The Tax Code valid for 2016 was published in the Official Journal
The Official Journal from Thursday published the new Fiscal Code which we will know from now as the Law no. 227/2015 regarding the Fiscal Code.
In summary, the new Fiscal Code contains:
– Reduction of the value-added tax, the overall rate to 20%, accompanied by a decrease in VAT for deliveries of books, textbooks, newspapers, magazines at the rate of 5%, the rate that is otherwise applied for access to sports competitions, cultural events etc.;
– tax increases, such as the increase of local taxes owed by natural persons for the housing they own, with substantial and multiple time increases for the accommodations used as headquarters for the development of independent activities;
– extension of the type of incomes for which are owed social insurance, pensions or individual contributions to health, which are not paid according to the current Tax Code.
The main taxation elements that are the subject matter of the regulatory document:
1) MICROENTERPRISES
– A microenterprise is a company that makes at the end of the previous financial year taxable incomes lower than 65,000 euro at the exchange rate at the end of the year and the weight of the consultancy and management services is higher than 20% in total income.
– The tax on the microenterprise income is of 3%.
– A microenterprise that registers an employee is taxed with a rate of 1% for the first 24 months of activity if the associates/ shareholders have not owned financial titles in other legal entities.
– If the company was incorporated for a limited term, the minimum duration of the company is 48 months.
2) THE PROFIT TAX
– The profit tax is owed in a rate of 16%, general rate. If the company conducts activities in the field of night bars, night clubs, discos and casinos, the abovementioned tax cannot be lower than 5% from the total income made.
– The tax result is calculated as the difference between the incomes and expenditures recorded in accordance with the applicable accounting regulations, from which are detracted the non-taxable incomes and the fiscal deductions, and to which are added the non-deductible expenditures.
– We notice a new definition of the deductible expenditure according to which the expenditures incurred for the purpose of carrying out the economic activity are deductible.
– We also observe the introduction in the Tax Code of a procedure similar to the one of rectification of the accounting errors, in the sense that if during the current year an error in the calculation of the profit tax related to a closed financial year is identified and the error is insignificant, the correction shall be made on the expense of the profit of the current year. If the error is significant, it is required to make a correction on the expense of the tax result of the year to which the error refers.
Among the modifications brought to the profit tax, we specify:
1. The facility of reinvested profit is granted both for equipment in group 2.1 and in group 2.2.9 from the Catalogue of fixed assets, respectively Technological Equipment (machinery, plants and work installations) and electronic computers and peripheral equipment, machines and devices for cash desk, control and invoicing. We observe the extension of the assets found in the scope of the reinvested profit and the broadening of this scope to computers and invoicing equipment.
2. It extended the category of non-taxable incomes for the amounts collected by the operators in charge of managing waste.
3. The protocol expenses are deductible in a quota of 2% on the accounting profit to which are added the expenditure with the profit tax and the protocol expenditure. No fiscal adjustments are made, one starts from the gross profit.
4. Social expenditures can be granted in amount of up to 5% from the expenditures with the salaries – thus the limit was increased.
5. The sponsorship expenditures reduce the profit tax in the percentage of 0.5% (5 to a thousand) from the turnover, without exceeding 20% from the profit tax and can be carried forward for a period of 7 years. We notice the increase of the percentage of the turnover.
6. For long-term loans from other entities, the interest rate is reduced to 4% when it is in a currency which can be deductible, depending on the indebtedness degree. Previously this percentage was of 6%.
7. In the case of acquisition of means of transport it is highlighted that the amortization is limited to 1,500 ron/month and the value that exceeds this sum is non-deductible even if the means of transport is sold with profit.
8. It maintains the general rule of quarterly payments of the tax for the first 3 quarters, until the 25th of the month following the month in which the quarter ended, with the submission of the annual profit tax statement until the 25th of March of the following year.
3) THE DIVIDEND TAX
– Dividends paid by a company, a Romanian legal entity, to another Romanian legal entity shall be taxed with the percentage of 16%.
– Very important: the dividend tax does not apply if the entity which cashes the dividends holds in the affiliated entity more than 10% from the share capital for a period of more than 1 year.
– Starting with the 1st of January 2017 the dividend tax shall be in the percentage of 5%.
4) THE VALUE-ADDED TAX
The general rate applicable starting on the 1st of January 2016 for VAT is of 20%.
The following reduced rates are applied:
– the 9% rate for medicines, accommodation in the sector related to hotels, food, restaurant and catering services.
– the application of the reduced rate of 5% is extended to books, school books, magazines and for the access to cultural or sports events, the access to museums, memorial homes, fairs or exhibits.
