The Emergency Ordinance no. 115/2023 | TaxFlash nr. 96

1. Amendments to the Tax Code:

1. Corporate income tax:

2. Micro-enterprises income tax

- Some of the conditions for applying this system are amended, as follows:

o Regarding the condition that the associates/shareholders holding more than 25% of the value/number of shares or voting rights to have such holding in maximum three micro-enterprises, the holding is limited now to one micro-enterprises, and it is clarified that also the indirect holding is considered.

The associates/shareholders that hold, directly or indirectly, more than 25% of the value/number of shares or voting rights, both in the Romanian legal entity analysed and in other Romanian legal entities that meet the conditions for the micro-enterprises tax system, must decide until 31st March of the following year a single Romanian legal entity that applies this system.

o A new condition is added, for the micro-enterprises to submit its annual financial statements in the legal deadline; For the application of the micro-enterprise income tax system in fiscal year 2024, the condition is considered fulfilled if the annual financial statements are submitted by March 31, 2024 inclusive.

o Regarding the computation of the EUR 500,000 income threshold, it is stated that are considered the income of the respective micro-enterprises cumulated with the income of its related enterprises according to Law No. 346/2004.

- The option to apply this regime by Romanian legal entities in the HoReCa field, respectively those that carry out activities corresponding to CAEN codes: 5510, is repealed; 5520; 5530; 5590, 5610, 5621, 5629, 5630, as long as the conditions for being a micro-enterprise are not met. Basically, these legal entities will apply the taxation regime on microenterprise income under the same conditions as all other taxpayers.

- For Romanian legal entities that are secondary insurance and/or reinsurance intermediaries, as defined by Law, an exception is introduced in order to allow them to apply the micro-enterprises tax system, if they have generated income from insurance/reinsurance distribution activities up to 15% of the total income;

- Micro-enterprises can no longer deduct from their income tax the amounts representing sponsorships/scholarships and the acquisition cost of cash registers.

The amendments will enter into force with 1st January 2024.

3.  Minimum tax on turnover and additional tax for legal entities carrying out activities in the oil and gas sector

- The provision related to the income from the production of tangible and intangible fixed assets that is deducted from total income is amended, meaning that the Law no longer refers to assets that are not included in the indicator I;

- For taxpayers organized under a fiscal group, the check if the turnover of 50 million euros is exceeded is done by the leader, by cumulating the turnover of all the members of the fiscal group;

- Taxpayers that reduce the value of assets/ assets in progress according to indicators I and A are obliged to keep these assets in their patrimony for at least half of their economic useful life, but no more than 5 years. If this condition is not met, the tax is recomputed, and interest and penalties for late payment are charged.

The Law provides an exception for assets falling under the following situations:

o Are transferred as part of reorganisations;

o Are disposed during liquidation/bankruptcy procedure;

o Are destroyed, lost, stolen or damaged and replaced, provided that these situations are demonstrated or confirmed;

o Are removed from the patrimony as a result of the fulfilment of obligations provided by law.

The amendments will enter into force with 1st January 2024.

4.  Income tax and mandatory social contributions

The most important changes are the following:

• Regarding the determination of net income from self-employment, for which the taxpayer applies the real taxation system:

- It removes from the list of limited deductible expenses, sponsorship and patronage expenses.

- The threshold for the deductibility of expenses for subscriptions, paid for the personal use of the taxpayer, regardless of whether the activity is carried out individually or in a form of association, offered by suppliers whose activities fall under NACE codes 9311, 9312 or 9313, acting in their own name (in the case of subscriptions which include the right to use sports facilities, for the practice of sport and physical education for maintenance, prophylactic or therapeutic purposes), or as intermediaries (for medical services, if the subscriptions in question also include medical services), is modified from EUR 400/year/person to EUR 100/year/person.

- Expenses related to the purchase of electronic cash registers become deductible expenses. Previously, they were considered non-deductible expenses but deducted from the income tax due;

- Expenses recorded in the accounting records, which were later proved to be related to corruption, according to the law, become non-deductible expenses.

• Regarding the tax treatment of income from salaries:

- Sick leave allowances granted in accordance with Government Emergency Ordinance No. 158/2005 on social health insurance leave and allowances become subject to health insurance contribution (10%);

- If during the same month, the individual earns income from salary for a fraction of the month, at the workplace where the basic function is located, with one or, as the case may be, several employers successively, for the application of the exemption, each employer will determine the part of the RON 10,000 monthly threshold corresponding to this period and will grant the exemption for the gross monthly income earned, within the limit of the threshold pro-rata thus determined;

- The allowance in the amount of maximum RON 400 /month, granted to employees who carry out teleworking activities to support the expenses with utilities at the place where they perform their activity, such as electricity, heating, water and data subscription becomes taxable and subject to mandatory social security contributions;

- The limit under which subscriptions, paid by the employer for the benefit of the employee, to suppliers whose activities fall under NACE codes 9311, 9312 or 9313 and who act on their own behalf (in the case of subscriptions including the right to use sports facilities for the practice of sport and physical education for maintenance, prophylactic or therapeutic purposes), or as intermediaries (for medical services, if the subscriptions in question also include medical services), are not subject to income tax or mandatory social security contributions, is amended from EUR 400/year/person to EUR 100/year/person;

- The following types of income will be included in the non-taxable and not subject to social security contributions monthly threshold of maximum 33% of the basic salary corresponding to the job occupied:

The amounts paid by the employer for the placement of children of its employees in early education establishments, in accordance with the law, within the limit set by the employer, but not more than 1,500 lei/month for each child. In the case of amounts paid directly by the employee, they are granted by the employer, within the same limit, based on justifying documents submitted by the employee. Previously, these facilities were suspended until 31.12.2023.

