The Romanian Government after much deliberation and, we are sure bargaining amongst the coalition members, finally signed the Ordinance no. 16/2022 amending and supplementing Law no. 227/2015 on the Tax Code.
According to Article 4 of the Fiscal Code, modifications brought to the Fiscal Code enter into force after at least six months after its publication in the Official Monitor of Romania, part I and that any modifications to the Fiscal Code are provided through Ordinance, these cannot enter into force sooner than 15 days from their publication subject to other situations particularly mentioned in the law.
Bearing all these points in mind we have listed below the main changes brought by Ordinance no. 16/2022. The Ordinance itself is an extensive list of amendments and alterations but in this article, we have arranged the amendments so that the major changes are apparent. This does not relieve a reader from checking with their tax advisor as to how any amendment made in this Ordinance may affect their business.
VAT
i. VAT becomes 9% (currently 5%) for Restaurants and catering services; Accommodations, hotels, and others part of this sector;
ii. VAT becomes 19% (currently 9%) for the delivery of non-alcoholic beverages with added sugars and other sweeteners or flavours, destined for both human and animal consumption.
iii. VAT at 9% for chemical fertilizers and pesticides delivery will be applicable until 31 December 2031.
iv. VAT at 5% for firewood will be applicable until 31 December 2029.
v. The 5% VAT will be applicable for delivering housing with a usable surface of a maximum 120 square meters, whose value does not exceed RON 600.000, including the value of the land on which it is built. A small wrinkle is
that in 2023 the VAT rate of 5% will also apply delivering housing whose value, including the land on which they are built, does not exceed the amount of RON 700,000 if the parties have concluded by 1 January 2023 a contract regarding payment in advance.
Main changes regarding excise duties:
a. Excise duties for alcoholic drinks and processed tobacco are raised, the provision being applicable from 1 August 2022.
b. During 2023 the level of excise duties for gasoline and diesel will no longer be updated in accordance with the rise in consumer prices from the last twelve months.
Main changes regarding corporate income tax:
i. The tax holiday for reinvested profit is extended to the assets used in production and processing as well as assets used for technical upgrade. A list of the assets envisaged by this measure will be provided through Order of the Minister of Finance in due course.
ii. The withholding tax rate for dividends is raised to 8% from 5%. This provision will enter into force starting with the dividends distributed after 1 January 2023.
iii. Taxpayers will apply the corporate income tax regime or the microenterprise tax regime, at their option. The microenterprise tax regime becomes optional, and the applicable tax rate is 1%. The turnover threshold is lowered to EUR 500.000 from EUR 1.000.000. In addition, taxpayers will exit the microenterprise tax regime if the share of consulting/management income in total turnover exceeds 20% on an annual basis or if they do not have employees.
iv. Legal entities who are in the banking, insurance, capital market, gambling or activating in the exploitation and development of oil and natural gases will not be able to apply the microenterprise tax regime.
v. Taxpayers whose shareholders hold more than 25% participation or voting rights into more than three (3) other Romanian legal entities eligible to apply the microenterprise tax regime, will no longer be able to apply the microenterprise tax regime.
vi. Income from dividends sourced from legal entities established in EU Member States are non-taxable for microenterprise tax purposes if certain conditions are fulfilled.
Changes regarding local taxes:
a. The notion of “mixed-use building” is erased.
b. The tax rates for residential buildings are to be of at least 0,1%, whilst for non-residential buildings the tax rate is a minimum 0,5%.
c. Legal entities are no longer required to update the taxable value of the building for local tax purposes, as the tax rates will be applied by the local tax authority on the estimated values provided by the Public Notaries in Romania.
Main changes regarding withholding taxes for payments made to non-residents:
i. Dividend payments made to non-residents are subject to a withholding tax rate of 8% increased from 5% – the provision applies to dividends distributed after 1 January 2023. This is subject to any Convention regarding the prevention of double taxation.
ii. Dividend payments made to pension funds are no longer exempt from withholding taxes.
Main changes regarding individual taxation. There are many amendments to individual personal taxation:
a. Employee income from seasonal activities is no longer exempted from personal income tax.
b. Tax facilities for individuals active in the agricultural, constructions or food industry will be applicable for a gross income of up to RON 10.000 per month (lowered from RON 30.000) starting with August 2022.
c. Employees in the construction, agriculture or food industry will have their contribution for social insurances reduced by 3,75% until the 31 December 2028 only if they have an employment agreement concluded with the employer.
d. The threshold for applying the taxation based on net freelance income in self-employment is lowered to EUR 25.000 (from EUR 100.000 – the provision shall apply for income received starting with 2023).
e. The 40% deduction from the gross rental income received has been eliminated for the purpose of determining the taxable base – the provision shall apply as from revenue in 2023.
f. The level of taxation of gambling income is modified to between 3% and 40% + RON 11.650 depending on the income threshold obtained.
g. The RON 450.000 exemption threshold for taxing real estate transaction income for individuals has been repealed. Therefore, the income received is subject to a 3% tax if the property was owned for less than 3 years, or 1% tax if the property was owned for more than 3 years.
h. For part-time employment contracts, social security contributions will be paid at the level of the minimum gross wage. There are exceptions in relation to Students under 26 years old; Individuals under 18 years old following a form of apprenticeship; Retired individuals benefitting from state pension; Individuals with salary income resulted from multiple part-time contracts, whose value exceeds minimum wage; Individuals with disabilities.
The Ordinance no. 16/2022 is a long document and we have tried to highlight those areas which we think are of immediate interest. This article is intended to give an indication only, and as stated at the beginning this article, should not be treated as legal advice and you should check with your tax advisor as to the impact that this Ordinance may have on you and your business.
