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Romania: Government Approves New Taxation Measures

(Dec. 18, 2013) Romania’s Ministry of Finance has published on its website an Emergency Ordinance on amending the Tax Code and on other tax-related measures. The government approved the ordinance on November 14, 2013; it is scheduled to enter into force on January 1, 2014. (Oana Popa, Romania: Tax Code Amendments Approved – Direct Taxes, TAX NEWS SERVICE (Nov. 15, 2013), International Bureau of Fiscal Documentation online subscription database.)

Some highlights of the new measures insofar as they affect companies are:

  • introduction of a special tax regime for holding companies, exempting from tax the income from dividends received from companies in third [non-European Union] countries with which Romania has a double taxation treaty, the income from capital gains on the sale of shares held in resident companies or companies in double-tax-treaty countries, and the income from a company’s liquidation, provided that the holding company holds at least 10% of the subsidiary’s shares uninterrupted for a one-year period;
  • exemption from tax on dividends derived by a resident company from another resident company or from a company located in an EU Member State, if the recipient country holds at least 10% of the distributing company’s shares for an uninterrupted one-year period. Under current law, such dividends are always tax-exempt in the case of resident companies, but a two-year holding periods is required if the distributing company is situated in an EU Member State;
  • exemption from withholding tax on dividends paid by resident companies to other resident companies if the recipient company has held at least 10% of the distributing company’s share capital for an uninterrupted one-year period, instead of the current two years; and
  • granting of ordinary tax credit for avoidance of juridical double taxation of foreign-source income derived by a permanent establishment in Romania of a non-resident company situated in an EU or European Economic Area (EU Member States plus Iceland, Liechtenstein, and Norway) Member State. (Id.)

In addition, the Ordinance prescribes that a company that derives less than 20% of its income from consultancy or management activities will apply the tax regime for micro-enterprises, if other applicable conditions for that regime are met. If more than 20% of its income is derived from those activities, however, the company must pay corporate income tax. At present, companies with income from consultancy or management activities are not eligible for the micro-enterprise tax regime. (Id.)

In regard to personal income tax, the Ordinance provides that

  • in determining the taxable base for employment income, mandatory monthly social security contributions will be deducted from the gross wage income, regardless of whether the contributions are paid in Romania or in another EU or EEA Member State;
  • advertising materials such as samples and bonus points that are given to individuals are not considered taxable income, a clarification of current law;
  • non-resident individuals earning income in Romania will benefit from the same personal deductions as resident taxpayers; and
  • foreign-source income of resident individuals is tax exempt if the same type of income is exempt when derived from domestic sources. (Id.)

The Ordinance also simplifies tax treatment of income from agricultural leases of personal property and increases the share of royalties allocated to the state budget from the exploitation of mineral resources. (Press Release, Ministry of Finance, Ref: Proiectul de Ordonanta de urgenta pentru modificarea si completarea Legii nr.571/2003 privind Codul fiscal si reglementarea unor masuri financiar-fiscale aprobat in sedinta de Guvern din 14 noiembrie 2013 [Ref: Draft Emergency Ordinance for Amending and Supplementing Law Nr.571/2003 on the Tax Code and Regulation of Financial-Tax Measures Approved in the Government Meeting on November 14, 2013] (Nov. 14, 2013).) In addition, it establishes a new tax on the value of certain types of construction, with exceptions such as public institutions and national research and development institutes. (Id.; see also Text of the Ordinance [in Romanian], Ministry of Public Finance website (Nov. 14, 2013).)