In a period of economic uncertainty, with a budget deficit nearing 8% and the looming risk of unpopular fiscal measures post-elections, companies are facing significant legal and fiscal unpredictability. This article delves into the major legislative changes adopted in recent months and how corporate legal departments should prepare for the upcoming challenges. 

Tax Amnesty and Incentives for Compliant Taxpayers 

This month, the government adopted a controversial emergency ordinance aimed at addressing the budget deficit by introducing a mix of fiscal measures, including a tax amnesty for overdue liabilities and a reward mechanism for compliant taxpayers. The ordinance cancels interest, penalties, and other charges on outstanding tax obligations as of August 31, 2024, while also offering bonuses to those who have met their tax obligations on time. Additionally, it includes provisions for individual taxpayers and aims to streamline budgetary spending and improve public fund management. 

New R&D Tax Credits 

R&D Tax Credits: The government introduced a new ordinance offering tax credits for companies involved in research and development that are subject to the minimum turnover tax. The provision allows companies to deduct 16% of 50% of their eligible R&D expenses from their minimum turnover tax. As the 2024 fiscal results are not yet finalized, this benefit will apply when calculating corporate income tax for 2024 and any amended fiscal year starting in 2024. While theoretically encouraging for innovative companies, the complex eligibility criteria and administrative requirements remain a challenge. 

Fiscal Council’s Analysis of the Budget Revision 

The Fiscal Council’s review of the 2024 budget projects a deficit of 8% of GDP, up from the initial 5% target. Romania faces “twin deficits” with trade and current account imbalances heavily financed through external borrowing, posing currency risks. To reduce the deficit, the Council calls for tax reforms, better VAT collection, a broader tax base, and tackling evasion. Additionally, poor absorption of EU funds and delayed Recovery Plan payments highlight institutional weaknesses. 

Ministry of Finance Semi-Annual Report 

The Ministry of Finance’s semi-annual report highlights key 2024 fiscal policies and priorities under the National Recovery and Resilience Plan, focusing on digitalization projects like the SFERA system and a new Big Data platform. SFERA will centralize data from 252 ANAF databases, providing real-time information on legal entities. Together with projects like e-Invoice and SAF-T, the Big Data platform will support a unified fiscal risk register, enabling ANAF to perform standardized risk analysis across all tax control units. 

Against Progressive Taxation. Finance Minister Marcel Boloș reaffirmed support for the flat tax, arguing that a single rate best supports Romania’s economic development. He emphasized that digitalizing tax authorities, improving VAT collection, and restructuring public spending are priorities for avoiding excessive fiscal pressure on businesses. The budget deficit reduction plan will be sent to the European Commission by October 15. Minister Adrian Câciu echoed this, noting that a gradual deficit reduction over seven years was agreed upon to avoid harsh economic measures. 

Inflation Falls to 5.1% in August 2024 but Remains Highest in the EU. Romania’s annual inflation rate dropped to 5.1% in August 2024, down from 5.42% in July, with food prices up by 4.25%, non-food goods by 4.35%, and services by 8.60%. Despite this decline, Romania still has the highest inflation in the EU (5.3%) compared to the EU average of 2.4%. The National Bank’s 4% year-end target seems unachievable, with IMF and World Bank estimates closer to 6-6.3% 

Future Prospects:  

• Romania’s fiscal plan is due by October 15th, but the PNL-PSD coalition is unlikely to reveal 2025 measures before elections, with disclosure expected only after the results are finalized. 

• The 2024 deficit target was 5%, but it’s now expected to reach 8%. Efforts to boost VAT collection through digitalization and compliance incentives seem overly optimistic, signaling urgency to raise revenues. 

• It seems unlikely that the fiscal measures to address the budget deficit over the next seven years will be disclosed this month. Minister Marcel Boloș suggested that certain EU countries, including France, have pushed for an extension until early 2025. Consequently, these new fiscal measures will probably be introduced after Romania's elections, potentially sparking discontent among businesses and the public.

Conclusion 

In conclusion, Romania’s fiscal environment remains highly volatile, with an increasing budget deficit, complex tax reforms, and ongoing institutional challenges. As legal and financial uncertainty persists, corporate legal departments must stay vigilant, adapt to evolving regulations, and prepare for potential changes post-elections that may significantly impact compliance strategies and business planning. 

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