Business Guide to Romania* - Bayern - Europa

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Chapter 8 - Taxation of Corporations The dividends received by a Romanian company from a foreign company are taxed at 16% in Romania. A tax credit is available for the tax paid abroad. After Romania's accession to the EU, dividends received from a company within the EU should be non-taxable revenues if the Romanian legal entity holds at least 25 % of the capital of the company that distributes the dividends for a minimum period of two years. 8.4 Deductibility of Expenses Companies may deduct all expenses incurred in order to obtain taxable revenues. The deductible rules from 1 January 2005 are, among others, as follows: ■ Expenses incurred by acquiring packaging throughout the useful life established by the taxpayer; ■ Registration fees, subscription fees and contributions due to the chambers of commerce and industry, trade unions and employers associations. Nonetheless, the deductibility of certain expenses is limited, including : ■ Interest expenses exceeding an annual rate of 7% for foreign currency loans contracted from entities other than banks, financial institutions and leasing companies (see below). ■ Representation expenses are limited to 2% of the difference between taxable revenues and deductible expenses, except protocol expenses. ■ Interest expenses and net foreign exchange losses if the debt to equity ratio is higher than three. (see below). Interest which is non deductible under this rule can be carried forward to subsequent years. ■ Travel and accommodation expenses incurred in Romania or abroad for employees and administrators of the company are deductible only if the taxpayer derives profit in the current year or in previous years. ■ Daily allowances for domestic and foreign travel is deductible up to the level of 2.5 times the ceiling set for public institutions and provided that the taxpayer obtains profit in the current year or in the previous years. If this condition is not met (i.e. the company has losses) then such expenses are deductible at the level of the ceiling set for public institutions (at about EUR 3 day). ■ Marketing, market research, promotion, participation in fairs and exhibitions are deductible. This deduction is no longer conditioned by profits recorded by the 38 PricewaterhouseCoopers - Business Guide to Romania 2005 company in the current fiscal year and/or previous years. ■ Losses recorded at the write-off of bad debts are only deductible in one of the following cases: closing of bankruptcy procedure, decease, dissolution or liquidation of the debtor, major financial difficulties that affect the debtor's entire patrimony. ■ Social expenses are deductible to the level of 2% of the salary expenses. Maternity allowances, funeral benefits and allowances for serious or incurable diseases and prostheses, as well as expenses for proper operation of certain activities or units that are under taxpayers administration fall under this ceiling: kindergartens, nurseries, health services supplied for occupational diseases and work accidents until admission to health establishments, museums, libraries, canteens, sports clubs, clubs, hostels, as well as the schools that are under the aegis thereof, etc. Expenses for transporting employees to and from the working place are no longer included in this category. ■ Management and general administrative expenses allocated by the foreign legal entity to the permanent establishment are no longer limited to 10% of the employees' salaries in order to be deductible. Instead, additional requirements regarding the supporting documentation for the expenses allocated by the headquarters are stipulated. ■ Expenses effected on behalf of an employee for private health insurance premiums and/or to an optional occupational pension scheme within the limit of EUR 200 per year per person. In addition, a number of expenses are specifically nondeductible, including: ■ Profit tax as well as tax on revenues obtained in foreign countries. ■ Fines and penalties due to Romanian or foreign authorities, as well as to non-residents based on commercial agreements. ■ Expenses incurred for services (management, consultancy, assistance), if no written agreements are concluded and if the beneficiaries cannot justify the necessity of receiving these services for their authorised activity. ■ Expenses related to non-taxable revenues. ■ Sponsorship and patronage expenses (but the taxpayers are granted a fiscal credit with the limit of 0.3% of revenue and 20% of the profit tax due).
