Romania Tax Guide 2012 - PKF International · III PKF Worldwide Tax Guide 2012 preface The PKF...

RomaniaTax Guide

2012

PKF Worldwide Tax Guide 2012I

foreword

A country’s tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed?

Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. This handy reference guide provides clients and professional practitioners with comprehensive tax and business information for 100 countries throughout the world.

As you will appreciate, the production of the WWTG is a huge team effort and I would like to thank all tax experts within PFK member firms who gave up their time to contribute the vital information on their country’s taxes that forms the heart of this publication. I would also like thank Richard Jones, PKF (UK) LLP, Kevin Reilly, PKF Witt Mares, and Kaarji Vaughan, PKF Melbourne for co-ordinating and checking the entries from countries within their regions.

The WWTG continues to expand each year reflecting both the growth of the PKF network and the strength of the tax capability offered by member firms throughout the world.

I hope that the combination of the WWTG and assistance from your local PKF member firm will provide you with the advice you need to make the right decisions for your international business.

Jon HillsPKF (UK) LLPChairman, PKF International Tax Committee [email protected]

PKF Worldwide Tax Guide 2012 II

important disclaimer

This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication.

This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication.

The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication.

Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances.

PKF International is a network of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms.

PKF Worldwide Tax Guide 2012III

preface

The PKF Worldwide Tax Guide 2012 (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of 100 of the world’s most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current as of 30 September 2011, while also noting imminent changes where necessary.

On a country-by-country basis, each summary addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country’s personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments.

While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice.

In addition to the printed version of the WWTG, individual country taxation guides are available in PDF format which can be downloaded from the PKF website at www.pkf.com

PKF INTERNATIONAL LIMITEDAPRIL 2012

©PKF INTERNATIONAL LIMITEDALL RIGHTS RESERVEDUSE APPROVED WITH ATTRIBUTION

PKF Worldwide Tax Guide 2012 IV

about pKf international limited

PKF International Limited (PKFI) administers the PKF network of legally independent member firms. There are around 300 member firms and correspondents in 440 locations in around 125 countries providing accounting and business advisory services. PKFI member firms employ around 2,200 partners and more than 21,400 staff.

PKFI is the 10th largest global accountancy network and its member firms have $2.6 billion aggregate fee income (year end June 2011). The network is a member of the Forum of Firms, an organisation dedicated to consistent and high quality standards of financial reporting and auditing practices worldwide.

Services provided by member firms include:

Assurance & AdvisoryCorporate FinanceFinancial PlanningForensic AccountingHotel ConsultancyInsolvency – Corporate & PersonalIT ConsultancyManagement ConsultancyTaxation

PKF member firms are organised into five geographical regions covering Africa; Latin America; Asia Pacific; Europe, the Middle East & India (EMEI); and North America & the Caribbean. Each region elects representatives to the board of PKF International Limited which administers the network. While the member firms remain separate and independent, international tax, corporate finance, professional standards, audit, hotel consultancy, insolvency and business development committees work together to improve quality standards, develop initiatives and share knowledge and best practice cross the network.

Please visit www.pkf.com for more information.

PKF Worldwide Tax Guide 2012V

structure of country descriptions

a. taXes payable

FEDERAL TAXES AND LEVIES COMPANY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX SALES TAX/VALUE ADDED TAX FRINGE BENEFITS TAX LOCAL TAXES OTHER TAXES

b. determination of taXable income

CAPITAL ALLOWANCES DEPRECIATION STOCK/INVENTORY CAPITAL GAINS AND LOSSES DIVIDENDS INTEREST DEDUCTIONS LOSSES FOREIGN SOURCED INCOME INCENTIVES

c. foreiGn taX relief

d. corporate Groups

e. related party transactions

f. witHHoldinG taX

G. eXcHanGe control

H. personal taX

i. treaty and non-treaty witHHoldinG taX rates

PKF Worldwide Tax Guide 2012 VI

AAlgeria . . . . . . . . . . . . . . . . . . . .1 pmAngola . . . . . . . . . . . . . . . . . . . .1 pmArgentina . . . . . . . . . . . . . . . . . .9 amAustralia - Melbourne . . . . . . . . . . . . .10 pm Sydney . . . . . . . . . . . . . . .10 pm Adelaide . . . . . . . . . . . . 9.30 pm Perth . . . . . . . . . . . . . . . . . .8 pmAustria . . . . . . . . . . . . . . . . . . . .1 pm

BBahamas . . . . . . . . . . . . . . . . . . .7 amBahrain . . . . . . . . . . . . . . . . . . . .3 pmBelgium . . . . . . . . . . . . . . . . . . . .1 pmBelize . . . . . . . . . . . . . . . . . . . . .6 amBermuda . . . . . . . . . . . . . . . . . . .8 amBrazil. . . . . . . . . . . . . . . . . . . . . .7 amBritish Virgin Islands . . . . . . . . . . .8 am

CCanada - Toronto . . . . . . . . . . . . . . . .7 am Winnipeg . . . . . . . . . . . . . . .6 am Calgary . . . . . . . . . . . . . . . .5 am Vancouver . . . . . . . . . . . . . .4 amCayman Islands . . . . . . . . . . . . . .7 amChile . . . . . . . . . . . . . . . . . . . . . .8 amChina - Beijing . . . . . . . . . . . . . .10 pmColombia . . . . . . . . . . . . . . . . . . .7 amCroatia . . . . . . . . . . . . . . . . . . . .1 pmCyprus . . . . . . . . . . . . . . . . . . . .2 pmCzech Republic . . . . . . . . . . . . . .1 pm

