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Romania Corporate - Significant developments

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Corporate taxation

  • Starting 1 January 2016, the withholding tax (WHT) rate for dividend income derived by non-residents from Romania decreased from 16% to 5%. This is similar to the WHT rate that applies to the distribution of dividends to Romanian legal entities and Romanian resident individuals.
  • The New Tax Code, effective as of 1 January 2016, unconditionally exempts from profit tax any dividends received by Romanian profit taxpayers from Romanian legal entities. For dividends received from foreign legal entities, the existing conditions for applying the participation exemption will remain effective (i.e. exemption applies if there is a minimum shareholding percentage of 10% for an uninterrupted period of at least one year).
  • The New Tax Code, effective as of 1 January 2016, incorporates the recent amendments to the European Directive no. 2011/96/EU, relating to the application of a common system of taxation in the case of parent companies and subsidiaries of different member states. The legislation introduces the anti-abuse rule for preventing unlawful tax practices used to obtain tax benefits contrary to the Directive’s principles. Also, dividends received by a Romanian legal entity from a foreign legal entity under certain conditions will not be taxed as long as those dividends are not treated as deductible expenses by the paying subsidiary.
  • Starting from 1 January 2016, the amendments applicable to domestic mergers, total or partial spin-offs, transfer of assets, and exchange of shares have been harmonised with those applicable to similar cross-border transactions. The neutrality of in-kind contributions to a company’s equity has been eliminated, except for cases involving a transfer of a going concern. Transfers carried out during a partial spin-off will not be subject to profit tax only if a transfer of a going concern takes place and the transferor maintains at least one line of activity.
  • The Romanian anti-abuse rules in the New Tax Code, effective as of 1 January 2016, define ‘artificial cross-border transaction’ as a cross-border transaction or series of cross-border transactions that have no economic substance and that cannot be used regularly within ordinary business practices, their main purpose being to avoid taxation or to obtain tax advantages that could not be gained otherwise. Cross-border transactions are those transactions taking place between two or more entities, out of which at least one is situated outside Romania. Cross-border artificial transactions are not considered part of the scope of the conventions for the avoidance of double taxation.
  • As of 1 January 2016, the construction tax for agricultural constructions is eliminated. For other constructions, it will be eliminated as of 1 January 2017.

Value-added tax (VAT)

  • Starting 1 January 2016, the standard VAT rate of 24% has been reduced to 20%. As of 1 January 2017, it will be reduced to 19%.
  • As of 1 January 2016, according to the provisions of Law no. 227/2015 regarding the new Fiscal Code, the supply of school manuals, books, newspapers, and some magazines, as well as the supply of services consisting of the allowance of access to castles, museums, cinemas, and others, is no longer subject to the 9% VAT rate, but, rather, to the reduced VAT rate of 5%. Additionally, sports events are also included in the category of operations subject to the reduced VAT rate of 5%.
  • As of 1 January 2016, the VAT reverse-charge mechanism is applicable to the supply of buildings, parts of buildings, and plots of land, and to the supply of mobile phones, PC tablets, laptops, gaming consoles, and devices with integrated circuits. The reverse-charge mechanism will be applied to the supply of mobile phones, PC tablets, etc. only until 31 December 2018.

Last Reviewed - 01 December 2016

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