Amendments to the Fiscal Code startig with July 1st 2010

Starting July 1^st 2010, new tax and fiscal regulations are applied in Romania, due to the Emergency Ordinance 58 from June 26^th 2010, that will affect all sectors of the national economy.

We briefly present the changes brought by this ordinance:

Profit Tax

Article 32 of the Fiscal Code is amended and has the following content:

“Art.32 Any loss realized by permanent headquarters situated in other states other than Member States of the European Union / European Association of Free Trade or which are located in a state with which Romania has concluded a double taxation convention is deductible only from the income earned by that permanent headquarters.

Starting July 1^st 2010, new tax and fiscal regulations are applied in Romania, due to the Emergency Ordinance 58 from June 26^th 2010, that will affect all sectors of the national economy.

We briefly present the changes brought by this ordinance:

Profit Tax

Article 32 of the Fiscal Code is amended and has the following content:

“Art.32 Any loss realized by permanent headquarters situated in other states other than Member States of the European Union / European Association of Free Trade or which are located in a state with which Romania has concluded a double taxation convention is deductible only from the income earned by that permanent headquarters.

Thus, under this article, any loss made by the means of a permanent headquarters situated in a State not member of EU, or AELS, or is located in a state with which Romania has not concluded the double taxation convention, is deductible only from the income obtained by that permanent headquarters. In this case, losses made by the means of the permanent headquarters are deducted only from such income, separately, for each source of income. Uncovered losses are reported and recovered in the next 5 consecutive fiscal years.

Income Tax

Following Ordinance 58/26.06.2010, Article 50 paragraph (1) a) of the Fiscal Code was amended. There has been diminished the deductible lump expense from 40% to 20% of the gross income, which will help decrease net revenue that the beneficiary of the intellectual property rights contract will receive. This expense will apply when the beneficiary submits the annual statement of income until 28.02.2010 to the Fiscal Administration and is determined the final tax.

Thus, Article 50 (1) a) is amended and has the following content:

“a) a deductible expense equal to 20% of the gross income,”.

In the case of income coming from creation of monumental art works, net income is determined by deducting from the gross income of the mandatory social contributions paid and of a deductible expense equal to 25% of the gross income according to the amendment brought by Ordinance 58/26.06.2010:

Article 50 paragraph (2), point a) is amended and has the following content:

“a) a deductible expense equal to 25% of the gross income”

Emergency Ordinance 58 states also the re-qualification of any activity to be considered dependent activity, applying the principle of economic prevalence on the judiciary.

An activity is considered dependent if it satisfies at least one of the following criteria set out by modifications brought to paragraph 2.1 of Ordinance 58/26.06.2010:

“2.1. Any activity may be reconsidered as dependent activity if it meets at least one of the following criteria:

a) The income beneficiary is in a relationship of subordination to the income payer, namely the management of the income payer, and meets the employment conditions imposed by this one, such as his / her duties and the manner of their fulfillment, place of activity development, working program;

b) in performing the activity, the income beneficiary uses the material basis of the income payer, ie spaces adequately equipped, special or protective work equipment, work tools and others as such

c) the income beneficiary contributes only with the physical or intellectual ability, not with its own capital;

d) the income payer supports, in the interest of the business development, the travel expenses of the beneficiary’s income, such as delegation-relocation allowance in the country and abroad, as well as other expenses of this nature;

e) the income payer supports the allowance for annual leave and temporary disability allowance, in the beneficiary’s income account;

f) any other items that reflect the dependent nature of the activity. “

At the same time, it is established a minimum limit for the annual net income from an independent activity determined on income standards at the level of a minimum gross salary per country guaranteed for payment, in force at the moment of determining the income standard, multiplied by 12 .

Also from July 1^st 2010 is introduced art. III on income tax of professional type as it follows:

ART III

(1) Any income of professional nature, other than salary ones, is liable to income tax rate.

(2) Regarding income stipulated in the preceding paragraph individual social security, health and unemployment contributions are due.

(3) Calculation base to which these contributions are limited to five average gross salaries at the level of the gross average salary used to substantiate the social security budget.

(4) Reporting, calculation, withholding and payment of contributions stipulated at the preceding paragraph is the income’s payer obligation, in accordance with legal provisions in force. “

By Ordinance 58 the following amounts granted to employees will be included in the salary income:

• value of gift vouchers granted according to the law;

Thus, by introducing these tickets in the advantages of salary nature, they will be taxed with16% and will also support all mandatory salary contributions.

• Value of food, childcare and holiday vouchers will be taxed starting with July 1^st 2010 with a quota of 16%, but will not be taxed in terms of the other contributions.

By Ordinance 58 there will also be taxed income obtained by resident individuals in the form of interest on deposits / current accounts and customer deposits formed on the basis of legislation regarding savings and lending in collective system for the housing sector, with 16%, regardless of the date of the constitution of the legal relationship.

Tax is calculated and withheld by the payers of such income at the time of registration in the current account or in the holder’s deposit account.

Tax payment is made monthly, by the 25th of the month following the registration in the account.

There will also be taxed the income received by natural resident persons in the form of interest on deposits, and / or savings instruments with a quota of 16%, regardless the date of constitution of the legal relationship

For income under the form of interests, tax is calculated and withheld by the income payers at the time of registration in the current account or in the holder’s deposit account, namely at the time of redemption, in the case of savings instruments. In the case of amounts received as interest on loans granted on the basis of civil contracts, the calculation of tax owed by income payers is made at the moment of the payment of the interest.

Payment of tax on income from interests is made monthly, by the 25th inclusively of the month following the registration / redemption, in the case of savings instruments, namely at the interest payment, for revenues of this kind, on the basis of civil contracts.

At the same time, there will be unified the taxation rate of income from transfer of securities, other than shares and securities for closed companies, at 16%, regardless of the period of holding the securities and report of annual net loss in the next 7 fiscal consecutive years .

By Ordinance 58 it is also amended the taxation of profits from sales operations based on buying foreign currency on term on the basis of a contract, as well as other such operations from 1% to 16% for resident natural persons.

Also by Ordinance 58 is the unification of taxation for gambling at a rate of 25%.

Non-residents income tax

Amendments brought by Ordinance 58:

• Taxation with the quota of 16% of revenues from interest on deposits / current accounts held by non-residents, of interests on time deposits and / or savings instruments of non-resident natural persons, as well as income obtained by non-residents of Romania from the transfer of derived financial instruments.
• Unification of taxation of revenues from transfer of securities other than shares and securities in the closed companies at 16%.
• Fiscal credit will be given only to resident natural and legal persons that obtain income from states with which Romania has concluded double taxation conventions.
• Increasing taxation of income from gambling from 20% to 25% for non-residents.

VAT

By Ordinance 58/26.06.2010 there is also amended the standard quota for VAT from 19% to 24%.