DDenmark . . . . . . . . . . . . . . . . . . .1 pmDominican Republic . . . . . . . . . . .7 am

EEcuador . . . . . . . . . . . . . . . . . . . .7 amEgypt . . . . . . . . . . . . . . . . . . . . .2 pmEl Salvador . . . . . . . . . . . . . . . . .6 amEstonia . . . . . . . . . . . . . . . . . . . .2 pm

FFiji . . . . . . . . . . . . . . . . .12 midnightFinland . . . . . . . . . . . . . . . . . . . .2 pmFrance. . . . . . . . . . . . . . . . . . . . .1 pm

GGambia (The) . . . . . . . . . . . . . 12 noonGeorgia . . . . . . . . . . . . . . . . . . . .3 pmGermany . . . . . . . . . . . . . . . . . . .1 pmGhana . . . . . . . . . . . . . . . . . . 12 noonGreece . . . . . . . . . . . . . . . . . . . .2 pmGrenada . . . . . . . . . . . . . . . . . . .8 amGuatemala . . . . . . . . . . . . . . . . . .6 am

Guernsey . . . . . . . . . . . . . . . . 12 noonGuyana . . . . . . . . . . . . . . . . . . . .7 am

HHong Kong . . . . . . . . . . . . . . . . .8 pmHungary . . . . . . . . . . . . . . . . . . .1 pm

IIndia . . . . . . . . . . . . . . . . . . . 5.30 pmIndonesia. . . . . . . . . . . . . . . . . . .7 pmIreland . . . . . . . . . . . . . . . . . . 12 noonIsle of Man . . . . . . . . . . . . . . 12 noonIsrael . . . . . . . . . . . . . . . . . . . . . .2 pmItaly . . . . . . . . . . . . . . . . . . . . . .1 pm

JJamaica . . . . . . . . . . . . . . . . . . .7 amJapan . . . . . . . . . . . . . . . . . . . . .9 pmJersey . . . . . . . . . . . . . . . . . . 12 noonJordan . . . . . . . . . . . . . . . . . . . .2 pm

KKazakhstan . . . . . . . . . . . . . . . . .5 pmKenya . . . . . . . . . . . . . . . . . . . . .3 pmKorea . . . . . . . . . . . . . . . . . . . . .9 pmKuwait . . . . . . . . . . . . . . . . . . . . .3 pm

LLatvia . . . . . . . . . . . . . . . . . . . . .2 pmLebanon . . . . . . . . . . . . . . . . . . .2 pmLiberia . . . . . . . . . . . . . . . . . . 12 noonLuxembourg . . . . . . . . . . . . . . . .1 pm

MMalaysia . . . . . . . . . . . . . . . . . . .8 pmMalta . . . . . . . . . . . . . . . . . . . . .1 pmMauritius . . . . . . . . . . . . . . . . . . .4 pmMexico . . . . . . . . . . . . . . . . . . . .6 amMorocco . . . . . . . . . . . . . . . . 12 noon

NNamibia. . . . . . . . . . . . . . . . . . . .2 pmNetherlands (The) . . . . . . . . . . . . .1 pmNew Zealand . . . . . . . . . . .12 midnightNigeria . . . . . . . . . . . . . . . . . . . .1 pmNorway . . . . . . . . . . . . . . . . . . . .1 pm

OOman . . . . . . . . . . . . . . . . . . . . .4 pm

PPanama. . . . . . . . . . . . . . . . . . . .7 amPapua New Guinea. . . . . . . . . . .10 pmPeru . . . . . . . . . . . . . . . . . . . . . .7 amPhilippines . . . . . . . . . . . . . . . . . .8 pmPoland. . . . . . . . . . . . . . . . . . . . .1 pmPortugal . . . . . . . . . . . . . . . . . . .1 pmPuerto Rico . . . . . . . . . . . . . . . . .8 am

international time Zones

AT 12 NOON, GREENwICH MEAN TIME, THE sTANDARD TIME ELsEwHERE Is:

PKF Worldwide Tax Guide 2012VII

QQatar. . . . . . . . . . . . . . . . . . . . . .8 am

RRomania . . . . . . . . . . . . . . . . . . .2 pmRussia - Moscow . . . . . . . . . . . . . . .3 pm St Petersburg . . . . . . . . . . . .3 pm

sSierra Leone . . . . . . . . . . . . . 12 noonSingapore . . . . . . . . . . . . . . . . . .7 pmSlovak Republic . . . . . . . . . . . . . .1 pmSlovenia . . . . . . . . . . . . . . . . . . .1 pmSouth Africa . . . . . . . . . . . . . . . . .2 pmSpain . . . . . . . . . . . . . . . . . . . . .1 pmSweden . . . . . . . . . . . . . . . . . . . .1 pmSwitzerland . . . . . . . . . . . . . . . . .1 pm

TTaiwan . . . . . . . . . . . . . . . . . . . .8 pmThailand . . . . . . . . . . . . . . . . . . .8 pmTunisia . . . . . . . . . . . . . . . . . 12 noonTurkey . . . . . . . . . . . . . . . . . . . . .2 pmTurks and Caicos Islands . . . . . . .7 am

