Tax Flash – Important changes of the Tax Code

In the Official Gazette no. 716 from 15.07.2022, was published the Government Ordinance no. 16/2022 for changing and amending Law 227/2015 regarding the Tax Code, repeal of certain laws and other financial and tax measures. The piece of legislation brings important changes in most of the areas of taxation. We present below the most important such changes.

 

 

1.  Changes brought to the corporate income tax system and taxation of dividends

The reinvested profit exemption can be applied also for “assets used in the production and processing activity, the assets representing technological upgrades”. What exact assets will fall into these categories will be determined later by order of the Minister of Finance. The provision enters into force on January 1st, 2023.

 

There is no longer a limitation regarding the legal type of the company for considering the dividend income received by the parent companies from their subsidiaries as non-taxable. Specifically, the conditions are also considered fulfilled if the company is constituted as a general partnership, limited partnership or has any other legal form under the Romanian legislation. This provision is applicable from July 18th, 2022.

 

Dividend tax rate increases from 5% to 8%, starting with dividends distributed after January 1st, 2023.

 

 

2.   Changes of the micro-enterprise tax system

 

Starting January 1st, 2023, the micro-enterprise income tax system will undergo significant changes, as follows.

 

The tax law has been changed so that the standard taxation system is the corporate income tax, and the micro-enterprises system becomes an optional one that can be applied only once, for companies that cumulatively meet the following conditions:

• The annual revenues should not exceed the equivalent of EUR 500,000 (previously the limit was EUR 1 million);
• The revenues should not come from consulting and / or management services in a percentage higher than 20% (newly introduced condition);
• The company has at least one employee (previously, micro-enterprises were not obliged to have employees, but in such a case they would apply a tax rate of 3%, instead of 1%);
• The shareholders of the micro-enterprise should not hold more than 25% of the shares in more than 3 companies that apply the micro-enterprise system (newly introduced condition);
• The share capital is not owned by the state or administrative units (already existing condition);
• The company is not in the process of dissolution, followed by liquidation, registered at the Trade Registry or the Courts, as per the law (already existing condition).

For certain activity codes (activities in the HORECA industry) the companies can choose to apply the micro-enterprise tax system, without applying the exit rules in case of non-compliance with the above conditions. The exception is introduced while starting January 1st, 2023, Law 170/2016 on activity-specific tax is repealed.

 

The following additional types of activities are added, for which the micro-enterprise tax does not apply:

• banking activities;
• insurance and reinsurance activities, capital market activities, including intermediation in these fields;
• gambling activities;
• exploration, development and exploitation of oil and natural gas fields.

Shareholders owning more than 25% of the share capital of more than 3 companies will have to choose a maximum of 3 of them that will apply the micro-enterprises tax. Of course, the chosen companies must meet all the above conditions.

Micro-enterprises may opt for the payment of corporate income tax, but only from the following fiscal year, not during the year, and may not return to this system if they have applied it after January 1st, 2023. However, if at least one of the above conditions is no longer fulfilled or if activities excluded from the application of this taxation system are started, the respective company will apply corporate income tax from the beginning of the quarter in which the condition / conditions were no longer fulfilled, without the possibility to opt for the micro-enterprise tax in the future.

 

After introducing the obligation to have at least one employee, there will no longer be different tax rates, the only remaining tax rate being 1%. In the event the employment relationship ends, the condition of having at least one employee is considered fulfilled if a new employee is hired within 30 days, for a period of at least 12 months. Similarly, a newly established company may choose to apply the micro-enterprises tax if it has at least one employee within 30 days from the date of registration.

 

 

3.  Amendments to the Fiscal Code regarding the income tax area

 

Income derived from salaries or assimilated to salaries

 

Individuals who obtain income from seasonal work in the HORECA industry, are NO longer exempt from income tax starting with January 1st, 2023.

 

The income tax exemption for individuals working in the industries regarding construction, agriculture and food will apply only for a gross income of up to RON 10,000 inclusive (compared to RON 30,000 at the present moment). This measure shall apply starting with August 1st, 2022.

 

Moreover, starting with January 2023, an additional monthly limitation will be introduced for non-taxable income of up to 33% of the basic salary corresponding to the occupied job, cumulatively computed for the following income categories (in addition to the individual limitation of each category):

• additional benefits received by employees based on the mobility clause, up to 2.5 times the level established by the specific law;
• the value of the food provided by the employer for his own employees, up to the maximum value of one meal voucher per day;
• accommodation and the equivalent value of the rent for the accommodation / living spaces made available by the employers to their own employees, within the limit of a non-taxable limitation of 20% of the minimum gross basic salary;
• the equivalent value of tourism and/or treatment services, including transport during leave for employees and their family members, up to an annual limitation representing the level of an average gross salary;
• contributions to an optional pension fund borne by the employer for his own employees up to the limit of EURO 400/year, as well as voluntary health insurance premiums incurred up to the same limitation;
• the amounts granted to the employees for bearing the telework expenses, within the limit of RON 400/month.

For the part that exceeds the non-taxable monthly limitation of 33% of the basic salary, income tax is due and the employer must establish the order of their inclusion in the supplementary limitation.