The favorable difference between the negotiated preferential interest rate and the market interest rate for loans and deposits. Previously, these revenues were considered not taxable without any threshold.

- Clarifications are introduced regarding the moment when benefits in cash and/or in kind which are included in the 33% threshold of the basic salary corresponding to the job held are considered income:

o The reimbursement of tourist and/or treatment services, including transport, during the leave period, for own employees and their family members - in the month of approval of the expense claim report;

o Contributions to a voluntary pension fund paid by the employer for its own employees - in the month for which the payment is made by the employer;

o Amounts representing voluntary health insurance contributions, as well as medical services provided in the form of a subscription, paid by the employer for his own employees - in the month for which the payment is made by the employer;

o The amount of subscriptions paid by the employer for the benefit of the employee, to providers whose activities fall under NACE codes 9311, 9312 or 9313, acting on their own behalf (in case of subscriptions which include the right to use sports facilities, for the practice of sport and physical education for maintenance, prophylactic or therapeutic purposes), or as intermediaries (for medical services, if the subscriptions in question also include medical services) - in the month for which the payment is made by the employer;

o Amounts incurred/granted by the employer for the placement of the children of his own employees in early education establishments - in the month for which payment is made by the employer;

o Amounts representing the favorable difference between the preferential interest rate established by negotiation and the market interest rate for loans and deposits - in the month in which the loan is due.

• Regarding the income tax on the transfer of the use of goods (rental income, lease of agricultural land):

- The deductible flat rate for determining net income from the transfer of the use of property, other than income from the rental of rooms in privately owned dwellings for the purpose of tourism of between one and five rooms included, regardless of the number of dwellings in which they are situated, is reintroduced. The flat rate is set at 20% of the gross income;

- The deductible flat rate is reduced from 40% to 20% in the case of income in kind for lease of agricultural land;

- The obligation to apply the real system of taxation, in case the landlord has more than 5 rental contracts at the end of the previous tax year, is eliminated and the method of determining the annual net income by applying the flat rate of expenses (20%) is introduced, regardless of the number of rental contracts generating such income;

- The option to determine the annual net income based on single entry bookkeeping is eliminated;

- Withholding tax is reintroduced in all cases where the landlord is a legal person or other entity that is required to keep bookkeeping records. The measure applies to income from the transfer of the use of goods, other than income from the rental of rooms in privately owned dwellings for the purpose of tourism. The net income is determined at each payment by deducting from the gross income the deductible flat rate of 20%;

- The obligation to complete and submit the " Unique statement on income tax and social contributions paid by individuals. Data on the tax on estimated income/income to be earned in Romania and social contributions due" (form 212) by taxpayers who obtain income from the transfer of the use of goods, from payers who are legal persons or other entities that have bookkeeping obligations is eliminated. The obligation is maintained for the purpose of determining the health insurance contribution due;

- At the same time, the uncompensated tax loss carried forward as well as the tax loss recorded in the tax year 2023 can no longer be compensated and represents the taxpayer's definitive loss.

• The period for compensating the tax loss incurred in case of income from self-employment, intellectual property rights and agricultural, forestry and fish farming activities, for which the annual net taxable income is determined under the real system, including annual net gains from the transfer of securities and any other transactions with financial instruments, including derivatives, as well as gains from the transfer of investment gold, as defined by law, is reduced from 7 years to 5 years.
• Annual tax losses incurred in the years prior to 2024 which remained uncompensated as of 31 December 2023, will be offset against the annual net income/gains realized as of 2024, for the remaining period of the 7 years, up to 70% of the respective annual net income/gains.
• Annual losses will be carried forward chronologically, according to the age of the loss, over the next 5 years or, as the case may be, over the remaining period of the 7 consecutive years following the year in which the loss was incurred.
• The possibility for taxpayers to have up to 3.5% of their income tax allocated to support non-profit entities or to grant private scholarships remains in place only for income from salary;
• Clarifications are provided on the minimum wage used to determine the annual calculation bases for social security contributions for 2023 (i.e. RON 3,000/month). It is also introduced the obligation to submit the annual declaration when the income payer withheld contributions by reference to a minimum wage higher than that established by this Ordinance. The difference in pension contributions is not refunded to the taxpayer and will be used for subsequent pension rights.
• In 2024, the employees working on the basis of an individual employment contract, employed full time, at the workplace where the basic function is located, and earning the minimum wage, do not owe income tax and mandatory social security contributions for the amount of 200 lei/month, under conditions similar to those existing in 2023.

All these changes will come into force from 1 January 2024.

5. VAT

- The deduction of VAT related to the purchase, rental or leasing of buildings/living spaces, regardless of their destination, located in residential areas or in blocks of flats and of the tax related to expenses related to these buildings/living spaces is limited to 50%, if they are not used exclusively for the purpose of economic activity.

- Starting from January 1, 2024, the facility to defer payment of VAT to customs can no longer be accessed only on the basis of the AEO certificate. In this sense, it will be necessary to submit a customs declaration using centralized customs clearance (procedure for which the possession of the AEO certificate is mandatory) or the simplified procedure for registration in the declarant's records.

- The obligation to submit an affidavit according to which the company does not register outstanding budget obligations, in order to obtain the certificate of postponement of VAT payment to customs, is introduced for economic operators who in the last 6 months have made imports with a cumulative value of at least 50 millions of lei.
 

6. Excise duties