Tax alert no.36, October 2017

Potential amendments to be brought to the Tax Code

Draft Government Ordinance for amending and completing the Law no. 227/2015 regarding the Tax Code, published on the website of The Ministry of Public Finances on 26 October 2017

Amendments envisaged to be brought to the Tax Code

We have summarized below the main amendments that are envisaged to be brought to the Tax Code according to the draft Government Ordinance for amending and completing Law no. 227/2015 regarding the Tax Code published on the website of The Ministry of Public Finance on 26 October 2017. We emphasize that for now, these are just proposals which are subject to public debate and at this moment it cannot be anticipated if they will be effectively adopted in the proposed form. In case they will be adopted, the provisions should entry into force starting 1 January 2018.

Corporate Income Tax

The amendments envisaged to be brought to the corporate income tax provisions refer mainly to the transposition into the Tax Code of the provisions of the EU Council Directive 2016/1164 of 12 July 2016 which lays down the rules against tax avoidance practices that directly affect the functioning of the internal market (“ATAD”).

ATAD provisions that are envisaged to be transposed into the Tax Code refer to:

  • Deductibility limitation of interest and of other economic equivalent costs (these provisions should replace the provisions of art. 27 “Interest expenses and foreign exchange differences“);
  • Tax regime for transfer of assets, of tax residence and/or economic activity carried out through a permanent establishment in relation to which Romania no longer has the right to tax, is regulated;
  • General anti-abuse rule is introduced;
  • Controlled foreign companies rules are introduced.

The fact that the Romanian tax authorities are rushing to introduce these provisions, which in the other European states should become applicable only starting 2019, is hard to explain. Our concern is that such a legislative amendment, introduced in the absence of an adequate preparation, could have negative collateral effects that are difficult to quantity.

Tax on income derived by micro-enterprises

The amendments envisaged to be brought to the provisions related to the tax on income derived by micro-enterprises refer mainly to:

  • Micro-enterprises definitions to include entities which derived over 80% of their total income from consultancy and management;
  • The increase of the threshold for qualifying as micro-enterprises from EUR 500,000 to EUR 1,000,000;
  • Taxpayers which are currently carrying out exempted activities (such as banking, insurance and re-insurance, capital markets, gambling, etc.) will be subject to micro-enterprises taxation regime;
  • Elimination of the option to apply the corporate income tax regime (instead of micro-enterprises tax regime) by newly set-up legal entities that have a minimum subscribed share capital of RON 45,000.

This last amendment does not seem to be favourable for large investments with a duration of more than one year, as it will generate non-recoverable tax losses for investors. We hope that it will be dropped before it produces negative effects.

Income tax

The proposed legislation amendments in the income tax area refer mainly to:

  • The income tax rate will be reduced from 16% to 10% for the majority of types of income earned by individuals;
  • The pension contribution rates will be as follows: 25% due from the employees; 4% due from employers in case of specific work conditions; 8% due from employers in case of special work conditions;
  • The health fund contribution rate will be of 10% and will be due from the employees;
  • The contribution for work insurance will be of 2.25%.

The above proposed amendments will be applicable for the income earned as of 1 January 2018.

Local Taxes

 It is proposed to increase the value of the tax (RON/year) for certain vehicles for freight transport.

Value Added Tax

 The amendments that are envisaged to be brought to the value added tax provisions refer only to article 297 and introduce a new paragraph (8) regarding the right of the competent tax authorities to refuse VAT deduction where it can be poven beyou any doubt that the taxable person knew or should have known, that the transaction on which the right to deduct is based was connected with VAT fraud within the supply chain.

Excise tax

The amendments envisaged to be brought to excise taxes refer to the sanction of the holding outside a tax warehouse or the commercialization on Romanian territory of excise goods subject to marking, without being marked, marked inadequately or falsely marked, by confiscation of tankers, containers and methods of transportation used in the transport of above-mentioned excise goods.

Authors: Cristina Hudac – Tax Senior Manager

Corina Mindoiu – Tax Senior Manager

Ramona Stefan – Tax Manager


For additional information, please contact:

Alex Milcev, Partner – Head of Tax&Legal


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