Tax and tax procedure changes from 2019. New law approves GEO 25/2018
Tax and tax procedure changes from 2019
Law 30/2019 approves Government Emergency Ordinance (GEO) 25/2018, with some amendments, introducing changes in the Tax Code and the Tax Procedure Code applicable starting from 2019.
Thus, from January 2019, businesses will be able to deduct finance costs within the limit of EUR 1 million plus 30% of EBIDTA, and the excess costs of debt are carried over even for companies that reorganize by merger or division. In line with the position of the Court of Justice of the European Union, VAT may be adjusted in the event of the beneficiary's bankruptcy. The purchase of several buildings with a reduced rate of 5% VAT by the same person will be permitted, and the limitation of the land area under this treatment is lifted. The tax treatment for gains resulting from transactions involving crypto-currencies is clarified.
From 1 April 2019, new rules apply to sponsorship expenses and related tax credit for companies and individuals granting sponsorship.
Important provisions have been introduced related to tax procedure. Taxpayers will be allocated to three main risk classes. The central tax authorities may carry out their own automatic registration of taxpayers under the electronic communication system by electronic means of distance filing. A mediation procedure will be established for relations with the tax authorities, which may be initiated by taxpayers who have received orders for payment, with a view to identifying optimal solutions for extinguishing tax liabilities, including by means of payment rescheduling.
The main legislative amendments made by Law 30/2019 on taxation
Law 30/2019 was published In the Official Journal of Romania No 44 of 17 January 2019, and approves GEO no. 25/2018 as well as making further amendments to the Fiscal Code (Law No 227/2015):
Corporate tax and tax on micro-enterprises
- The ceilings on limiting the deductibility of excess indebtedness costs have been increased starting from 2019. Thus, the excess cost of debt which is over the RON equivalent of 1,000,000 euros can be deducted when corporate tax is calculated within 30% of the calculation base (EBITDA adjusted for tax purposes) described in the Fiscal Code. Before this legislative amendment, the limits imposed by the Fiscal Code were EUR 200,000 and 10% of the above calculation base. Another change has been made to cover the special case of the existence of a negative or zero calculation basis. Thus, starting from 2019, the difference between the excess costs of debt and the ceiling of EUR 1,000,000 is deductible during the tax reference period. (Previously, the excess cost of debt was fully non-deductible in the above case). In addition, new provisions have also been introduced on the right to carry over the excess costs of indebtedness for taxpayers who are subject to mergers and/or division.
- Taxpayers which want to benefit from sponsorship tax credit may do so only if the sponsorship beneficiary is registered, at the time of conclusion of the contract, in the entity/ religious bodies register for which tax deductions are granted. The new provision applies to both corporate income tax payers and tax payers applying the micro-enterprises income tax.
- The deadline for submitting the information statement on sponsorship for taxpayers under the micro-enterprises income tax, which during the year become corporate income tax payers, has been set at 25th of the month following the first quarter for which corporate income tax is due.
- A new category of revenue, i.e. income from adjustments to the expected loss due to financial assets, may be deducted from the tax base for companies applying the micro-enterprises income tax operating in the banking, insurance and reinsurance sectors, as well as capital markets (if the adjustments were not deductible for the calculation of taxable profits or were constituted during the period when the Romanian legal entity was subject to the micro-enterprises income tax).
- Taxpayers that owe corporate tax under the prepayment system and subsequently become payers of micro-enterprises tax during the compulsory 2-year period of application of the prepayment system are required, when returning to the corporate tax system, to continue to apply the prepayment corporate tax system. The calculation of the prepayments in the above specific case is also provided for. In this case, prepayments will be determined as the amount resulting from applying the tax rate to the accounting profit of the period for which prepayments are made, and payment should be made by the 25th of the month following the quarter for which the prepayment is made, for quarters I to III. The new regulation aims to adapt the tax changes of 2018 on micro-enterprises income tax to the system for reporting corporate tax with prepayments.
- Cultural vouchers are classified in the category of social expenditure for which the deductibility threshold of 5% of the total expenditure on salaries should be applied.
- The rules applicable to controlled foreign companies have been reworded to exclude from the scope a controlled foreign company which is resident or situated in a Member State, if it carries out a significant economic activity, supported by staff, equipment, assets and premises, as demonstrated by the relevant facts and circumstances. In the previous wording, the exclusion from the rules only applied to controlled foreign companies which were resident or located in an EEA country, if they met the conditions of economic substance referred to above.
The entity/religious unit register for which tax deductions are granted has been introduced. This register is managed by N.A.F.A. (A.N.A.F. in Romanian) and an entity wishing to be listed in the register must meet the following conditions at the time of application:
(a) It must carry out work in the field for which it has been constituted, as stated in an affidavit.
(b) It must have fulfilled all the reporting tax obligations provided by law.
(c) It must have no residual tax liabilities to the consolidated general budget, more than 90 days old.
(d) It must have filed its annual statutory accounts, as set out in law.
(e) It must not have been declared dormant, in accordance with Article 92 of the Tax Procedure Code.
With these changes, N.A.F.A. plans to be able to monitor the sponsorships granted by taxpayers much better and tighten the conditions for granting the sponsorship tax credit.