UUganda . . . . . . . . . . . . . . . . . . . .3 pmUkraine . . . . . . . . . . . . . . . . . . . .2 pmUnited Arab Emirates . . . . . . . . . .4 pmUnited Kingdom . . . . . . .(GMT) 12 noonUnited States of America - New York City . . . . . . . . . . . .7 am Washington, D.C. . . . . . . . . .7 am Chicago . . . . . . . . . . . . . . . .6 am Houston . . . . . . . . . . . . . . . .6 am Denver . . . . . . . . . . . . . . . .5 am Los Angeles . . . . . . . . . . . . .4 am San Francisco . . . . . . . . . . .4 amUruguay . . . . . . . . . . . . . . . . . . .9 am

VVenezuela . . . . . . . . . . . . . . . . . .8 amVietnam . . . . . . . . . . . . . . . . . . . .7 pm

PKF Worldwide Tax Guide 2012 1

Romania

romania

Currency: Romanian Lei Dial Code To: 40 Dial Code Out: 00 (RON)

Member Firm:City: Name: Contact Information:Bucharest Florentina Susnea 21 317 31 90 [email protected]

Bucharest Adrian Marghescu 21 252 38 80 [email protected]

Timisoara Carmen Mataragiu 256 201 175 [email protected]

a. taXes payable

NATIONAL AND OTHER TAxEs COMPANy TAxEsIn Romania, the following entities are subject to corporate income tax:• Romanianlegalentities• ForeignlegalentitiesdoingbusinessinRomaniathroughpermanent

establishments• Foreignlegalentitieswhichderiveincomefromorinconnectionwithrealestate

transactions or from transactions with shares held in Romanian legal entities• ForeignlegalentitiesandindividualsdoingbusinessinRomaniathrough

associations with or without legal personality (partnerships)• ResidentindividualsassociatedwithRomanianlegalentitiesforrevenues

derived in or outside Romania, through associations without legal personality; in this case the tax due by the individual is computed, withheld and paid by the Romanian legal entity

• LegalpersonswitharegisteredofficeinRomaniaincorporatedinaccordancewith European legislation.

A company is considered resident if its head office is registered in Romania or has its place of effective management in Romania.

From 1 January 2012, associations with legal status set up under the legislation of another state, to which a Romanian legal entity participates are subject to corporate income tax in Romania on their corresponding part of the taxable income of the legal entity.

The standard corporate income tax rate is 16%.

Resident banks, credit institutions and other similar entities as well as Romanian branches of foreign banks are liable to make quarterly pre-payments on account of annual corporate income tax, as adjusted for inflation.

The fiscal year is the calendar year. For fiscal year 2011, taxpayers must submit an annual corporate income tax statement by 25 April of the following tax year.

From 1 January 2013, taxpayers can choose to declare and pay corporate income tax quarterly in advance payments. The tax authorities should be notified by 31 January of the year for which the taxpayer wishes this system to be applied and must be maintained for a period of two consecutive years. There are some categories of taxpayer that are not allowed to choose this system. These include taxpayers who:• arenewlyestablished• areinafiscallosspositionattheendofthepreviousyear• havebeeninastateoftemporaryinactivity• donotconductactivitiesattheirregistered/subsidiaryoffice• weremicroenterprisesinthepreviousperiod.

In order to establish the amount to be paid via the advance payments system, the corporate income tax due for the previous period is uprated by the consumer price index, published by order of the ministry of public finance no later than 15 April of the fiscal year for which the advanced payments are performed.Taxpayers who have chosen the advance payments system and record a fiscal loss in the first year of the two year mandatory period must, nevertheless, make quarterly payments based on the accounting result of the period for which the advance payment is performed.There are further requirements for those taxpayers involved in reorganisation operations, both on a local and cross-border level.

PKF Worldwide Tax Guide 20122

Taxpayers who do not choose the anticipated payments system are obliged to declare and pay quarterly corporate income tax by 25th of the first month following the first, second and third quarters of the year. Any remaining corporate income tax should be declared and paid by 25th March of the following year. The deadline for submitting the annual corporate income tax return is modified: the new deadline is until 25th March of the following year except for certain category of taxpayers specifically mentioned.

BRANCH PROFITs TAxForeign entities are generally subject to Romanian tax on income derived from Romania. The extent to which an entity is subject to Romanian taxation depends on its activities undertaken in, or related to, Romania. A foreign entity can be subject to taxation by establishing a branch, creating a permanent establishment, representative office or by becoming subject to withholding tax on the Romanian-sourced income.

BRANCH OF A FOREIGN ENTITyBranches have to be registered with the Romanian Tax Authorities. The registration, filing and payment requirements are similar to those for a Romanian company.

A distribution of funds to the head office is not regarded as a dividend distribution and no withholding tax liability should arise. However, as with limited liability companies, profits are transferred at year-end, after the head office approves the branch’s financial statements.

The taxable profits of the branch are subject to general Romanian tax rules, provided that the following conditions are met:• Onlyincomethatcanbeassignedtothebranchshallbeincludedwithintaxable

income; and• Onlyexpensesincurredinrelationtothebranch’sactivitiesareincludedin

deductible expenses.

