They made the following promises:
Tax reductions:
What wasn’t in the main announcement:
Corporate Income Tax (Profit tax):
Negative aspects:
Taxation for foreign companies which have their effective management in Romania
Implications: offshore companies risk taxation in Romania when they offer services to Romanian companies, if their effective management is made from Romania. Risks for those who use aggressive fiscal optimization.
Negative aspects:
Vehicles
Implications: artificial taxation by not granting fiscal deduction through amortisation for cars more expensive than 20.000 euros. In the case of selling the car, the tax deductible cost is only the equivalent of the amortized value out of the 20.000 euros, which is a masked tax rise.
Positive aspects:
Stocks
Implications: expired stock expenses are no longer considered non-deductible. This causes a diminishing of abusive taxation, which happened until now. Thus, the costs with depreciated goods, impossible to sell, will not be taxed anymore.
Micro-enterprise taxation
Negative aspects:
Compulsory minimum wages: the micro-enterprises are coerced to have a full, 8-hour norm employee.
1% tax for 2 employees, 3% tax for 1 employee.
Implications: additional expense of roughly 1.320 lei/trimester. This causes an additional taxation of 1.320 lei * 4 quarters, equivalent of 1.200 euro/year. This additional taxation is equivalent to rising the effective taxation rate to 5%.
For a micro-enterprise to apply the 1% taxation rate, it has to have at least 2 employees, which means an additional cost of 1.530 lei * 4 quarters = 6.120 lei, roughly 1.350 euros. Considering a 65.000 euros turnover (all profit), the 2% decrease of tax mean a benefit of 1.300 euros, which are compensated by the 1.350 euro increase in taxation.
Conclusion: there is no advantage in choosing this taxation scheme (hiring 2 employees), the real tax percentage being of approximately 5%.
Independent natural person (PFA) , copywright taxation
Income tax and social contributions
Negative aspects:
Compulsory Social Insurance Contributions (SIC)
The introduction of the individual 10.5% SIC for all income from independent activities. People can opt also for paying the employer contribution, meaning an additional tax of 15.8%. Those who choose not to pay the employer contribution will benefit of only one third of the retirement funds, even though their individual SIC payment accounts for 40% of the total. ( 10,5/ (10,5+15,8) )
Health Insurance Contributions (HIC) are no longer deductible when calculating income tax
Implications: even though this represents a compulsory contribution, the fact that it will not be deductible when calculating the income tax will lead to an increase of tax from 16% to 16.88%.
All these changes will determine a rise in taxation for the PFA from aprox. 26% of net income to aprox. 43.5%.
Positive aspects:
Limitation of HIC to 5 monthly average salaries
The basis for the calculation of SIC and HIC is limited to 5 monthly average salaries, and this will benefit the persons who earn more than 145.000 lei/year.
Salary income
Positive aspects:
Deductible daily allowance for administrators and managers with mandate contracts. They can benefit from a daily allowance of maximum 2,5 times the daily allowance for public institutions (2.5 * 17 lei = 42.5 lei). Just like for employees, what is over this value will be considered taxable income and will be taxed with all the taxes and social contributions, as a salary income.
Income from dividends
Negative aspects
Compulsory HIC
For income from dividends and investments the obligation of paying HIC was introduced. 5.5% will be paid out of the salary income, income from independent activities, rent income and other types of income, but limited to 5 average salaries (145.000 lei/year). Until now, if the person had a work contract, they didn’t pay HIC for dividends.
Rent income
Negative aspects:
Also for this type of income, the HIC is no longer deductible when calculating income tax.
Positive aspects:
The expense rate for flat-rate charges that can be deducted when calculating rent income tax rose from 25% to 40%, thus reducing the income tax owed. Still, taking into account the fact that the HIC will no loger be deducted before calculating the tax, the total tax for rent income was reduced from 20% only to 18%.
Local taxes
Building tax
Negative aspects:
Natural Persons – Rise in local tax for residential buildings
Implications: the building tax quota is modified from 0.1% to 0.08-0.2%, which means that the local authorities can lower the local tax by up to 20%, but can also increase it with as much as 100%.
What will the local authorities do????
Natural Persons – Rise in taxes for non-residential buildings
Implications: for companies the tax rate is between 0.2% and 1.3%, but a yearly reevaluation of the building is mandatory, otherwise the tax level is 2%. For a 1.000.000 euro building, 0.2% means 2.000 euros, and a valuation report has roughly the same price.
Conclusion: for buildings with a lower value it is not economically sound to have them evaluated. In this case, many owners will transfer the property towards companies.
Natural Persons – Rise in taxation for buildings with mixt destination
Implications: for spaces with mixt destination (eg: apartments), the taxation will be at company level for the surfaces with non-residential destination, implying a yearly evaluation for those spaces.
Conclusion: increase in taxes, plus compulsory evaluation, which can lead to having the registered office for the company at home less attractive.
Local tax is owed for a full year
Implications: even if a building is sold in January, you will owe local tax for the entire year. Automatically, the buyer will only pay local tax starting from January 1st of the second year. Buyer advantage.
Positive aspects
Natural Persons
The progressive increase in local tax for several properties has been eliminated
Implications: the rise in local tax for a person who owns several buildings was of 65% for the second building, 150% for the third and 300% for the fourth and the following ones. This progressive rise is eliminated; it is considered that the other tax increases covers the super-taxation in the case of several buildings owned by the same person.
Legal Persons
Residential buildings owned by legal persons will have less taxation
Implications: real estate developers will no longer pay big taxes between finalizing a building and selling it. These companies will pay similar taxes to natural persons, 0.08% – 0.2%.
Legal Persons
Decrease in local tax for non-residential buildings
Implications: the building tax quota is modified, from 0.25%-1.5% to 0.2%-1.3%. Not having a reevaluation done every 3 years, the tax rate can reach 5%-10%, in accordance to the regulations set by the local authorities. The tax rate, in this situation, in the current Tax Code, is 10%-20%.
Postponed taxation for new buildings
Implications: if you bought or finalized a building during the year, you will have to pay local taxes only from the 1st of January, the second year. The townhalls will have many buildings to take over in January 🙂
Land tax
Negative aspects:
The taxes on land rise – the amount of land taxes will be in accord with that of building taxes. The minimum level drops by 20%, and the maximum limit rises by 100%. Our estimation is that the mayors will have more money to ask for.
Positive aspects: there are none.
Penalties for not declaring taxes
Negative aspects:
The sums additionaly added by the tax authorities will be over-taxed. The penalties for not declaring taxes are:
These quotas can be raised with as much as 100% if the tax difference is a result of tax evasion.
Except for tax evasion, the penalty for undeclared taxes cannot be greater than 1.000.000 lei. Having these penalties applied does not exempt the taxpayer from paying interest and penalties, which amount to 0.05%/day.
Example:
If the tax authorities control your company and discover a profit tax difference of 100.000 lei and the sum you declared is 490.000 lei, you will pay:
interest and late fees, 14.6%/year – 14.600 lei
penalties for undeclared tax, 25% – 25.000 lei
Result:
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