 60,000 is reached or not, tax of 3% of revenues is due.
• 3 % for micro-enterprises which:
  1. earns between €60,000 and €500,000 per year; or
  2. carries out activities, main or secondary, from IT, HoReCa, legal activities and healthcare services,

We welcome the abandonment of some measures that would have greatly increased the tax burden on micro-enterprises, such as:

• The obligation of micro-enterprises with a turnover higher than EUR 60,000 and profitability over 30% to pay corporate tax, a measure that would have strongly penalized companies in the services sector, where the added value is high and purchases for carrying out the activity very low,
• Impossibility to apply tax credit for sponsorship (expression of CSR policy) or tax reduction for capital increases (which incentivizes the maintenance of profits for growth and reinvestment, instead of immediate distribution to dividends),
• Introduction of advance payment of tax for the fourth quarter, until December 25 of the current year.

***

This information does not constitute tax or accounting advice. Nadia Oanea or NOA Tax & Training SRL do not assume responsibility for applying tax and accounting provisions in cases specific to each taxpayer. This information is not provided with the intention of contributing to the avoidance or reduction of taxes, duties or ancillary obligations imposed by the authorities.

www.taxandtraining.com

NOA Tax & Training SRL ◇ Bucharest ◇ Romania

About the Author: Nadia Oanea is the managing partner of NOA Tax & Training SRL, an independent member firm of Integra International, with headquarter in Bucharest, Romania. NOA Tax & Training SRL provides tax and financial advisory services for large Romanian companies and multinational enterprises, being authorized by the Romanian Chamber of Tax Advisors (CCF) and by the Romanian Chamber of Certified Chartered Accountants (CECCAR). We are also an active member of the Romanian American Chamber of Commerce (AmCham Romania), being active in advocacy in tax matters.

Nadia Oanea is a tax advisor and certified chartered accountant with 20 plus-year experience in tax area, out of which 8 years as tax auditor with the Romanian tax authorities, and 15 years in tax advisory in international professional services firms. Besides her extensive experience in the application of the domestic legislation, Nadia Oanea is specialized in international taxation, covering areas such as: application of the double tax treaties, transfer pricing, business restructuring, the taxation of expatriates, country by country reporting, analysis and reporting of cross-border reportable transactions under DAC6 etc.

In December 2014, CIOT UK has awarded Nadia the CCH Prize for the highest marks obtained worldwide for transfer pricing paper, in ADIT qualification.

During last 15 years, Nadia was an active member of the Taxation Committee of Romanian American Chamber (AmCham), participating in discussions of group of experts, as well as in discussion with the Romanian tax authorities and the Romanian Ministry of Finance regarding the tax law.

For personalized advice or personalized training proposals, please contact us by e-mail at [email protected] or by phone at +40749239343.

Integra Member Profile: https://www.integra-international.net/find-an-integra-firm/find-firm-profile/name/nadia-oanea/