PERMANENT EsTABLIsHMENT A permanent establishment is not necessarily a legal entity but is taxable in Romania.

Thus, a permanent establishment is defined as being the place through which the activity of a non-resident is conducted, fully or partially, directly or through a dependent agent. Once a permanent establishment is created, Romania has the right to tax the profits of the foreign enterprise derived from the activities performed.

REPREsENTATIVE OFFICEA representative office can only undertake auxiliary or preparatory activities. A representative office cannot trade in its own name and cannot engage in any commercial activities. There is a flat tax of EUR 4,000 per fiscal year on representative offices, payable in RON using the exchange rate valid on the payment date. The tax is payable in two equal instalments: by 25 June and 25 December.

sALEs TAxEs/VALUE ADDED TAx (VAT)Companies with an annual turnover of at least EUR 35,000 must register for VAT purposes. Companies with turnover below this threshold may register upon request. The general VAT rate is 24%. The reduced rate is 9% and is applied to various goods and services including:(a) cinema tickets and entrance fees to other attractions(b) books, newspapers and magazines, school books, except those exclusively for

advertising(c) certain medicinal products(d) accommodation within the hotel sector or similar sectors, including camping.

Also, a lower rate of 5% applies to the sale of certain buildings carried out as part of the country’s social policy.

With effect from 1 January 2010, Romania has incorporated various EU VAT directives into domestic law. These include:• Directive2008/8/CEregardingtheplaceofsupplyofservices–B2BandB2Crules• Directive2008/9/CEregardingVATreimbursementforpersonsestablishedinEU• Directive2008/117/CEregardingthefightagainsttaxfraudrelatedto

Community operations.

In addition to the above changes, there are other amendments relating to the harmonisation of Romanian legislation with EU VAT Directives:• clarificationonthedefinitionof“establishedinRomania”and“fixed

establishment”• rulesregardingthechargeabilityofVATforconsignmentstock,goodssupplied

for testing and checking from a conformity perspective, call of stock, and supplies of immovable property

Romania


• turnoverforsmallenterprisesnowincludesoperationsforwhichtheplaceoftaxation is deemed to be abroad (if the tax would be deductible if the operations were performed in Romania)

• clarificationregardinginvoicerequirementsforexemptoperations,applyingspecial regimes and regarding correction invoices in case of a fiscal control.

A reverse charge mechanism on import of goods will not apply until 1 January 2013.

Also, from 31 May 2011, simplification measures(i.e. reverse charge mechanism) apply to domestic supplies (i.e. such that both persons must be registered for VAT purposes in Romania)of certain categories of goods such as: wheat, barley, rye, corn, soya, rape, sunflower, sugar beet. The simplification measure applies until 31 May 2013.

FRINGE BENEFITsFringe benefits are any benefits received by the employee under their employment contract, if applicable. Benefits in kind or in money must be taxed along with the salary income in the month they are granted to the employees.

The income tax rate is 16% and the tax must be withheld from the income taxpayer.

LOCAL TAxEsIn Romania, local taxes are set under the Fiscal Code. Local taxes represent a distinct category of taxes set by the local administration, due by both individuals and legal entities.

Building tax: Residents or non-residents owning one or more buildings are subject to real estate tax. All buildings, regardless of their purpose, are taxed according to their value. Rates range between 0.25% and 1.5% and are set by the local councils. The building’s taxable value is determined by the area used and the building type. Building tax payable other than on a person’s place of residence is set at higher rates: 65% higher for the first, 150% for the second and 300% for the third or additional building.

From 1 January 2012, if a building has not been revalued, the taxable base will be set as follows:– between 10% and 20% higher than cost for buildings not revalued within the

last three years– between 30% and 40% higher than cost for buildings not revalued within the

last five years.

From 1 October 2011, the local Council may grant an exemption from or reduction of the building tax, over a period of a minimum of seven years, to owners who have performed significant refurbishment work on their apartments or buildings at their own expense.

Exemptions from building tax can also be granted for a period of five consecutive years for owners performing architectural improvement work on their buildings.

Land tax is payable by owners of land. Generally, the tax is established as a fixed amount per hectare, depending on the location of the land within certain determined zones, towns or villages and depending on land use. The tax is payable annually in two equal installmentson 31 March and 30 September.

Vehicle tax is payable by owners of land/water vehicles registered in Romania. The tax depends on the engine’s capacity and is determined as a fixed amount per 200 cubic centimetres. The tax is payable annually in two equal instalments on 31 Marchand 30 September.

Other local taxes and duties include fees for the issuance of certificates, permits and authorizations, fees for using advertising and publicity materials and hotel fees.

OTHER TAxEsCertain legal documents are subject to a stamp fee. Stamp fees also apply on other documents and services related to authorisations issued by State institutions such as hunting or fishing licences, driving licences, transport licences and similar documents.

Local Councils, the General Council of Bucharest Municipality, and County councils may charge duties for the temporary use of public places and for admission to museums, memorial houses, or historical, architectural or archaeological monuments. Duties are also payable for the possession or use of equipment and tools held for the purpose of obtaining income which involves the use the local public infrastructure. Duties are also payable on some activities which have an impact on the environment.

