Tax changes introduced by G.O. 16/2022

Government Ordinance no. 16/2022 (GO no.16/2022) has introduced significant changes to the Romanian Fiscal Code. We present these changes below with a special focus on the timeline for the measures entering into force.

The normative act

Government Ordinance no. 16/2022 for the amendment and completion of the Fiscal Code, the repeal of certain normative acts and other financial-fiscal measures has been published in the Official Journal of Romania, no. 716 of 15 July 2022 . We list below the most important changes and completions introduced through the Ordinance.

Changes to corporate income tax

The changes concern:

Corporate tax relief on reinvested profit

Corporate tax relief on reinvested profit has been extended to cover investments made in assets used in production and processing activity, and in assets representing reinvested profit. This provision comes into force starting 1^st January 2023. The definition of such assets will be set out in an Order of the Ministry of Finance.

Tax on dividends

Starting from 1 January 2023, the tax rate on dividends distributed/paid between Romanian legal entities, as well as on dividends distributed/ paid to non-residents will increase from 5% to 8%.

Furthermore, the dividend tax exemption for dividends distributed/paid to private pension funds and/or voluntary pension funds has been abolished. The dividend tax exemption has also been abolished for dividends paid to non-resident pension funds.

The tax regime applicable to dividends paid by a Romanian legal entity to another Romanian legal entity/ legal entity resident in another EU Member State

The conditions for the application of the tax exemption for dividends paid internally and cross-border by a Romanian tax resident are aligned for comparable situations (e.g. by way of example, the conditions related to the category of entity which can benefit from the tax exemption). 

Specific tax

Law no. 170/2016 on the specific tax is repealed starting from 1 January 2023, and taxpayers which fell under the provisions of this Law can opt either for the application of the microenterprise tax regime or for the corporate income tax regime.

Microenterprise income tax 

The taxation regime for microenterprises has been significantly changed starting from 1 January 2023, and consequently we list below the main amendments.

Change of the definition of micro-enterprise

New rules that must be fulfilled by a company in order to be considered a micro-enterprise taxpayer have been introduced, as follows:

• The company should not register a turnover from consulting and/or management services of more than 20% of its total revenues;
• The company should have at least one full-time employee;
• The company should register a turnover of less than EUR 500.000;
• The company’s shareholders should not hold more than 25% of the participation titles in more than three other Romanian legal entities that are micro-enterprise taxpayers. 

The existing conditions relating to private capital and the condition that the company should not to be in the winding-up process following liquidation are maintained as from 1 January 2023.

Companies that are not subject to the micro-enterprise income tax regime

According to the new regulations, the list of companies that cannot be subject to micro-enterprise tax has been extended to include the following categories:

• Legal entities that carry out activities in the banking system;
• Legal entities that carry out insurance and reinsurance activities, on the capital market and intermediaries in these fields;
• Legal entities that organise gambling activities;
• Legal entities that carry out activities of exploration, development, and/or exploitation of oil and of natural gas deposits.

New rules for applying the micro-enterprise income tax system 

Starting from 1 January 2023, the micro-enterprise tax system becomes optional. Companies will be able to opt to apply the micro-enterprise tax system starting from the following fiscal year, if they meet the aforementioned conditions and if they were not micro-enterprise taxpayers in a previous fiscal year beginning after 1 January 2023. Newly incorporated companies can opt to apply the micro-enterprise tax system starting from the first fiscal year, if they meet certain conditions.

Tax rate

The new micro-enterprise tax system has a tax rate of 1% regardless of the number of employees.

Rules for leaving the micro-enterprise tax system during the year

If, during a fiscal year, a company no longer fulfills the conditions set out in the Fiscal Code (e.g. the 500,000 euros turnover limit, the share of revenues from consulting / management services, the condition on shareholders holding shares in other micro-enterprises, etc.), the company will be considered a corporate income tax payer starting from the quarter in which one of the conditions is no longer met.

