Business Guide to Romania* - Bayern - Europa

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Chapter 8 - Taxation of Corporations Expenses assessed as non-deductible under this rule can be carried forward to the following period and are deductible under the same conditions, until fully deducted. Debt included in the calculation of the debt-to-equity ratio is represented by all loans with a maturity period of over one year. The equity includes share capital, reserves, retained earnings, current year earnings and other equity elements. Both debt and equity are calculated as the average of values existing at the beginning and at the end of the period in which profit tax is calculated. Transfer Pricing Romanian transfer pricing legislation requires that transactions between related parties should be carried out against market value. Romanian Tax Authorities have started to take the OECD transfer pricing guidelines into consideration when applying transfer pricing rules. If the prices used between related parties are not at arm's length, the Romanian Tax Authorities can adjust the related revenues/expenses of the parties in order to reflect the market value of the respective transactions. However, the Romanian Tax Authorities will investigate only the transactions carried out between a Romanian entity and a foreign related party. The tax legislation details transfer pricing methods the taxpayers can apply when setting prices for transactions between related parties: comparable uncontrolled price method, cost plus method, resale price method, transactional net margin method and profit split method. Currently, there are no formal transfer pricing documentation requirements stipulated in the legislation. However, this is expected to change as Romanian Tax Authorities are continuing to evaluate the impact of transfer pricing on transactions between related parties. Losses Romanian companies are allowed to carry forward the fiscal losses as declared in the yearly profit tax returns for a period of five years based on a FIFO method. No adjustment for inflation is allowed in this respect. For foreign legal persons this rule applies only to revenues and expenses attributable to their permanent establishment in Romania. 40 PricewaterhouseCoopers - Business Guide to Romania 2005 8.5 Tax Computations General Aspects Tax returns have to be submitted on a quarterly basis along with the appropriate tax payment, by the 25th of the next month. Banks are obliged to pay tax and submit tax returns on a monthly basis. Non-resident companies deriving income from a real estate property located in Romania or sale of shares held in a Romanian company are required to submit a tax return. Foreign companies can appoint a fiscal representative to take care of such obligations. If a Romanian company or a permanent establishment of a foreign company in Romania pays the income to the nonresident company, the payer of the income is obligated to pay the capital gains tax. Sale-purchase contracts should mention which party is liable for these obligations. Consolidation There is no system of group taxation in Romania. Members of a group must file separate tax returns. There are no provisions to offset the losses of group members against the profits of other group members. The absence of any provisions for group taxation and the 10% dividend tax implies that the establishment of a holding company in Romania is unlikely to be advantageous. 8.6 Other Taxes Withholding Tax Non-resident companies and individuals are subject to the following withholding taxes if there are no overriding provisions in international treaties: ■ 10% (16% as of 1 January 2006) withholding tax on interest for term deposits; Also the withholding tax applies on interest for demand deposits if the interest rate exceed the reference interest rate quoted on the inter-bank market for one month deposits denominated in the relevant currency; ■ 20% from gambling by non-residents; ■ 15% (16% as of 1 January 2006) withholding tax on other revenues derived from Romania, such as: - royalties; - dividends*); - revenues from services if performed in Romania, except for revenues from international transport services;
- revenues obtained from management, brokerage or consultancy services, irrespective where the services are performed; - commissions; - interest, other than mentioned under point 1 above. Since 1 January 2005, income from brokerage services supplied outside Romania is not subject to Romanian withholding tax. Revenues derived from interest on demand deposits/current accounts opened with banks or other credit institutions in Romania are tax exempt only if the interest rate is lower than or equal to the reference interest rate quoted on the inter-bank market for one month time deposits, denominated in the relevant currency. Withholding tax due on payments in foreign currency must be made at the exchange rate valid on the day the tax is withheld. Double Taxation Treaties signed by Romania may reduce the withholding tax rate on the payments listed above, based on a fiscal residence certificate made available by the non-resident beneficiary of the payment. The reduced rates vary according to the country to which the payments are made, and according to the Double Taxation Agreement applicable (see Appendix VII (a) and VII (b)). The notarised Romanian version of the tax residence certificate can be submitted in the year when income is derived or in the following year. The failure to provide the tax residence certificate entails taxation as per the Fiscal Code; settlement of the related tax (as per the conditions of the relevant DTT) will be performed when the certificate is provided. In practice, this procedure appears to be very difficult. *) The 15% dividend withholding tax applicable for both non-resident individuals and companies is reduced to the most favourable rate provided under the DTT and 10% if the fiscal residency certificate is made available. The following categories of income derived from Romania by non-residents are exempt from withholding tax: ■ bonds issued by the Romanian government or companies; ■ revenues from consultancy, technical assistance and similar services financed by means of non reimbursable funds and loans granted to the Chapter 8 - Taxation of Corporations Romanian state, or loans guaranteed by the Romanian state; ■ prizes paid from public funds. Property Tax Building Tax Building tax ranges between 0.5% and 1% of the accounting value. This percentage is increased to between 5% and 10% if the building has not been revaluated in the last three years. It is recommended that one always observes this provision when drawing up the annual accounts and, if necessary, revaluates the property. Land Tax Owners of land are subject to land tax which is established at a fixed amount per square metre, depending on location. Land located outside urban areas will be subject to a tax of ROL 10,000/ha (approximately 0.25 EUR), irrespective of its category of usage and area. Companies are not subject to land tax on land that is used to host buildings or special constructions used for agricultural activities. The land tax should be paid quarterly. Health Tax The providers of advertising services for products such as tobacco and alcohol pay a 12% health tax. The tax is applied on the value of cashed advertising revenues. There is also a 2% health tax due from legal entities who obtain revenues from the production of alcohol (except for producers of wines), as well as from traders who obtain revenues from promoting products such as tobacco, cigarettes and alcohol. This tax does not apply for beer products. Advance Tax Ruling Companies qualifying as major taxpayers may request an advance tax ruling issued by the Central Fiscal Committee. The criteria and necessary documentation for obtaining an advance tax ruling can be found in a Government Decision. Other taxpayers can request an advance tax ruling from 1 January 2007 onwards. PricewaterhouseCoopers - Business Guide to Romania 2005 41
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 and 40: exempt from paying profit tax throu
Page 41: ■ Other salary and/or similar exp
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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