Romania


ExCIsE DUTyExcise duty is a consumption tax and is payable on import and sales of locally produced items on the domestic market and is determined as a fixed amount per unit or as a percentage of a specified taxable base. In Romania there are two categories of excise duties:1. Harmonised excise duties: beer, wine, fermented beverages other than beer and

wine, intermediate products, ethyl alcohol, tobacco products, energy products, electrical power

2. Duties for other excisable products: green, roasted and soluble coffee.

With effect from 1 April 2010, Romania has incorporated the provisions of EU Directive 2008/118/CE which sets out general arrangements for excise duties into the national legislation. The main amendments should refer to:• Amendmentstocertaindefinitionsandconceptssuchas“Member

State”,“territoryofaMemberState”,“Community”and“territoryofCommunity”etc. Detailed provisions will be introduced regarding the functioning of the EMCS (European computerised system) for monitoring the movement of excisable products placed under the excise duty suspensive regime.

• TheonlyproductonwhichexcisewillbeduewhichisnotincludedintheEU’sstandard harmonised list will be green, roasted and soluble coffee.

sOCIAL sECURITy CONTRIBUTIONsSocial assistance contributions are payable jointly by the employee and by the employer on gross salary, subject to a maximum monthly limit. The joint rate from February 2009 is 31.3% and it is divided between the employer (20.8%) and the employee (10.5%).

Under particular work conditions, the joint rate is 36.3% or 41.3%. In these cases, the employer’s contribution is 25.8% and 30.8% respectively.

b. determination of taXable income

DEPRECIATIONThe Fiscal Code makes an explicit distinction between accounting and fiscal depreciation. For fixed assets, fiscal depreciation is to be calculated based on the rules set out by the Fiscal Code and deductibility no longer depends on the level of depreciation recorded in the accounts.

Fiscal depreciation should be computed based on the asset’s fiscal value and useful life for tax purposes, by applying one of the permitted depreciation methods: • Straight-linedepreciation• Reducing-balancemethod• Accelerateddepreciation.

The method used for the depreciation of buildings is the straight-line method. Land is not a depreciable asset.

Technical equipment, computers and peripherals can be depreciated by using any of the depreciation methods available, i.e. straight-line method, accelerated method or reducing balance method. For any other fixed assets (except for buildings for which only the straight-line method can be applied), only the straight-line or degressive method can be used.

Under the accelerated method,the maximum depreciation in the first year of use of an asset is 50%.

sTOCK/INVENTORyThe inventory must be valued according to generally accepted accounting principles (GAAP) and must include all acquisition, processing and administration costs.

CAPITAL GAIN TAxCapital gains are treated as ordinary business income and taxed at the general corporate income tax rate of 16%.

Income earned by non-residents from the sale of real estate located in Romania or from the sale or assignment of securities held in a Romanian entity is also taxed at the general corporate income tax rate of 16%.

DIVIDENDsDividends paid to resident companies are subject to a final withholding tax of 16% or are exempt where the recipient company has held at least 10% of the distributing company’s share capital for at least two years prior to payment of the dividend.

Romania


Companies paying dividends must compute, withhold and pay the tax. The tax must be paid by the 25th day of the month following that in which the dividends were paid. However, from 2010, withholding tax on dividends which have been declared but not paid by the end of the year must be paid by 25 January of the following year.

INTEREsT DEDUCTIONsThe deductibility of interest expenses and net foreign exchange losses related to loans is limited under the safe harbour rule and the thin capitalisation rule, as set out below. These rules do not apply to interest and forex arising on loans from credit institutions, non-banking financial institutions or other entities that grant credit according to the law.

“Thesafeharbourrule”limitsthedeductibilityofinterestonloansto6%forloansdenominated in a foreign currency.The upper limit for interest rates is set annually with reference to the National Bank of Romania’s interest rate for RON loans (currently set at 6.5%). Interest exceeding this limit is tax non-deductible and cannot be carried forward in future periods.

Underthe“thincapitalisationrule”,ifthedebt-to-equityratioishigherthan3:1orifthe company’s equity is negative, interest charges and net foreign exchange losses on loans with a maturity date exceeding one year are not deductible. However, such non-deductible expenses may be carried forward to subsequent fiscal years and become fully tax deductible in the year when the debt-to-equity rato becomes lower than or equal to 3:1.

LOssEsLosses may be carried forward for five years if incurred before 1 January 2009 or for seven years if incurred on or after 1 January2009.

Losses cannot be used by the successor company when the associated trade is transferred from one company to another.

FOREIGN sOURCE INCOMEResident companies are subject to taxation on their worldwide income. Foreign losses can be deducted from foreign income on a source by source basis. Foreign exchange differences arising from the re-evaluation of monetary assets and liabilities at the end of the year are deemed to be realised and taxable.

INCENTIVEsAuthorised companies, set up and performing their activity in under-privileged areas, can benefit from tax exemptions for new investments, on condition that the investor has received an investor certificate before July 2003.

c. foreiGn taX relief

Unilateral relief is provided by way of an ordinary credit for income taxes paid abroad, The credit cannot exceed the Romanian tax suffered on the same income.

d. corporate Groups

There is no consolidation or group taxation in Romania. Members of a group must file separate tax returns. Losses incurred by members of a group cannot be offset against profits made by other group members.

e. related party transactions

Transactions between related parties should observe the arm’s length principle. If transfer prices are not set at arm’s length, the Romanian tax authorities have the right to adjust the taxpayer’s revenues or expenses, so as to reflect the market value.