In the case of a micro-enterprise with a single employee, whose employment relationship ends, the company is required to hire within 30 days a new full-time employee with an indefinite employment contract or with a fixed-term employment contract for at least 12 months in order to remain a micro-enterprise taxpayer.

Also, if the employment contract is suspended in accordance with the law, the condition for there to be a minimum of one employee is considered fulfilled if the suspension period does not exceed 30 days and the suspension is registered for the first time in the fiscal year.

Taxable base

The provisions on non-taxable dividends received from a subsidiary of the micro-enterprise located in another Member State of the European Union are aligned, subject to fulfilling the same conditions as set out in Title II of the Fiscal Code concerning corporate income tax. 

Terms for declaring amendments

The option to apply the micro-enterprise tax must be communicated to the fiscal authorities no later than 31 March of the year for which the micro-enterprise tax is paid. Micro-enterprises that become Corporate Income Taxpayers in 2023 as a result of not fulfilling the new conditions provided by the Ordinance, must declare their exit from the micro-enterprise tax system to the tax authorities no later than 31 March 2023.  

Rules on the payment of micro-enterprise tax

The order of the amounts which are deducted from the micro-enterprise tax due has been clarified, as follows: firstly, the value of sponsorships granted, secondly, the acquisition cost of fiscal electronic cash registers and thirdly, the tax reduction calculated in accordance with the provisions of G.E.O. no. 153/2020.

During the period in which the provisions of G.E.O. no. 153/2020 are applicable, the informative statement concerning the beneficiaries of sponsorships should be submitted to the tax authorities no later than 25 June of the following year.

Withholding tax on income earned in Romania by non-residents

The increase in the tax on dividends from 5% to 8% starting from 1 January 2023 is also applicable to dividends paid to non-resident parties. Furthermore, the conditions for the application of the tax exemption for dividends paid internally / cross-border have been aligned in relation to the organizational form of companies.

Local taxes 

The following amendments have been introduced with respect to local taxes:

Introduction of a new calculation method for the local tax on buildings starting from 2023

According to the new provisions, the following minimum tax rates will be used on the taxable value of buildings, for the calculation of building tax:

a)          0.1% for residential buildings;

b)          0.5% for non-residential buildings;

c)           0.4% for buildings used in agriculture.

The taxable value of a building should be determined by adding up the value of the building, and of ancillary buildings, as appropriate, and the value of the land covered by these buildings as set out in the Market studies on the estimated value of real estate properties in Romania as published by the National Union of Romanian Public Notaries (referred hereinafter as “the Market studies”).

Furthermore, there are specific rules for situations in which the estimated values of real estate properties in Romania, as published in the Market studies, are below the taxable values of the buildings determined based on the existing rules as at 31 December 2022. 

New rules on the calculation of local tax on buildings which contain spaces with both a residential and a non-residential function

Simultaneously with the elimination of the concept of “buildings with mixed use”, G.O. no. 16/2022 provides new rules on the calculation method for the tax on buildings containing spaces with both a residential and a non-residential function. Specifically, for these buildings the tax should be determined depending on the function of more than 50% of the surface area of the building and it should be calculated by applying the tax rate corresponding to the main function to the entire value of the building.

Amendments to the calculation method of the tax on land

The Ordinance includes clarifications on the calculation of the tax on urban land registered in the Agriculture Registry as land with buildings, as well as in the case of unincorporated areas outside cities by eliminating the surfaces of the land covered by buildings from the land that will be subject to local tax.

Increase in local taxes by local councils or county councils

Under the new rules, local authorities may increase local taxes depending on certain criteria (e.g. economic, social, geographic, urban, as well as other local budgetary needs).Furthermore, for the year 2023, local councils / the General Council of Bucharest will make decisions on the levels of local taxes within 60 days of the date of the republication of the Fiscal Code in the Official Journal of Romania.

