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New changes to the Tax Code

The much-anticipated Government Ordinance amending important provisions of the Tax Code was published in the Official Gazette no. 716 of 15.07.2022

Thus, in what follows, we will present an inventory of the main changes made.

I. The scope of the exemption regulated by article 22 of the Tax Code (tax on reinvested profits) is extended

According to the new amendments, the tax exemption for reinvested profits will be extended from 2023 and will include, in addition to machinery, plant and equipment, computers and peripheral equipment, also reinvested profits in assets used in production, processing and assets representing refurbishment, the list to be approved by Order.

II. The tax on dividends distributed/paid between Romanian legal entities, as well as for those distributed/paid to non-residents is increased from 5% to 8% as of 1 January 2023

III. Changes to the tax regime for micro-enterprises

The tax regime for micro-enterprises is undergoing a number of changes that will come into force from 2023. Firstly, if any of the partners/shareholders of the Romanian legal entity owns more than 25% of the value/number of shares or voting rights in more than three Romanian legal entities applying the microenterprise income tax system, the affiliated companies must agree which of them, in total 3, will apply the microenterprise regime.

In other words, in this situation, not all affiliated companies can apply the micro-enterprise tax regime, and some of them have to opt out, so that there are a maximum of 3 companies with this treatment. Of course, the limitation applies if there are partners/shareholders who own more than 25% in more than 3 companies that fall under this regime. Companies in certain sectors of activity (e.g. HORECA) are also exempt from this limitation.

The income tax rate for micro-enterprises is 1%, applicable to micro-enterprises with at least one employee. The 3% income tax rate for micro-enterprises without employees is repealed. Companies with no employees will switch to 16% corporate income tax.

The turnover threshold up to which a company can apply for the micro-enterprise regime is lowered (i.e. from €1 million to €500,000). Thus, companies with revenues above €500,000 will be subject to a 16% corporate income tax from the quarter following the quarter in which these thresholds are exceeded.

Also, persons with consultancy/management income of more than 20% of their total income will not be able to apply the micro-enterprise tax regime and will be obliged to switch to corporate tax from the quarter in which this threshold is exceeded.

At the same time, legal entities carrying out activities in the following sectors have been excluded from the scope of the income tax on micro-enterprises: banking, insurance and reinsurance, capital markets, including intermediation activities in these areas, gambling, as well as Romanian legal entities carrying out activities in the exploration, development, exploitation of oil and gas deposits.

IV. The specific tax for HORECA companies is abolished

The specific tax on HORECA companies, established by Law 170/2016, will be repealed. From 1 January 2023, persons in this sector will have the option to switch to either a 1% of turnover microenterprise income tax or a 16% corporate income tax.

V. Changes are made to the level of VAT

As from 1 January 2023, non-alcoholic beverages falling under CN codes 2202 10 00 and 2202 99, i.e. non-alcoholic beverages containing added sugar or other sweetening matter or flavoured, for which the standard rate of 19% will apply, will be excluded from the reduced VAT rate of 9%, in addition to the exception already provided for alcoholic beverages.

From the same date, a reduced VAT rate of 9% will apply to the supply of food, including beverages (excluding alcoholic and non-alcoholic beverages containing added sugar or other sweetening matter or flavoured), intended for human and animal consumption, as well as to restaurant and catering services and hotel accommodation activities. Until now, restaurant and catering services were covered by the reduced VAT rate of 5%.

Also, from 1 January 2023, the scope of the reduced VAT rate of 5% for the supply of housing to individuals is restricted, as part of the social policy, in the sense that individuals may benefit from this facility only once, i.e. they may purchase, individually or jointly with another individual/other individuals, a single dwelling whose value does not exceed 600,000 lei, excluding VAT, at the reduced rate of 5%.

At the same time, natural persons who have concluded legal acts between living persons concerning the advance payment for the purchase of dwellings at the reduced VAT rate of 5%, before 1 January 2023, benefit from the application of the reduced VAT rate in 2023 under the legal conditions in force at the date of conclusion of these acts.

VI. The limit for applying the income norm system is amended

The limit on income from self-employment, PFA, sole proprietorships, family businesses, and the income norm will be adjusted, reducing it from €100,000 to €25,000.

Thus, if the income exceeds this new much lower threshold of €25,000, self-employed persons will be obliged to apply the real system.