Traditional transfer pricing methods, as well as any other methods that are in line with the OECD Transfer Pricing Guidelines may be used for setting transfer prices.Taxpayers engaged in related-party transactions have to prepare and make their transfer pricing documentation file available upon the written request of the Romanian tax authoritieswithin the deadline set by them.

f. witHHoldinG taXes

As a general rule, non-resident companies are subject to 16% withholding tax on income derived from Romania such as interest, royalties, dividends, revenues from services performed in Romania, revenues derived from liquidation of a Romanian legal entity.

Romania


From October 2011, income derived under a trust agreement by a non-resident beneficiary of a resident trust is taxable in Romania, except for cases where the non-resident beneficiary is the settlor. The fiscal obligations of the non-resident settlor are fulfilled by the trustee.

From October 2011, income obtained by non-resident individuals from participating in gambling activities in another state are exempt from taxes in Romania, even if the funds are paid from a Romanian source.

INTEREsT AND ROyALTIEsThe tax rate is 16% unless a lower treaty rate applies. Moreover, Romania has implemented a transitional period for the application of the Interest and Royalties Directive until 2011. During the period between the accession date of 1 January 2007 and 31 December 2010, 10% withholding tax applies on payments of interest and royalties made by Romanian companies to companies resident in EU and EFTA member states to entities holding at least 25% of the share capital of the Romanian company for a continuous period of at least two years prior to the date of payment of interest/royalties. Such payments are withholding exempt from 1 January 2011.

DIVIDENDsThe tax rate is 16% unless a lower treaty rate applies. As Romania is an EU member state, the provisions of the Parent Subsidiary Directive apply. Therefore, dividends paid by Romanian companies to companies resident in EU and EFTA countries are exempt from withholding tax if the dividend beneficiary owns a minimum of 10% of the Romanian company for a period of two years ending on the date when the dividend is paid. For all other companies resident in the EU or EFTA the tax rate is 10%.

From 2010 interest and dividends paid to pension funds as defined under the legislation of the EU Member State is exempt from tax.

In addition, non-residents must provide a tax residency certificate as well as a self-certified statement on the fulfillment of certain conditions in order to qualify for the more-favourable EU treatment.

G. eXcHanGe controls

The exchange control regulations applicable in Romania are administered by the Romanian National Bank, which can take safeguarding measures relating to monetary capital operations. There is an obligation to notify the Romanian National Bank at least 10 days before the intention to conclude monetary capital operations on a short-time basis. Limitations apply to monetary capital operations applied on a short-term basis which generate incoming/outgoing of capital.

H. personal taXes

Individuals subject to Romanian income tax include domiciled residents and non-domiciled residents who are employed by a permanent establishment, carry on self-employed activities or obtain other income from Romania.

The following categories of taxpayers are subject to income tax:(a) resident natural persons, such as any person who meets at least one of the

following conditions: • hisdomicileislocatedinRomania • thecentreofhisvitalinterestsislocatedinRomania • hestaysinRomaniaformorethan183daysinany12monthperiod(b) non-resident natural persons who perform an independent activity through a permanent establishment in Romania(c) non-resident natural persons who perform dependent activities in Romania(d) non-resident natural persons who obtain other income in Romania.

Categories of taxable income include the following:(1) income from independent types of activities: commercial, freelance activities,

intellectual property rights. The taxable income is,as a general rule, the difference between gross income and expenses. A taxpayer who performs independent activities must make tax payments on account at a rate of 16%, except for income achieved by selling under consignment, intellectual property rights, commission contracts, civil convention and accounting expertise which

is subject to tax conventions at a rate of 10%(2) income from salaries: based on an individual’s employment contracts or by

statute provided by law(3) trading activities, other than those listed in (1) above

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(4) income from investments: dividends, interests, earnings from the transfer of securities, sale and purchase of foreign currency etc

(5) income from pensions(6) income from agricultural activities(7) income from awards and gambling(8) capital gains from the sale of immoveable property is subject to a transfer tax

rather than income tax. Property owned for less than three years is subject to tax at 3% on proceeds up to RON 200,000 or RON 6,000 and 2% on any excess above RON 200,000. For property owned for more than three years, the rate is 2% on proceeds up to RON 200,000 or RON 4,000 and 1% on proceeds over RON 200,000.

Income from dividends and interest is taxed through the withholding tax regime. However, the following types of interest are exempt from income tax:– interest on state and municipal bonds– interest on certain bank deposits– income distributed to members of mutual benefit funds based on the share

capital held.

Other income exempted from taxation includes scholarships, income from external consultancy projects, work on approved projects in Romania, income from insurances and other damage compensation.

Personal allowances are available up to a maximum of RON 650. If the monthly gross income is between RON 1,000 and RON 3,000, personal deductions are reduced. For monthly gross income exceeding RON 3,000, personal deductions are not available. Taxable income is calculated after deducting allowable expenses, union contributions and private pensions contributions up to EUR 200 per year. The rate of tax is 16%.

The income of employees developing computer software is exempt from income tax.

Taxable income includes all benefits in kind such as free accommodation, use of a vehicle belonging to the business for personal use, personal telephone calls and credit cards used for a personal purpose.

