Romania: Important new fiscal measures for fiscal consolidation & tax evasion

On 15 December, the Romanian government approved by way of Emergency Ordinance no. 115/2023 (the “Ordinance”) several important fiscal measures intended to combat tax evasion, to ensure fiscal consolidation and to amend and supplement certain normative acts, as well as to extend certain deadlines. These measures complement the fiscal measures introduced in October 2023 by Law no. 296/2023.

We present a summary of the most important fiscal changes for companies and individuals starting from 1 January 2024. The majority of the fiscal measures will apply from 1 January 2024, but there are a few exceptions, which are mentioned below.

Profit tax

• Annual tax losses realised starting in 2024/modified tax year starting in 2024, will be recovered within the limit of 70% of the taxable profits obtained in the next 5 consecutive years (according to the current legislation, tax losses may be recovered entirely from the taxable profits obtained in the following 7 consecutive years).
• Annual tax losses realised prior to 2024, and still to be recovered on 31 December 2023, will be recovered from the taxable profits obtained starting with 2024, within the limit of 70% of the taxable profits in question, during the remaining recovery period of 7 consecutive years following the year the losses were recorded.
• Provisions for the depreciation of receivables, recorded according to the applicable accounting regulations and representing amounts owed by internal/external customers for products, semi-finished products, materials, goods sold, work performed and services provided, will be deductible up to the limit of 30% of the value of these provisions. The limited deductibility will apply to receivables recorded after 1 January 2024, whilst the current 50% deduction limit will still apply to receivables recorded prior to this date.
• A new limit of €500,000 is introduced for the deductibility of excess borrowing costs resulting from transactions/operations that do not finance the acquisition/production of certain fixed assets under construction/assets (which will be established by order of the finance ministry) and which are carried out with affiliates. The overall existing €1 million deductibility threshold for excess borrowing costs is maintained for all transactions/operations.
• Private scholarships will no longer represent fiscal credit for profit tax purposes. They will be included in the category of social expenses and limited to RON 1,500 per scholarship, up to5% of the total salary expenses of the relevant taxpayer.
• Amounts paid by the company for the placement of employees’ children in early education units, according to the legal regulations in the field of national education will be deductible up to the limit of RON 1,500 per month per child, up to 5% of the total salary expenses of the relevant taxpayer.
• Companies that pay the minimum tax (IMCA) starting 2024 and that deduct the value of fixed assets under construction related to the acquisition/production of assets upon the calculation of said tax will be obliged to keep these assets for a period equal to at least half of the duration of their economic use, established according to the applicable accounting regulations, but no more than 5 years.
• In the case of fiscal groups, the €50 million turnover threshold for calculating the minimum tax (IMCA) is calculated taking into consideration the aggregate turnover of the members of the fiscal group.

Microenterprise tax

• The following new conditions for applying the regime are introduced:
  • Submission of the annual financial statements by the deadline provided by the law for the previous year.
  • The €500,000 turnover threshold is calculated by reference to the revenues generated by the Romanian legal entity plus the revenues of the related entities as defined according to the provisions of Law no. 346/2004 on promoting the establishment and development of small and medium-sized enterprises.
• Any given shareholder will be able to hold more than 25% of the shares in only one microenterprise, instead of 3, as it is now.

Income tax on salary income and related social insurance contributions

• Amendments are provided regarding the salary benefits included in the 33% non-taxable monthly limit:
  • the RON 400 paid by a company to employees working remotely to assist with utility bills at their remote workplace, such as electricity, heating, water and internet, and the purchase of furniture and office equipment, is eliminated. These amounts will be assessed as fully taxable benefits in kind;
  • the value of non-taxable sports subscriptions is reduced from €400 to €100 per year;
  • the favourable difference between the preferential interest rate obtained from the employer and the market interest on loans and deposits, is added to the list of qualifying benefits;
  • the amounts paid by the company for the placement of employees’ children in early education units, according to the legal regulations in the field of national education, within the limit of RON 1,500 per month per child, is added to the list of qualifying benefits.
• The relevant provisions for social security contributions are updated given the new taxation rules mentioned above.
• Clarifications are introduced with regard to the employee’s option to pay/stop paying the contribution to the privately administered pension fund for salary income earned by employees in the IT, construction, agriculture, and food industries – the procedure for exercising the option can be established by the employer via the internal regulation or any other document. The option is now reversible.
• Health insurance allowances granted for medical leave will be subject to the health insurance contribution.

Income tax for revenue from independent activities and related social insurance contributions

• For rental income, the option to determine the net income using the real time accounting data  is abolished, and a new fixed deduction of 20% of the rental income is included. Also, new rules are introduced regarding the withholding of income tax on rental income paid by legal entities or other entities that keep accounting records.
• Fiscal losses realised from certain independent activities will be recovered up to 70% of the annual taxable income, over a period of 5 years.
• Additional clarifications are provided regarding the minimum wage used in determining the annual taxable basis for calculating the social insurance contributions.
  
  

VAT

• The definition of “added sugar” is amended by including only those products that are added as ingredients for sweetening food/beverages;
• Besides cakes (Romanian: Cozonac) and biscuits, formula for new-borns, infants and young children is included in the category of foods with added sugar to which the reduced VAT rate of 9% applies.
• The VAT deduction right related to the purchase, rental or leasing of buildings/homes, regardless of their location, situated in residential areas or in apartment buildings, and the VAT corresponding to expenses related to these buildings/homes is limited to 50% if they are not used exclusively for the business purposes. This provision will enter into force starting on the 1st of the month following the date on which Romania is authorised to apply this special measure derogating from the provisions of the VAT Directive.

Other regulations

• Amendments have been made to the RO e-transport system;
  
• Amendments to the RO e-Invoice national electronic invoice system:
  • Electronic invoices must be transmitted to the beneficiaries via the RO e-Invoice national electronic invoice system within 5 calendar days of the issue date but no later than 5 days from the deadline provided by the law for issuing the invoices. Noncompliance with this obligation is penalised by fines set according to the type of the company (e.g. large, medium or small);
  • During the period January 1 to June 30, 2024, sending electronic invoices through the system is not mandatory for:

    i. exports and intra-community deliveries of goods,
    ii. supplies of goods and services rendered to taxable persons which are not established or VAT-registered in Romania;
    iii. supplies of goods and services for which simplified invoices are issued (invoices up to €100 including VAT);
    iv. supplies of services for which invoice issuing is not subject to the invoicing rules applicable in Romania.

  • Starting from 1 July 2024, electronic invoicing and transmission of invoices (except simplified invoices) through the RO e-Invoice system will be mandatory for B2B transactions. Noncompliance with this provision is punishable at the level of both the supplier and the buyer by a fine equal to 15% of the value of the invoice.
• Law no. 70/2015 for strengthening financial discipline regarding cash receipts and payment operations is amended starting 15 December 2023:
  • The threshold for treasury advance payments  is increased, from RON 1,000 to RON 5,000.
  • "Superstores" and "hyperstores", as newly defined by the law, along with cash and carry stores, are allowed to hold max. RON 500,000 (increased from RON 50,000) as cash amounts in the cash register at the end of each day.