■ Other salary and/or similar expenses (if not taxed at the level of the individual). ■ Withholding tax paid on behalf of non-residents. ■ Insurance expenses, except for insurance against work related accidents or insurance related to assets owned, rented or leased by the taxpayer. ■ Bad debts expenses in excess of the deductible provision (see below). ■ Expenses registered for accounting purposes that are not substantiated with "justifying" documents. ■ Contributions to professional associations and nonguvernamental (NGO) organizations. These expenses were previously deductible for profit tax purposes within EUR 2000. 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; ■ Provisions for doubtful debts on debts established after 1 January 2004 are deductible within the limit of 20% of the accounting value of the provisions for 2004, 25% for 2005 and 30% for 2006, if the related receivables simultaneously meet the following conditions: - are not collected for a period exceeding 270 days from the due date; - are not guaranteed by another person; - are payable by a person who is not affiliated with the taxpayer; - were included in the taxable income of the taxpayer; ■ Starting from 1 January 2007, provisions for accounting purposes are fully tax deductible if the following conditions are met : - receivables are booked after 1 January 2007; - the debtor is a company declared bankrupt by a court ruling; - receivables are not guaranteed by another person; - the debtor is not a related party; - receivables were included in the taxable income of the taxpayer; ■ Provisions for receivables recorded before 1 January 2004 are deductible within the limits stipulated by the Fiscal Code for provisions established for receivables recorded after 1 January 2004. In addition, two conditions have to be met: bankruptcy proceedings against the debtor have to be opened and the provisions should not have previously been tax deductible; ■ The reserves established by banks or other authorised lending institutions, as well as by mortgage companies, as provided for by their regulatory legal framework (including the legal reserve and general banking risk fund); ■ Technical reserves set up by insurance and reinsurance companies, in accordance with their regulatory legal framework; ■ Risk provisions for transactions carried out on the financial markets, in accordance with the rules issued by the National Securities Commission. Interest Expenses and Foreign Exchange Gains and Losses. Changes in the Destination of Reserves and Funds The reduction or cancellation of any provision or reserve that were deducted from taxable profit, due to changing the destination of the provision or reserve, distribution towards shareholders in any form, liquidation, division, merger or any other reason, is included in the taxable revenues and taxed accordingly. Thin Capitalisation Rules Chapter 8 - Taxation of Corporations The deductibility of interest and foreign exchange losses is subject to certain limitations (including thin capitalisation rules) as set out in the Romanian Fiscal Code. The first rule limits the deductibility of interest on loans contracted with all parties not being financial institutions (where financial institutions include banks, leasing companies for leasing operations) to the limit of 7% for loans in hard currency, and of the National Bank of Romania's rate for ROL loans. Interest exceeding this limit is non tax-deductible and cannot be carried forward in future periods. The second rule is the general thin capitalisation rule. Since 1 January 2005, this rule states that if a company's debt-to-equity ratio is higher than three or if the company's equity is negative, interest expenses and net foreign exchange losses from long-term loans (other than from banks and financial institutions) are non-deductible. PricewaterhouseCoopers - Business Guide to Romania 2005 39
Page 1 and 2: Business Guide to Romania* 2005 Edi
Page 3 and 4: Contents Chapter Page 1. Romania: a
Page 5 and 6: ■ Unions 30 6.2 Working Condition
Page 7 and 8: ■ VAT Compliance 48 10.2 Customs
Page 9 and 10: Chapter 1 Romania: a Profile ■ Ro
Page 11 and 12: upgrades made by Moody's and Fitch
Page 13 and 14: All visitors to Romania require pas
Page 15 and 16: nearly one-third of Romania's banki
Page 17 and 18: Mortgages are created under authent
Page 19 and 20: allowance of 20% of the value of th
Page 21 and 22: Chapter 4 Banking, Finance and Insu
Page 23 and 24: ■ Taking deposits; ■ Making loa
Page 25 and 26: tried to bring more transparency an
Page 27 and 28: Chapter 5 Corporate and Business La
Page 29 and 30: EUR 25,000 by 31 December 2005). Pa
Page 31 and 32: Chapter 6 Labour Relations and Soci
Page 33 and 34: employment contract with an occupat
Page 35 and 36: Chapter 7 Accounting and Audit Requ
Page 37 and 38: Chapter 8 Taxation of Corporations
Page 39: exempt from paying profit tax throu
Page 43 and 44: - revenues obtained from management
Page 45 and 46: Income Subject to 16% Flat Tax Rate
Page 47 and 48: ■ Income from sale of movable and
Page 49 and 50: similar function, cinema tickets, a
Page 51 and 52: guarantee import duties could be ob
Page 53 and 54: are transported between tax warehou
Page 55 and 56: also stipulates the elements that s
Page 57 and 58: elationships with key contacts, inc
Page 59: Appendices
Page 62 and 63: Appendix II Appendix II Major Banks
Page 64 and 65: Appendix III Restaurants Phone ■
Page 66 and 67: Appendix IV 481- 482 Internal Settl
Page 68 and 69: Appendix VI Appendix VI Accountants
Page 70 and 71: Appendix VII (b) Appendix VII (b) W
Page 72 and 73: Appendix IX Appendix IX Customs Dut
Page 74: Appendix XI Appendix XI Excise Tax

Business Guide to Romania* - Bayern - Europa

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