– the VAT rate of 5% is maintained also for the sale of social housing, while the application conditions are modified favourably to the buyer.
The deductibility limited to 50% is maintained for the means of transportation for persons when they are not used exclusively in economic activities.
A transient measure for VAT adjustment is taken for goods other than capital ones when these are not used in taxable activities anymore.
The limit of 220,000 ron is maintained, representing 65,000 euro on the date of adherence, representing the VAT exemption limit.
The reverse taxation measures are extended (VAT simplification without the actual payment of VAT) for:
– buildings, parts of buildings and lands;
– deliveries of mobile phones;
– deliveries of game consoles, pc tablets and laptops.
5. THE TAX ON THE INCOME OF A NATURAL PERSON
The general taxation rate is of 16% and the tendency is to extend the categories of incomes for which social insurance is owed (contributions to pensions or to health).
a. The tax on the income from salaries is of 16%. The personal deductions are modified.
The personal deduction is granted for natural persons who have a gross monthly income of up to 1,500 ron inclusive, as follows:
– for taxpayers who do not have dependants – 300 ron;
– for taxpayers who have one dependant – 400 ron;
– for taxpayers who have two dependants – 500 ron;
– for taxpayers who have three dependants – 600 ron;
– for taxpayers who have four or more dependants – 800 ron;
For the taxpayers who make monthly gross incomes from salaries between 1,501 ron and 3,000 ron inclusive, the personal deductions are degressive with respect to the ones above and are established by order of the minister of public finance.
b. The taxation of the certified natural person. The obligation of payment of the 16% income tax and the health contribution established at the level of the net income existed also in the prior legislation.
In comparison with the payment obligations of a certified natural person, we observe the introduction of the mandatory individual contribution to pensions in the percentage of 10.5% from the net income made by a person. This contribution has an annual upper limit set of 5 x the average salary x 12 months.
– This contribution is paid even if the certified natural person is a wage earner with an employer.
– If the certified natural person wishes to benefit from a full pension, they optionally also pay the contribution of 15.8%, the employer’s contribution.
– In comparison with the current situation of the Tax Code from 2015, these are new contributions which are not paid by a certified natural person who is already an employee. The certified natural person owes the pension contribution at this moment if the incomes made from independent professions/ activities are their only incomes, which, as a matter of fact, is normal.
– The basis for calculating the pension contribution is decided by the natural person and it cannot be lower than 35% from the average salary – usually one chooses the average salary – nor higher than 5 times the average salary.
c. Special cases – situations which compel us or exonerate us from the payment of the health contribution.
– For the incomes made from the assignment of the use of goods, with respect to the regulations of the current year, the limit of the quota of lump sum expenditures is increased to 40%, and the basis for calculating the contribution to health insurance will not exceed in 2016 the amount of 5 times the average gross salary.
– For the persons who make income from intellectual property rights, where the income tax is withheld at source, the procedure most frequently encountered this year as well, the basis for calculating the health contribution is represented by the gross income contracted from which a lump sum expenditure quota of 40% is detracted.
– In the year 2016 no health insurance contribution is owed for intellectual property rights when the natural person also makes other incomes already subject to the health contribution, such as incomes from salaries, incomes from pensions, incomes from independent activities, incomes from other sources, in accordance with art. 171 paragraph (4) from the new Tax Code.
– For the incomes from investments – and our analysis focuses particularly on incomes from dividends cashed by natural persons – the basis for calculating the contribution is the gross income from dividends (not the net dividend), cashed in the previous year, and the taxation is made by ANAF with a taxation decision.
– In the year 2016 no health contribution is owed if the natural person who cashes the dividends makes during the same fiscal period incomes which are already subject to the health contribution, such as incomes from salaries, incomes from pensions, incomes from independent activities, according to art. 176 par. (7) from the new Fiscal Code.
– Practically, during the year 2016 we have the same regime regarding the health contribution for the incomes from dividends cashed from natural persons.
– In the year 2017, the incomes from dividends fall into the scope of payment of the individual contribution to health, and the basis for calculation cannot be higher than 5 times the gross average salary in accordance with art. 176 par. (5) from the Tax Code. This must be corroborated with the reduction of the dividend tax, also predicted for 2017.