VII. The payroll tax exemption for seasonal employees is abolished as of 2023

VIII. Changes to some tax incentives in agriculture and construction

Within 3 days from the date of publication of the Emergency Ordinance in the Official Gazette the following will apply:

  • The threshold up to which the employee benefits from exemption from payroll tax and CASS in the construction sector, the agricultural sector and the food industry is reduced to 30,000 lei/month from 10,000 lei/month;

  • It adds the condition that the activity must be carried out in Romania in order to apply the exemption from payroll tax for construction employees;

  • The calculation of the turnover ratio of 80% is introduced: (i) in the numerator, the turnover actually achieved from the construction activity carried out on the territory of Romania; (ii) in the denominator, the total turnover (both income from the activity carried out on the territory of Romania and outside Romania) is taken into account.

IX. The conditions relating to the tax treatment of voluntary pension contributions and voluntary health insurance premiums, including medical services paid by the employer, are amended.

In order to keep this type of contribution tax-free, the Ordinance added, in addition to the limitation to the equivalent of €400/year (both), the fact that they cannot exceed, together with other benefits, 33% of the basic salary.

Moreover, the 33% limit on basic salary also applies to additional benefits received under the mobility clause, meal expenses, including meal vouchers, accommodation up to 20% of the basic gross national minimum wage, holiday vouchers up to an average gross salary.

If benefits exceed the 33% limit, the order of allocation is chosen by the taxpayer and the excess is included in the calculation of payroll tax and social contributions.

X. The calculation of the personal allowance is modified

From 2023 onwards, the degressive scale changes, calculated according to the number of dependants and the minimum wage. Thus, it varies between 20% (no dependants) and 45% (4 or more dependants) of the gross minimum wage, for wages equal to the gross minimum wage and 0 for incomes exceeding the minimum wage plus 2,000 lei.

XI. The 40% income deduction in the calculation of the tax on rental income is abolished as from 2023

XII. Increasing the tax on gambling income

From 1 August 2022, the tax bracket will be increased from 1% - 16% - 25% to 3% - 20% - 40% and the thresholds at which the increased rates will apply are also reduced.

XIII. The method of calculating the tax due on the transfer of ownership of immovable property belonging to personal assets is modified

From 2023, the new tax rates are 1% for the transfer of real estate owned for at least 3 years and 3% for those owned for less than 3 years, the rates being applied to the value of the transaction and not only to amounts exceeding 450,000 lei.

XIV. From 1 August 2022, CAS and CASS will be calculated at the minimum wage for part-time employment contracts and wages less than the minimum wage, except for pupils, students, apprentices, pensioners or disabled persons

XV. The basis for calculating the CAS for persons earning income from self-employment, sports activity contracts and/or royalties is amended

According to the new changes, from 2023, taxpayers with a combined income of at least 12 minimum wages but not more than 24 minimum wages will owe CAS on 12 minimum wages, and taxpayers with a combined income of more than 24 minimum wages will owe CAS on 24 minimum wages. Taxpayers with a cumulative income of less than 12 minimum wages may opt to pay CAS at 12 minimum wages.

XVI. The basis for calculating the CASS for persons earning income from self-employment, royalties, income from associations with legal persons, income from renting or leasing, from investments, from agriculture, etc. is amended.

Thus, from 2023 onwards, if the cumulative income from these sources is less than 6 minimum wages, no CASS is due, but if the cumulative income is between 6 and 12 minimum wages, CASS is due at 6 minimum wages. At the same time, if the cumulative income is between 12 and 24 minimum wages, the basis for calculating the CASS is 12 minimum wages, and if the cumulative income exceeds 24 minimum wages, the basis for calculating the CASS will be 24 minimum wages.

XVII. Limits the application of the reduced rate of 5% for the supply of housing

From 2023 onwards, the reduced rate of 5% will apply to a single purchase of a dwelling only if it does not exceed (i) the surface area of 120 sq.m and (ii) the value of 600,000 lei. At the same time, the 5% rate will also apply to the supply of dwellings pre-contracted at the date of entry into force of the measure.

XVIII. Tobacco excise duty is amended

From 1 August 2022, the specific excise duty is increased and the ad valorem duty is reduced.

XIX. Changes to the calculation of the tax on buildings

From 2023:

  • The differences between the building tax rates payable by individuals and those payable by legal entities for the same type of building (residential or non-residential) disappear;

  • The tax base for residential buildings will no longer be calculated according to the values set out in the Fiscal Code, depending on the type of building and the locality/area within the locality, but will be set by the local authorities according to the values in the Market Studies on the indicative values of real estate in Romania, administered by the National Union of Notaries Public;

  • Local authorities will consult these databases and send homeowners a notice of the tax assessment amount, which is deemed to be tacitly accepted if not contested by the taxpayer within 30 days of receipt;

  • The notion of mixed use is eliminated, buildings comprising non-residential and residential premises will be taxed according to the majority use;

  • Local authorities will set tax rates at a minimum of 0.1% of the rateable value for residential buildings and a minimum of 0.5% of the rateable value.

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