 

The personal deduction has been substantially changed and is computed as a percentage, by referring to the minimum wage to which a certain amount is added, depending on the number of dependents, also. The basic personal deduction is granted for individuals who have a gross monthly income of up to RON 2,000 above the level of the minimum gross basic salary per country. The provision applies starting with the incomes related to January 2023.

Incomes, other than the salary ones

 

Taxpayers who earn income from independent activities, for whom the net income is determined on the basis of fixed income quota, shall determine their annual net income in the real system if in the previous fiscal year they recorded a gross annual income higher than the equivalent in RON of the amount of EUR 25,000, compared to EUR 100,000 at the present moment (the provision applies starting with the incomes of 2023).

 

Starting with January 2023, when computing the tax related to the income derived from the transfer of the use of goods, other than the ones from land lease and renting for tourism purposes the rooms located in personal property, the flat rate of 40% for deductions was eliminated. Thus, the income considered for the application of the 10% tax rate is the gross income. Also, it is established the obligation to register the lease contract within 30 days from the signing/modification.

Dividend incomes are taxed at a rate of 8% (compared to 5% at the present), starting in January 2023.

Gambling income will be taxed by withholding tax. The tax rate differs depending on the gross income received by the participant, starting from the minimum rate of 3% for incomes up to RON 10,000 and increases progressively up to 40%, depending on the gain. The tax due in the case of income obtained as a result of participating in gambling from casinos, poker clubs, slot machines and lotteries, also changes. The provisions shall apply from August 1st, 2022.

 

Starting with January 1st, 2023, the income obtained as a result of the transfer of ownership of real estate will be taxed differently, depending on the period of their previous ownership, respectively 3% for real estate owned up to 3 years and 1% for those who have been owned for more than 3 years.

 

 

4. Amendments to the Fiscal Code regarding the mandatory social contributions

Radical modifications in the case of part-time contracts

 

In the case of part-time contracts, starting with the incomes related to August 2022, the social contributions due by the employer, respectively the employee, cannot be lower than those due for the minimum gross salary in the country. This rule will not apply to certain categories of persons, for example those who have concluded more than one employment contract and their cumulative base is at least equal to the minimum wage.

Basis for computing the social security contribution

 

Starting with the income obtained in 2023, the calculation basis for the social security contribution due by persons earning income from independent activities or intellectual property rights amounting to at least 12 minimum gross wages per country, changes as such:

• the annual taxable amount cannot be less than 12 gross minimum wages per country for incomes between 12 and 24 minimum gross wages;
• the annual taxable amount may not be less than 24 gross minimum wages in the case of incomes above 24 gross minimum wages.

Basis for calculating the social health insurance contribution

 

Starting with the income obtained in 2023, the persons who realize incomes from independent activities, from intellectual property rights, incomes from the association with a legal person, incomes from rents, incomes from agricultural activities, forestry, fish farming, investment incomes, incomes from other sources, whose cumulative value is equal to at least 6 minimum gross wages per country, owe this contribution. The taxable amount depends, similarly, on the amount of income received (6 minimum gross wages, 12 minimum wages received, 24 minimum gross wages).

The 33% limitation for the granting of salary benefits is also applicable to social contributions

 

The limitation of 33% of the basic salary corresponding to the occupied job, for income tax for benefits granted to employees, also applies to social contributions. For the part that exceeds this limitation, social contributions will be due according to the law.

 

 

5.Changes of the Tax Code in respect of VAT

 

Increases of VAT rate for certain deliveries/services

 

Starting with January 1st 2023, VAT rate will increase as follows:

• From 9% to 19% for non-alcoholic beverages with sugar and other sweeteners, which fall under the codes NC 2202 10 00 and 2202 99;
• From 5% to 9% for restaurant and catering services and for activities of hotel accommodation.

Changes regarding the reduced 5% rate for housing delivery to individuals

 

Starting with January 1st, 2023, an individual may acquire alone or with other individual/s only one house with the reduced 5% VAT rate. Another change is related to the value of the house i.e. this cannot exceed 600.000 RON, excluding VAT.

 

There are also put in place transitory measures. Moreover, the “Register of housing purchases with reduced VAT rate of 5%” will be functional starting with January 1st 2023 and the fulfilment of the conditions for applying the reduced 5% VAT rate can be verified.

 

 

6. Changes of the Tax Code in respect of local taxes

 

Tax on building

Starting with January 1st, 2023, only the minimum taxation rates are established through law, i.e. 0.1% for residential buildings and 0.5% for non-residential buildings and the local authorities will decide the actual values of the taxation rates.

 

The taxable basis represents the market value of the building and corresponding land, mentioned in the Market studies related to the indicative values in respect to Romanian real estate, administered by the National Union of Public Notaries from Romania, but not less than the taxable values in force at December 31st, 2022.

The notion of “building with mixed use” is eliminated. Thus, in respect of buildings that are used both for residential and non-residential purposes, the main use is deemed to be the one related to the surface with a weight more than 50% and the building tax is computed by applying the rate of the main use on the value of the entire building.

 

In order to establish the final use of the building, the taxpayers must declare at the local tax authorities the surface used for non-residential purpose, accompanied by justifying documents. Otherwise, building tax is computed by applying the corresponding rate for non-residential buildings on the entire value of the building.

Tax on land

 

For land registered in the category of yards-constructions, the surfaces covered by constructions are subtracted from the taxable base at the tax computation.

 

 

Disclaimer

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