Net rental income is established by subtracting from gross income a fixed deduction of 25% of the gross income. Alternatively, the taxpayer may opt to calculate taxable income by deduction of actual expenses.

Trading losses can be carried forward for five years and offset against trading profits from the same source. However, losses may not be offset against employment income. Annual net income is determined for each source from the following categories:• Incomefromindependentactivities• Incomefromtrading• Incomefromagriculturalactivities.

Foreign profits may be offset against losses from the same source arising in the same tax year.

Salary taxes are payable monthly by the 25th day of the month following the month in which the salary is paid, or quarterly by the 25th day of the month following the end of the quarter.

Social insurance contributions, health social insurance contributions and unemployment insurance contributions are paid both by the employer and by the employee. The following rates are applied to gross salary and charged on the employee:

Social insurance contribution: 10.5% employee

Health social insurance contribution: 5.5%*

Unemployment insurance contributions: 0.5%

All the above contributions are tax deductible.

The criteria to be applied in determining whether income is employed or self-employed earnings have changed from July 2010. Also, new tax rules have been introduced for the treatment of income derived from professional activities. The new criteria applied as of July 2010 include:

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• whethertheincomebeneficiaryusesthematerialsandtoolsputathisdisposalby the income payer

• whethertheincomebeneficiarycontributesonlyhisorherphysicalandintellectual capacity (and not capital)

• whethertheincomepayerpaysforexpensesincurredbytheincomebeneficiarysuch as travel expenses, vacation allowance etc.

Where independent (i.e. self employed) activities are deemed as dependent (i.e.employed), the beneficiary and the income payer will be both held responsible and will be required to pay any related income tax and social security contributions plus late payment interest.

Copyright royalties and similar to be treated as income from professional activities which are subject to the following:– The social security contributions – 10.5%– The unemployement benefits – 0.5%.

The income payer is obliged to declare, calculate, withhold and pay individual contributions (except health contributions) on a monthly basis in the month following the one during which the income was paid.

With effect from July 2010, net income from intellectual property rights is computed by deducting from gross income 20% of the total expenses incurred to obtain the said gross income and social security contributions withheld and paid in this respect. A 25% deduction applies to income derived from the creation of monumental art works. In addition, meal tickets are subject to 16% income tax.

TAx REsIDENCyIn the absence of a tax residency certificate issued by another state based on a double tax treaty, foreign citizens are liable to income tax in Romania on their worldwide income as of 1 January of the calendar year following the one they meet at least one of the following criteria:• theircentreofvitalinterestsislocatedinRomania;or• theyspendhereinaperiodorperiodsthatexceedinaggregate183daysduring

any period of 12 consecutive months ending in the calendar year concerned.

Foreign individuals previously faced this treatment from the fourth year of meeting any of the above mentioned conditions.

Also, individuals who met the conditions above during the period 2010 and 2011 respectively, will be subject to income tax on their worldwide income starting with 2012.

Romanian tax residency is determinedon a calendar year basis.

QUARTERLy REPORTING AND PAyMENTFrom October 2011, certain categories of salary income payers (e.g freelancers, microenterprises whose average number of employees during the previous year did not exceed three employees, excluded, etc) are liable to pay salary income tax and social contributions and file relevant statements on a quarterly basis, by the 25th of the month following the end of the quarter to which the liabilities relate.

These income payers can also opt for monthly filing of relevant statements due.

REPORTING OBLIGATIONs FOR INCOME PAyERsA new submission deadline has been introduced for returnsof tax withheld and paid by residents on behalf of non-residents. The return must be submitted no later than the last day of February following the year in which the tax was witheld (previously 30 June.) These provisions will come into force from 1 January 2012.

REGULATIONs APPLICABLE TO INCOME OBTAINED FROM FIDUCIARy OPERATIONsNew regulations concerning income obtained from fiduciary operations have been introduced from 1 October 2011. Under the new rules, the transfer of the fiduciary portfolio from the constitutor to a fiduciary, at the moment of transfer, will not generate taxable income for either of the two parties involved.

The fiduciary’s remuneration (advocate or public notary) obtained from the administration of the portfolio will be treated as income from an auxiliary activity, subject to the same tax rules applicable to the rest of the advocate or public notary’s activities. However, the income obtained from the administration of the fiduciary portfolio, other than the fiduciary’s remuneration, will be taxed according to the rules

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applicable to each type of income obtained. Losses incurred by the constitutor are final losses, being non-deductible for tax purposes. If the constitutor is a taxpayer according to Title III of the Fiscal Code, his or her financial obligations related to the income obtained from the fiduciary portfolio administration will be handled by the fiduciary.

Also, the same article mentions that the income obtained by the beneficiary, as an individual, at the moment of the transfer of the fiduciary portfolio will be subject toincometaxregulationsas“Incomefromothersources”,accordingtoTitleIII,chapter IX of the Fiscal Code. However, if the beneficiary is the same person as the constitutor, the income obtained from the transfer of the fiduciary portfolio will not be taxable.

From 1 January 2012 compulsory social contributions must be made for certain categories of individuals who obtain income from independent activities.

The deadline for filing annual personal income tax returns is now 25 May following the end of the tax year (formerly 15 May). These provisions will come into force from 1 January 2012.

i. treaty and non-treaty witHHoldinG taXes

The table below contains the withholding tax rates applicable to dividend, interest and royalty payments by Romanian companies to non-residents under the tax treaties currently in force. In a specific case, where a treaty rate is higher than the domestic rate, the latter will apply.