- The right of a taxable person to adjust the tax base if the payment for goods supplied or services rendered cannot be collected following the bankruptcy of the beneficiary, will arise from the date of the court decision or, where appropriate, of the court’s conclusion by which bankruptcy was decided, without waiting for the conclusion of the bankruptcy procedure. Where bankruptcy occurred before 1 January 2019 and the final/ final and irrevocable judgment on the closure of the proceedings was made according to insolvency legislation applicable at that date, the adjustment may be made within five years from 1 January 2019.
- The restrictions which limited the application of the reduced 5% VAT rate on immovable property to one property per individual, and with a maximum land surface area of 250 m 2 including the land footprint of the dwelling, have been lifted.
The change in the timing of exercising the right to adjust the tax base in the event of a beneficiary's bankruptcy was a measure long awaited by taxpayers, and it is in line with the position of the Court of Justice of the European Union, recently expressed in a decision issued on this subject.
Changes to the rules on purchase of immovable property with the reduced 5% VAT rate will encourage the development of the real estate market by lifting the limitation on the ownership of such property by individuals.
Corporate income tax
Income from the transfer of crypto-currency is classified as income from other sources, and is taxable at a rate of 10% of the gain made, i.e. the positive difference between selling price and purchase price, including transaction costs. Gains of below 200 RON per transaction will not be taxed, provided the total earnings do not exceed 600 RON per year. It is the individual’s responsibility to calculate and declare this income.
Taxpayers may direct up to 3.5% of their income tax for the benefit of non-profit units/religious units if they comply with certain conditions, thereby removing differentiation in the percentage of tax that can be distributed according to the type of non-profit entities. (Formerly only accredited social service providers could receive up to 3.5% of the tax, compared to 2%, as received by other non-profit-making entities/religious organisations). This also applies to income from abroad for which tax is due in Romania (after deduction of tax credit).
Changes to fiscal procedure
- Taxpayers will be classified in 3 main risk classes: (i) low risk (ii) medium risk (iii) high risk. The dispute settlement procedure will not take into account risk class/subclass. The taxpayer may not object to the risk assessment and the tax class/subclass to which it has been assigned. The development of the main risk classes into subclasses and the development of the general criteria into sub-criteria as well as the procedures for determining sub-classes and sub-criteria will be approved by Order of the President of the N.A.F.A. The administrative procedures for each class/subclass of tax risk will set out in an Order of the President of the N.A.F.A. within 90 days of the date of entry into force of Law 30/2019.
- For the purposes of communicating administrative documents, the central tax authorities may, on their own initiative, register taxpayers/payers under the electronic communications system by electronic means of remote filing. The communication of tax administrative documents for taxpayers which have been registered ex-officio and have not accessed the electronic communication system within 15 days of the communication of data relating to registration will be carried out solely by means of publication on the N.A.F.A website.
- The definition of overdue tax obligations has been clarified to state that it excludes from qualifying as such the tax liabilities set out under tax administrative documents which have been appealed against in law, and which are guaranteed in accordance with Article 210-211 or Article 235 (i.e. by cash, bank guarantee letter, mortgage on an immovable or movable property in Romania, or a pledge over a movable property).
- The requirement for the tax authorities to publish on their website a list of individuals who have outstanding tax liabilities and the amount of those liabilities has been eliminated. The requirement to publish the list of legal entities with outstanding liabilities has been retained.
- A mediation procedure has been introduced, consisting of (i) clarifying the extent of the tax liability registered in a letter of formal notice, if the taxpayer objects to this (ii) analysis by the tax authorities, together with the taxpayer of the economic and financial situation, with the aim of identifying optimum solutions for the settlement of tax liabilities, including the possibility of benefiting from payment rescheduling, as set out in law. A taxpayer should notify the tax authorities of its intention to invoke the mediation procedure within 15 days of receipt of the letter of formal notice. The notification should be attached to the documents and information supporting its economic and financial situation. The mediation procedure and the documents which the taxpayer must submit to support the economic and financial situation shall be approved by an Order of the President of the N.A.F.A.
- Foreclosure proceedings will be suspended or not be triggered in the case of tax liabilities set out in the tax administrative documents contested under the law and guaranteed in accordance with Article 210-211 (i.e. by cash, a bank guarantee letter, a mortgage on immovable or movable property in Romania, or a pledge over movable property). Foreclosure proceedings will continue or commence after tax administrative documents have remained final in the system of administrative or judicial appeals.
- If the suspension of foreclosure is effected by deposit of a letter of guarantee/guarantee insurance policy during the period of suspension of the procedures, the foreclosure acts previously carried out as well as any other enforcement measures, including preservation of goods, income or amounts in bank accounts will no longer be applied. In this case, the enforcement measures applied will be lifted by a formal decision issued no later than two days after the date of the suspension.
Law 30/2019 will enter into force three days after the date of publication in the Official Journal of Romania, with the exception of certain articles for which a special period of entry into force has been provided. For example, the date of entry into force is 1 April for the provisions on the tax regime applicable to sponsorship and private scholarships granted by payers of corporate income tax and micro-enterprise tax, as well as by individuals who support non-profit organizations with up to 3.5% of their income tax. However, the entry into force is 1 January 2019 for the new rules on deductibility of excess debt expenses and VAT (see Article VI of Law 30/2019).
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