Changes to the salary income tax regime

 The main changes to the Fiscal Code with an impact on salary incomes are as follows:

• From January 2023, the provisions specific for the application of the tax exemption for salary incomes earned by seasonal employees, i.e. for employees who had contracts concluded with employers paying the specific tax (hotels, restaurants, catering activities, etc.) will be revoked.
• The following amendments have been introduced for facilities specific to the construction industry, food industry and agriculture:
  • From 18 July 2022, the reference turnover for the implementation of the construction sector specific facilities will be determined only for the current year, eliminating the provision under which the facilities could have been applied even if the turnover condition was met in the previous year, without the need for validation in the current year.
  • Starting with the income for the month of August 2022, the maximum threshold of income from salaries or salary-related incomes to which specific facilities for construction, the food industry and agriculture apply is reduced from RON 30,000 to RON 10,000.
  • With effect for income corresponding to January 2023, the facilities can be applied only for income obtained on the basis of an individual employment contract, eliminating the possibility of their being granted for income obtained from other types of contracts (e.g. mandate contracts, management contracts, apprenticeships, internships, etc.).
• With effect from January 2023, a new cap on non-taxable income that employers can grant will be introduced. Thus, the following benefits granted monthly by an employer to its employees are exempt from cumulated income tax and social contributions, within the monthly threshold of 33% of the employee's gross base salary under the conditions below:
  • Mobility clause within the limit of 2.5 times the legal threshold set for the delegation/detachment allowance, by Government decision, for the personnel of public authorities and institutions;
  • the cost of food provided by the employer for its own employees - under the provisions of the employment contract or internal regulations, up to the equivalent of one meal ticket/day/employee, excluding days when employees are teleworking or work from home or are on vacation/medical leave/delegation. Food is defined as food prepared by the employer in in-house establishments or purchased from specialized units. The favorable tax treatment does not apply to employees receiving meal tickets;
  • accommodation and rent for employees - within a monthly cap of 20% of the minimum gross national wage, in compliance with the conditions set by the Fiscal Code;
  • the cost of tourism services and/or treatment, including transportation, during the holiday period, for a company ‘s employees and their family members, up to an annual limit, for each employee, equal to the average gross wage used to determine the state social security budget for the year in which they are granted;
  • contributions to voluntary pension funds borne by the employer for its own employees, up to an annual limit of EUR 400 per person;
  • voluntary health insurance premiums and medical services paid by the employer for its own employees, up to an annual limit of EUR 400 per person;
  • teleworking allowance - up to a monthly cap of RON 400 corresponding to the number of days in the month when the person worked remotely.
• With effect from January 2023, the following amendments to the rules for granting and calculating the personal deduction come into force:
  • The calculation of the base personal deduction will be carried out by reference to the base gross minimum national wage guaranteed for payment;
  • The base personal deduction will be granted to individuals who have a monthly gross salary of up to RON 2,000 more than level of the guaranteed gross minimum wage valid in the month when the income is earned;
  • The additional deduction is reinstated as follows:
    • 15% of the gross minimum base national wage guaranteed for payment for individuals up to the age of 26, who earn income below the maximum level for which the base personal deduction is granted;
    • RON 100 per month for each child up to the age of 18, if the child is enrolled in an educational establishment, to the parent who earns salary income, irrespective of the salary income level.
• Starting with the income for the month of August 2022, the provisions stipulating the obligation to pay social insurance contributions (Pensions) by persons earning less than the minimum national wage are reinstated, based on a minimum contribution amount equal to the contribution corresponding to a gross minimum national wage valid in the month for which the social insurance contribution is due, corresponding to the number of working days in the month in which the contract was active.

If the value of the social security contribution calculated on the basis of the employee's actual income is lower than the value of the social security contribution set at the level of the gross national minimum wage, the difference is covered by the employer on behalf of the employee.

Some categories of persons are exempted from this provision, including: pupils, students up to the age of 26, disabled persons or other categories of persons considered by law as being able to work only for less than 8 hours a day, pensioners in the public pension system, and persons who, during the same month, earn income from salaries or salary-related income under two or more individual employment contracts and whose cumulated monthly calculation basis is at least equal to the base minimum national gross wage.