Dividends Interest (1) Royalties

Individuals Companies

%

Qualifying Companies

%

(2)

% %

Treaty Countries:

Albania 15 10 10 15

Algeria 15 15 15 15

Armenia 10 5 10 10

Australia 15 5 (3) 10 10

Austria 5 0 0/3 3

Azerbaijan 10 5 8 10

Bangladesh 15 10 (3) 10 10

Belarus 10 10 10 15

Belgium 10 5 10 5

Bosnia - Herzegovina (4) 5 5 7.5 10

Bulgaria 15 10 15 15

Canada 15 5 (3) 10 5/10

China (People’s Republic)

10 10 10 7

Croatia 5 5 10 10

Cyprus 10 10 10 5

Czech Republic 10 10 7 10

Denmark 15 10 10 10

Ecuador 15 15 10 10

Egypt 10 10 15 15

Estonia 10 10 10 10

Ethiopia 10 10 15 15

Finland 5 5 5 2.5/5 (5)

France 10 10 10 10

Romania




%


%

(2)

% %

Georgia 8 8 10 5

Germany 15 5 (3) 0/3 (6) 3

Greece 20 20 10 5/7 (7)

Hungary 15 5 (8) 15 10

Iceland 10 5 3 5

India 20 15 15 22.5

Iran 10 10 8 10

Ireland 3 3 3 0/3 (9)

Israel 15 15 5/10 (10) 10

Italy 10 10 10 10

Japan 10 10 10 10/15 (11)

Jordan 15 15 12.5 15

Kazakhstan 10 10 10 10

Korea (DPRK) 10 10 10 10

Korea, Republic of 10 7 10 7/10 (12)

Kuwait 1 1 1 15

Latvia 10 10 10 10

Lebanon 5 5 5 5

Lithuania 10 10 10 10

Luxembourg 15 5 10 10

Macedonia 5 5 10 10

Malaysia 10 10 15 12

Malta 5 5 5 5

Mexico 10 10 15 15

Moldova 10 10 10 10/15 (13)

Montenegro 10 10 10 10

Morocco 10 10 10 10

Namibia 15 15 15 15

Netherlands 15 5 (3) 0/3 (14) (15) 0/3 (14)

Nigeria 12.5 12.5 12.5 12.5

Norway 10 10 10 10

Pakistan 10 10 10 12.5

Philippines 15 10 10 10/15/25 (16)

Poland 15 5 10 10

Portugal 15 10 (17) 10 10

Russia 15 15 15 10

San Marino 10 0/5 3 3

Serbia (4) 10 10 10 10

Singapore 5 5 5 5

Slovak Republic 10 10 10 10/15 (18)

Slovenia 5 5 5 5

South Africa 15 15 15 15

Romania




%


%

(2)

% %

Spain 15 10 10 10

Sri Lanka 12.5 12.5 10 10

Sudan 15 10 10 10

Sweden 10 10 10 10

Switzerland 10 10 10 0

Syria 15 5 10 12

Thailand 20 15 10/20/25 (19) 15

Tunisia 12 12 10 12

Turkey 15 15 10 10

Turkmenistan 10 10 10 15

Ukraine 15 10 10 10/15 (18)

United Arab Emirates 3 3 3 3

United Kingdom 15 10 10 10/15

United States 10 10 10 10/15 (20)

Uzbekistan 10 10 10 10

Vietnam 15 15 10 15

Zambia 10 10 10 15

1 Many treaties provide for an exemption for certain types of interest such as interest paid to the State local authorities, central bank, export credit institutions or in relation to sales on credit. Such exemptions are not considered in this column.

2 Unless otherwise indicated, recipient companies qualify for the reduced rates if they hold at least 25% of the capital or the voting power in the Romanian company, depending on the applicable treaty.

3 This rate applies to participations of at least 10%.4 The treaty concluded with the former Yugoslavia.5 The lower rate applies to royalties for computer software and industrial,

commercial or scientific equipment.6 The lower rate applies if, and as long as, Germany, does not levy withholding tax

on interest paid to a resident Romanian under its domestic law.7 The higher rate applies to industrial royalties.8 The rate applies to participations of at least 40%.9 The lower rate applies to copyright royalties.10 The 5% rate applies to interest paid in connection with the sale on credit of any

industrial or scientific equipment, or of any merchandise by one enterprise to another enterprise or on a loan granted by banks.

11 The 10% rate applies to cultural royalties and the 15% to industrial royalties.12 The lower rate applies to industrial royalties, know-how and equipment leasing.13 The lower rate applies to industrial royalties (excluding patent royalties) and

know-how.14 The lower rate applies if, and as long as, the Netherlands does not levy a

withholding tax on interest/royalties paid to a resident of Romania.15 Interest paid to a bank or financial institution and interest paid on a loan made

for a period of more than two years are exempt.16 The 10% rate applies to royalties paid by companies registered at the Romanian

Agency for Development and carrying on specific activities. The 15% rate applies to film royalties.

17 A minimum holding period of two years applies.18 The lower rate applies to industrial royalties.19 The 10% rate applies to interest paid to financial institutions; the 20% rate

applies to interest on credit sales.20 The lower rate applies to copyright royalties.

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