Corporate income tax
a) Place of effective management
A foreign legal entity is considered to have the place of effective management in Romania if it performs operations that correspond to economic, real and substantial purposes and if at least one of the following conditions is met:
- the economic-strategic decisions necessary for the management of the activity of the foreign legal entity as a whole are taken in Romania by the executive directors / members of the board of directors; or
- at least 50% of the executive directors / members of the board of directors of the foreign legal entity are Romanian residents.
If a foreign legal entity is considered to have the place of effective management in Romania and is considered Romanian resident, it will have, amongst others, to have accounting records in Romania, to register as a corporate income tax-payer, to maintain its residence in Romania for a period of at least one fiscal year.
b) Reinvested profit
The reinvested profit exempt from corporate income tax represents the cumulated gross accounting profit from the beginning of the year obtained until the quarter / year of commissioning of the eligible assets. The corporate income tax exemption related to the performed investments is granted within the limit of the cumulated corporate income tax computed from the beginning of the year until the quarter / year of putting the assets into operation.
c) Tele-work deductible expenses
The expenses incurred by the employer related to the telework activity of the employees who work in this regime, according to the law, are deductible expenses in the computation of the corporate income tax.
d) Non-deductible expenses with entities from non-cooperating jurisdictions
Expenses incurred as a result of transactions with a person located in a state included in the EU List of non-cooperating jurisdictions for tax purposes are non-deductible in the computation of the corporate income tax. The list can be accessed here.
e) Integral deductibility of provisions
Provisions that meet the mentioned conditions (e.g. the receivables are uncollected in a period exceeding 270 days from the due date) will be fully deductible in the computation of corporate income tax (now they are 30% deductible).
Note: by GEO 226 of December 31, 2020, this provision becomes applicable starting with January 1, 2022.
f) Fiscal consolidation for corporate income tax purposes
The fiscal group for corporate income tax purposes consists of at least two of the following entities:
- a Romanian legal person / legal person with its registered office in Romania established according to European legislation and one or more Romanian legal persons / legal persons with registered office in Romania established under European legislation in which it holds, directly or indirectly, at least 75% of the value / number of participation titles or their voting rights;
- at least two Romanian legal entities in which a Romanian natural person holds, directly or indirectly, at least 75% of the value / number of participation titles or voting rights;
- at least two Romanian legal persons held, directly or indirectly, in proportion of at least 75% of the value / number of participation titles or voting rights, by a legal / natural person, resident in a state with which Romania has concluded a double tax treaty or in a state with which an agreement on the exchange of information has been concluded;
- at least one Romanian legal person held, directly or indirectly, in proportion of at least 75% of the value / number of participation titles or voting rights, by a legal person resident in a state with which Romania has concluded a double tax treaty or in a state with which an agreement was concluded regarding the exchange of information and the permanent establishment / designated permanent establishment in Romania of this foreign legal entity.
The period of application of the fiscal consolidation system is of 5 fiscal years and is applied starting with the next fiscal year following the submission of the application (hence, it can be applied starting with 2022). The system is optional and is required to be communicated at least 60 days before the start of the period for which the fiscal consolidation is requested.
Certain cumulative conditions must be met, such as the fulfillment of the holding condition for an uninterrupted period of one year, prior to the beginning of the fiscal consolidation period.
A legal person will be appointed for computing the consolidated fiscal result of the fiscal group, submitting the corporate income tax return and paying the corporate income tax on behalf of the group.
Each member of the fiscal group determines the fiscal result individually, and the consolidated fiscal result of the fiscal group is determined quarterly / annually by summing the fiscal results determined individually by each member of the fiscal group. The corporate income tax is calculated by applying the rate of 16% on the positive consolidated fiscal result of the group.
The deductions / exemptions determined by each member and communicated to the responsible legal entity are taken into account when computing the corporate income tax due by the fiscal group. These amounts are deducted up to the corporate income tax due by the fiscal group.
Each member of the fiscal group has the obligation to prepare the transfer pricing file which will include both the transactions carried out with the members of the fiscal group, as well as with the affiliated entities outside the fiscal group.
Special rules are provided both for entering / leaving the fiscal group and for cases in which the group no longer meets the mandatory conditions during the 5 years.
