Starting from 1 July 2014, the profit which is reinvested in technological equipment used for business activities is exempt for tax purposes. The new regulation is a significantly improved form of the older one that was applicable in 2010, mainly because this time it permits the fiscal amortization of this equipment. The exemption will most likely boost investment in new technologies and stimulate growth and development of such sectors as high tech, oil and gas and agriculture.

The tax exemption will be applicable for new equipment produced or bought after 1 July 2014 and commissioned before 31 December 2016. For investments in technological equipment manufactured and / or acquired and commissioned during the period 1 July – 31 December 2014, the incentive is applied by taking into consideration only the gross accounting profit recorded as of 1 July 2014.

The categories of fixed asset for which the tax exemption is applicable are the technological equipment included in subgroup 2.1. of the Catalogue on the classification and normal useful lives of fixed assets approved by Government Decision No. 2.139/2004

The reinvested profit for which the tax exemption is applicable is limited to the accounting profit of the period and it represents the cumulated gross profit from the beginning of the year, when the equipment is commissioned.

Taxpayers subject to microenterprise tax which become profit tax payers during the fiscal year benefit from this incentive for technological equipment commissioned as of the quarter in which they became profit tax payers, according to the law.

The exemption from tax for reinvested profit is calculated once every quarter or every
year, as the case may be, and is granted within the limit of profit tax due in that period. If
the profit tax is computed on a quarterly basis and the investment were made in the
previous quarters, the value of the profit already reinvested should be excluded from the
cumulated gross profit.

The tax incentive is also applicable for the assets which are achieved over several
consecutive years, considering the investments partially commissioned during each fiscal
year (based on partial work report).

In order to benefit from the incentive, taxpayers must maintain the equipments for a period of a least half of their useful life, but no more than 5 years. Otherwise, the profit tax is recalculated and additional tax liabilities assessed, with the taxpayer being required to submit a rectifying tax return. This is not however applicable in case of reorganizations, liquidations or in the case of destroyed, lost or stolen equipment.

The fixed assets financed by the profits for which the exemption is granted, maintain their fiscal value for linear or digressive depreciation. The technological equipment for which this tax incentive applies cannot be depreciated by using the accelerated depreciation method.
The amount of profit for which this incentive is applied should be distributed at the end of the financial year, primarily for the setting up of reserves, but not before setting up the legal reserve.

*Government Decision No. 19/2014 amending and completing the Methodological Norms for the application of the Law No. 571/2003 regarding the Fiscal Code was published in the
Official Gazette No. 308 dated 25 April 2014. The amendments enter into force on 1 July 2014.

Christian Bogaru, Managing Partner
Hammond Bogaru & Associates

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