Changes to the independent activities regime 

• Reduction from €100,000 to €25,000 of the threshold for self-employed persons to determine net income based on income norms.
• Change in the basis for calculating CAS (social security contribution):

a)     in the case of actual earned income between 12 and 24 gross minimum national wages, the basis for calculating CAS is at least 12 gross minimum national wages;

b)     in the case of actual earned income of more than 24 gross minimum national wages, the basis for calculating CAS is at least 24 gross minimum national wages.

The amendment comes into force on 1 January 2023 and also applies to income from sports and/or royalty contracts.

• Change in the basis for calculating CASS (social health insurance contribution): 

a)     in the case of actual earned income between 6 and 12 gross national minimum wages, the basis for calculating CASS is 6 gross national minimum wages;

b)     in the case of actual earned income between 12 and 24 gross national minimum wages, the basis for calculating CASS is 12 gross national minimum wages.

c)      in the case of actual earned income of more than 24 gross national minimum wages, the basis for calculating CASS will be 24 gross national minimum wages.

The amendment comes into force on 1 January 2023 and also applies to income from royalties, income from association with a legal entity, income from the transfer of goods, income from agricultural, forestry and fish farming activities, investment income and income from other sources.

• Rental incomes - The flat rate/deduction of 40% used to determine taxable rental income has been eliminated. At the same time, the requirement to register the rental contract with ANAF has been reintroduced. The changes come into force from 1 January 2023.
• Transfer of real estate from personal assets income - Removal of the non-taxable ceiling of 450,000 lei and modification of the tax rate:

a.      3% for properties held for up to and including 3 years;

b.      1% for properties held for a period of more than 3 years.

The change will enter into force on 1 January 2023.

• Dividend incomes - change in the tax rate from 5% to 8% (applies to dividend income distributed after 1 January 2023);
• Gambling revenue - change in tax rates:

a.      3% up to 10,000 lei inclusive;

b.      300 lei + 20% above 10.000 lei.

c.      11.650 lei + 40% above 66.750 lei

The amendment applies to income paid from 1 August 2022.

Value Added Tax (VAT)

• The supply of non-alcoholic drinks that are classified under NC 2202 10 00 and 2202 99 will no longer will be subject to the reduced VAT rate. For these products, the standard VAT rate of 19% will apply starting from 1 January 2023. 
• The supply of hotel accommodation, and restaurant and catering services will no longer be subject to the 5% VAT rate. Starting from 1 January 2023 these services will be subject to the 9% VAT rate.
• A new threshold of 600.000 RON has been introduced for the application of the 5% rate for the supply of housing. Any individual will only be allowed to acquire a single property whose value does not exceed this threshold. There are certain transitory measures that provide that the 5% VAT rate will also apply if (such transactions are not be considered for the 1 property limit mentioned above):
  • Supply of housing below the 450,000 RON threshold, if, before 1 January 2023, parties signed contracts mentioning the payment in advance for such properties;
  • Supply of housing between 600,000 RON and 700,000 RON, if, before 1 January 2023, parties signed contracts mentioning the payment in advance for such properties.
  • Public notaries will also be required to test and report these transactions in the “Registry for acquisitions of houses under the 5% reduced VAT rate, starting from 1 January 2023”. If conditions are not fulfilled, the notaries can only authenticate the documents if the supply is subject to the standard VAT rate.
• The application of the 5% VAT rate for supply of wood for use of firewood (in certain conditions) has been extended to 31 December 2029.

Changes to excise tax

• From the period 1 August 2022 – 31 August 2022, the level of excise duties on energy products will be that provided by this Ordinance increased by 14.27% (based on the index on consumer prices over the last 12 months, calculated in September 2021, compared to the period October 2014-September 2015).
• For 2023, for certain categories of energy products (gas, diesel), the level provided by the Ordinance will not be adjusted with the index on consumer prices to be calculated in September 2022. Nevertheless, if the level of the excise duties for 2023 will be lower than the level provided by EU legislation, the applicable level will be the EU one.
• From 1 August 2022, the level of excise duties for alcoholic beverages and cigarettes will increase by approx. 5% (for the level for each category please see Appendix 1 to the Ordinance).