6. LOCAL TAXES AND DUTIES
For the year 2016, a person that is owner of housing until 31 December 2015, owes for the same building a tax which is calculated according to three parameters:
a) a significant increase of the basis for taxation related to an area of 1 square meter of construction, to the amount of 1,000 ron, according to art. 457 paragraph (2) of the Tax Code. This value will also be influenced by the rank of the locality and by the antiquity of the construction; however, we notice that there will be a taxation increase of at least 6.95%, just by augmenting the reference value related to one square meter of construction. This tax increase is mandatory for the owner of the housing, even if the City Hall decides to keep the current taxation rate.
b) the taxation percentages for residential buildings are between 0.08% and 0.2%, the value applicable in one year being established by the Local Council. If we refer strictly to the tax percentages, we observe the possibility of the specialty Directorates from the local public authority to apply taxes that are at least double.
c) there is a differentiated taxation depending on the intended use of the respective housing. If in such housing economic activities are conducted, or a company has its headquarters or a natural person conducts an independent activity or there is a declared registered office of a certified natural person, individual enterprise or family association, the taxes established by the City Hall are between 0.2% and 1.3% in accordance with art. 458 paragraph (1) of the Tax Code. These percentages allow the increase of the tax by up to 13 times with respect to the current level.
– Nevertheless, these reduced taxation percentages apply if the value of the housing has been established by an evaluation report drawn up in the last 5 years, respectively if the housing was purchased/built during the last 5 years. If the housing was purchased/built during a previous period longer than 5 years or if there is no re-evaluation during the last 5 years, the taxation rate is 2% from the reference value determined by the Tax Code, starting from the amount of 1,000 ron/square meter of construction, according to art. 458 paragraph (4) of the Tax Code. In this case, the tax can even exceed 20 times the current level.
– Two particular situations arise, which require further analysis, respectively what is actually understood by economic activity, because the fiscal notion is only to make the delivery of goods/providing services and works on the market, and whether only part of said housing, say only a room in an apartment is the location where the economic activity is conducted.
– From the point of view of conducting economic activity, the legislator presents as a difference between providing services and being just a residential housing, only the reimbursement of the expenses for maintenance and utilities, pursuant to art. 459 paragraph (3) letter b) of the Tax Code.
– The essential questions are: if in this housing there is only the official headquarters of a company, or the official headquarters of a certified natural person, and these entities conduct their activity in a different location, do they owe an increased tax?
– Normally, the answer is no, but it depends on many factors. In some cases, the criterion of existence of the company or the criterion of recognition of said independent activity is the very possession of said premises.
– If in the premises of the housing we know with certainty that in one room economic activities are conducted, and the rest of the housing is used even with residential destination, in this case the taxation is mixed, in the sense that the increased tax is owed only for the area of that room, and for the rest of the housing a lower rate tax will be calculated and owed.
– Very important: as natural person owner of a housing, only if in the housing economic activities are conducted, they must submit to the specialty Directorate of the local authority a special statement pursuant to art. 495 letter a) of the Tax Code.
– We consider necessary to present this regulatory basis for a better edification of the fact that not all the housing owners must submit said statement, but only the ones who hold non-residential buildings or mixed destination buildings, as follows: “Art. 495 – For the purpose of establishing local taxes and duties for the tax year 2016 the following rules are set: a) natural persons who on 31 December 2015 are owners of non-residential buildings or mixed destination buildings have the obligation to submit statements until 29 February 2016, in accordance with the model approved by the joint order of the minister of public finance and of the minister of regional development and public administration within 60 days from the date of publication of this code in the Official Journal of Romania, Part I (…)”.
– Also the companies which have ownership over a construction shall submit a special tax statement, for the constructions existing among their assets on 31 December 2015. Legal entities that own constructions shall pay in the tax year 2016 a building tax as follows:
a) for the residential constructions owned, the rate is between 0.08% and 0.2% from the taxable value of the construction;
b) for the non-residential constructions, the rate is between 0.2% and 1.3% from the taxable value of the construction.
– The taxation basis is updated every 3 years, by performing a re-evaluation. In case in which no re- evaluation is conducted in the last 5 years, the previous listed rates shall be increased to 5% pursuant to art. 460 paragraphs (1), (2) and (8) from the Tax Code.
7. EXCISES
The structure of the existing excisable products is maintained for 2015 (approximated excises and non-approximated excises.) The level of the excise for the main excisable products is:
a. unleaded fuel: 2035.40 for 1,000 litres, respectively 2.03 cents/litre.
b. ethylic alcohol: 3306.98 ron/ hl of alcohol.
• The new code eliminated the non-approximated excise of luxury for yachts, automobiles with a cylindrical capacity higher than 3,000 cmc, fur skin garments, etc. The nicotine liquid in the electronic cigarette and the tobacco contained in products from heated tobacco remain as products subject to non-approximated excises.
8. THE CONSTRUCTION TAX owed to the budget
It remains in percentage of 1%, and it will be abrogated on 1 January 2017.
EasyBalkans Team