Amendments to the Fiscal Code

Tax Flash No. 10/ 30. Mar. 2005

Amendments to the Fiscal Code

We have summarised below the main amendments brought to the Fiscal Code by Emergency Ordinance 24/24 March 2005. The Ordinance enters into force starting 1 April 2005, except for the profits tax, income and withholding tax provisions entering into force as of 1 May 2005, and VAT amendments to become effective on 1 June 2005.

Profits tax

Revenues related to sales by installments contracts

Starting 1 May 2005, taxpayers producers of goods sold in instalments may no longer choose to defer the taxation of revenues related to such sales for contracts concluded after 30 April 2005. Accordingly, for the new contracts, the related revenues and expenses should be entirely recognised upon the sale of goods.

20% additional depreciation allowance

Starting 1 May 2005, the 20% additional depreciation allowance for fixed assets or amortisable patents is no longer available. Companies benefiting until 30 April 2005 of this incentive should maintain such depreciable fixed assets in their patrimony for at least a period equal to half of useful life. Otherwise, the profits tax and related late payment interests/penalties would be computed in this respect by the tax authorities.

Capital gains

According to the Ordinance, starting 1 May 2005 the reduced rate of 10% applicable for specified capital gains is no longer available. Hence, the standard rate of 16% is applicable for all capital gains obtained by legal entities from sale of immovable property located in Romania or participation titles held in Romanian companies.

Income tax

Investment income

The tax rate on income from interest is increased at 10% from the 1% applicable for income obtained until 1 May 2005.

Income from interest on current accounts is treated as non-taxable, provided that the interest rate is within the limit of the one month inter-banking average interest rate (i.e., BUBID) corresponding to the first working day of the computation month.

Capital gains

According to the Ordinance, the taxation of gains derived from sale of shares by individuals will be at the following rates:
- 10% in case the individuals have held the shares for less than 365 days, and;
- 1% in case the individuals have held the shares for more than 365 days.

Gains from the sale-purchase of currency related to forward contracts and any other similar operations are to be taxed at a 10% income tax rate.

Income from prizes and gambling

Income from gambling is to be taxed at a 20% in case the net income does not exceed the amount of ROL 100 million. Otherwise, the income is taxed at 25%.

The Ordinance decreases the value of the non-taxable income from prizes from ROL 8,000,000 to ROL 6,000,000.

Sale of real estate from the personal patrimony of individuals

The incomes from transfer of specified real estate from the personal patrimony are now subject to a 10% income tax rate. The tax should be withheld and paid to the State budget by public notaries authenticating the transaction until the 25th of the month following the one when the act was registered. There are certain exemptions provided.

Note
Starting 1 January 2006, income obtained by individuals from investments and from transfer of real estate from the personal patrimony will be subject to 16% tax rate.
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Withholding tax

Incomes obtained by non-residents from interest on deposit accounts, deposit certificates and other saving instruments through banks and other credit institutions that are authorised and located in Romania are subject to 10% withholding tax rate, instead of the 5% rate, as previously applied.

Incomes obtained from interest on current account deposits at banks or other credit institutions in Romania will be exempt from withholding taxation in Romania, provided that the interest is within the limit of the one month inter-banking average interest rate (‘BUBID’) corresponding to the first working day of the respective month.

Value Added Tax (VAT)

As of 1 June 2005, under the Ordinance, the following operations will no longer be VAT exempt:
• domestic operations:
- sale of licenses for films or programs, broadcasting rights, subscriptions to international news agencies and other similar broadcasting rights, intended for activities of radio and television, with the exception of publicity;
- cultural activities subject to show tax;
- deliveries of goods or supplies of services performed by units of the penitentiary system using the labor of prisoners;
- delivery of goods to the Bank Recovery Agency as the result of the giving into payment or the auctioning of goods by the Bank Recovery Agency, with the total or partial settlement of the debtor’s liabilities.

• imports operations
- import of carrier media, such as films, magnetic tapes and disks that have recorded on them films or programs intended for radio or television activities.

Instead, the Fiscal Code was amended to include other two types of exemptions, which apply also in EU countries, based on the harmonised legislation (the EU 6th Directive):
- certain cultural services and deliveries of goods closely linked thereto supplied by public institutions or by non-profit cultural bodies;
- activities of public radio and television bodies, other than activities of a publicity or a commercial nature.

Excise duties

The Ordinance generally increases the level of excise duties (e.g., for alcohol, tobacco, mineral oils, luxury products, cars, etc.). Additionally, starting 1 April 2005, electricity becomes subject to excise duties.

The following products are no longer excise duties exempt:
- samples for analysis or testing of necessary products or for scientific purposes;
- alcoholic products used in a production process, provided that the final product is alcohol free;
- alcoholic products used for the production of another component that is not subject to excises;
- alcoholic products used in cosmetic industry;
- mineral oils used from the state reserve or the mobilization reserve for humanitarian aid purposes;
- mineral oils used by physical persons as fuel for heating households;
- any mineral oil acquired directly from economic agents producers or importers, used as fuel for technological purposes or for the production of thermal agent and warm water;
- any mineral oil acquired directly from economic agents producers or importers, used for industrial purposes.

Leasing

For new or second-hand cars imported based on leasing agreements concluded after the enforcement of the Ordinance, the taxable base for excise duties shall be the entry value of the goods to which the amount of customs duties and other special duties, as the case may be, are added. The excise duty is payable upon the completion of the import operation.

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