(Government Decision No. 77 / 2014, published in the Official Gazette No. 108 on 12 February 2014)

Certain amendments and clarifications have been introduced concerning corporate income tax, microenterprises income tax, withholding tax, VAT and excise duties

The provisions of the Government Decision become effective upon their publication in the Romanian Official Gazette, except for the change regarding the monitoring of situations related to granting direct exemption from excise duties on natural gas or electricity, which will enter into force on 1 April 2014.

Among the most important changes, we mention the following:

Corporate income tax

• Deductible expenses

Losses from receivables representing the difference between the acquisition cost and the nominal value of the taken over receivables recorded according to the applicable accounting regulations are deductible expenses for corporate income tax purposes.

• Dividends received from European Union (EU) Member States

The methodological Norms have been amended to reflect the change in the minimum shareholding period from 2 years to 1 year in order for dividends received from EU Member States to be treated as non-taxable revenues.

• Non-taxable revenues

The Norms provide the list of documents that should be available at the level of the Romanian legal entity in order for the dividends received from a foreign legal entity, resident in a state with which Romania has a Double Tax Treaty concluded, to be considered non-taxable revenues:

- The tax residency certificate of the foreign legal entity;

- The own liability statement of the foreign legal entity mentioning that it is a corporate income tax payer;

- Documentation proving that the uninterrupted 1 year shareholding period of at least 10% of the share capital of the Romanian legal entity is fulfilled.

• Tax credit for sponsorship/patronage/private scholarships

Clarifications are provided regarding the revenues included in the turnover base for the purpose of computing the fiscal credit for sponsorships in case of certain categories of taxpayers, such as the taxpayers applying the IFRS provisions, credit institutions, etc.

In addition, the Norms provide also a computation method of the amount available for carry forward in case of the sponsorship expenses for which a full fiscal credit was not obtained in the year in which they were recorded.

• The declaration and payment of the corporate income tax

Clarifications are provided in respect of the computation methodology, submission and payment deadlines of corporate income tax for taxpayers that change the tax year during the calendar year.

• Dividend tax

The Norms have been amended to reflect the change in the minimum shareholding period from 2 years to 1 year in order to benefit from dividend tax relief applicable to the dividends paid by Romanian legal entities to Romanian legal entities.

Microenterprises income tax

The methodological norms have been amended to include the provisions related to the condition according to which the consultancy and management revenues should not exceed 20% from total revenues in order for a Romanian legal person to be subject to microenterprises income tax.

The computation of the taxable base for applying the 3% is explained. Thus, the Norms mention certain revenues which are added (e.g. the value of trade discounts received after the invoicing, etc.) and others which are deducted (e.g. the foreign exchange gains, the trade discounts granted after invoicing, etc.) from the taxable base.

Withholding tax

The Norms clarify the phrase "international transport" for the purpose of excluding the revenues derived from the supply of such types of services from the scope of withholding tax.

The Norms have been amended to include the change in the minimum shareholding period from 2 years to 1 year for the purpose of application of the EU Parent – Subsidiary Directive.

(P) Tax Flash: Methodological Norms for the application of the Fiscal Code - Part 2

For additional information, please contact:

Venkatesh Srinivasan, Partner – Head of Tax and Legal

Ernst & Young SRL and E. Platis, C. Bazilescu LLLP

15-17 Ion Mihalache Blvd.

Bucharest Tower Center Building, 22nd Floor

Sector 1, 011171, Bucharest, Romania

Tel: (40-21) 402 4000, Fax: (40-21) 310 7124

Email: office@ro.ey.com

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