During past years, intragroup transactions have become a reality and a status-quo for recent business models. Financial wise, companies belonging to a group, either national or international, are prone to tailoring operational and financial flows efficiently depending though on the business model pursued.

Yet, from a tax point of view, such transactions do create an additional pressure and administrative burden for taxpayers that are required to fulfil certain principles set forth by international tax law transposed also into domestic law. Basically, such intercompany transactions shall observe the arm’s length principle.

What arm’s length principle means?

In brief, the price agreed and charged between related parties belonging to the same group (affiliation relationship being assessed based on Romanian tax rules) shall be in line with the price that would have been agreed between totally independent parties for a similar transaction, under similar conditions.

This principle represents the base root of the taxpayers’ obligation to prepare a transfer pricing file according to Romanian tax law. The transfer pricing file represents a comprehensive and complex document aimed to describe the business structure and activities, undertaken functions, risks borne by the parties – that are expected to facilitate the documentation of whether the transfer prices agreed are in line with the arm’s length principle. Even though there are multiple transfer pricing methods to check to document the observance of the arm’s length principle, the most used and preferred by the Romanian tax authorities is the net margin method which supposes to compare the net margin obtained by the concerned taxpayer out of the analyzed transaction with the net margins derived on the market by independent suppliers with a similar functional profile. The analysis consists in a benchmarking study prepared using a specialized database.

What is the exposure of taxpayers carrying out intercompany transactions?

First of all, we would like to mention that the fine that a taxpayer may be subject to is the lowest risk the company is exposed to. Actually, failure to present the transfer pricing file or a robust documentation (which is the common mis-practice) is expected to trigger significant additional tax liabilities in the area of corporate tax in case of a tax audit. Thus, if tax authorities were to consider that the sale price was undervalued, the taxable basis will be adjusted accordingly so as the net margin of the taxpayer reflects the market level. Also, additional tax liabilities are backed up by late payment interest and penalties.

Therefore, the tax team of Accace Romania, by way of its tax and legal department, would be glad to support you in any of the following directions:

We remain available to assist you in any of the above-listed directions and to address any questions in relation to any tax and legal topic.

As a result of recent legislative changes at the end of the 2023 financial year, amendments have also affected the area of the Romanian transport reporting. Thus, the Romanian e-Transport system keeps track of both road transports of goods with high tax risk within the national territory, as provided by law, and international road transports of goods.

Obligation to declare data for international transport in Romania

The obligation to declare the data for the international transport of goods affects the following:

Penalties for non-compliance with all these changes will be implemented from 1st of July, 2024.

Therefore, an UIT code has to be obtained under the following scenarios:

Need help with complying with the amendments? Get in touch with us and our Romanian experts to see how we can help.

In the Official Gazette no. 1139/2023, the Government Emergency Ordinance no. 115/2023 was published on fiscal budgetary measures for 2024, which introduces significant changes to the fiscal measures previously introduced by Law no. 296/2023. These changes are summarised below:

Corporate income tax

The most relevant changes in the area of corporate income tax concern the following:

Microenterprise income tax

Payroll tax

Clarifications for the IT, construction, agricultural and food sectors:

  1. Wage and salary-related income

For individuals with income from wages and salaries in the IT, construction, agriculture and food industry sectors, who in the course of the same month earn income for a fraction of the month, in the basic function, with one or, as the case may be, several employers in succession, for the application of the exemption, each employer determines the part of the 10,000 lei monthly ceiling corresponding to this period and grants the exemption for the gross monthly income earned, within the limit of the fraction of the ceiling thus determined.

  1. Contributions to the privately administered pension fund

Individuals in the above-mentioned fields may opt to pay contributions to a privately administered pension fund. The option is filed with the employer and the contribution is deducted from the month following registration of the option. Employees may revoke the option by submitting a written request to their employer, and the waiver will take effect from the following month’s income.

  1. Reduction of the contribution rate for programmers

The social security contribution rate for programmers is reduced until 31 December 2028, for gross monthly income of up to 10,000 lei. The part of the income exceeding this ceiling does not benefit from tax relief.

Other amendments and additions:

  1. Teleworking allowance

The provision qualifying the teleworking allowance as a type of income that is non-taxable and not subject to social security contributions, up to a monthly ceiling of 400 lei is repealed, from January 2024.

  1. Sports facilities for employees

The ceiling for sports facilities paid by employers is reduced from €400/year to €100/year as from January 2024.

  1. Inclusion of previously non-taxable income in the 33% monthly ceiling

Income representing (i) amounts paid by employers for the early education of employees’ children, but not more than 1,500 lei/month for each child, and (ii) the favourable difference between the preferential interest rate and the market interest rate for loans and deposits, are excluded from the category of non-taxable income covered by Art. 76 para. (4) of the Tax Code and included in the category of income that is non-taxable and not subject to social contributions within the monthly ceiling of at most 33%.

  1. Calculation of the ceiling for the delegation/secondment/transnational secondment allowances

In the case of delegation, secondment, transnational secondment allowances and the benefits received by mobile workers referred to in H.G. 38/2008, as well as any other amounts of the same nature, the ceiling corresponding to the value of 3 basic salaries corresponding to the post occupied shall be calculated separately for each month by comparing the 3 salaries with the number of working days in that month, and the result shall be multiplied by the number of days corresponding to each month of the period of delegation/secondment/work in another locality, in the country or abroad.

  1. Inclusion of sick leave allowances in the basis for calculating health insurance contributions:

Starting with January 2024, sick leave benefits become part of the health contribution base, except for those for accidents at work or occupational diseases, which are exempt.

Tax on private income

An allowance of20% is introduced for rental income.

RO e-invoice

Regarding the obligation to issue e-invoices, equal sanctions are introduced for both the issuer and the recipient in case of non-compliance with the legal obligations – the fine is 15% of the total invoice value.

If you have any further questions regarding these fiscal changes, please do not hesitate to contact our Romanian team.

On Friday, October 27, 2023, Law no. 296/2023 regarding certain fiscal and budgetary measures to ensure the long-term financial sustainability of Romania, aimed as tax reform measures – was published in the Official Gazette. The Law contains both tax changes and other measures that strengthen financial discipline. Regarding the entry into force of the measures, some of them have immediate applicability, i.e. November 1, whilst others will enter into force gradually, according to the particular entry into force dates, e.g. November 14, 2023, January 1, 2024, July 1, 2024, etc. We have structured below the tax changes depending on the date of entry into force:

Fiscal changes entering into force on November 1, 2023

Starting with the revenues of November 2023, the tax treatment applicable to employees operating in the IT sector (activities of software development, tax exempt so far), construction, agriculture and agri-food sector is standardized as follows:

Fiscal changes that enter into force on January 1, 2024

These tax changes target a wider range of tax areas, as we will detail below:

1. Corporate income tax

Minimum corporate tax for taxpayers with a turnover higher than EUR 50 million

Additional tax on turnover for credit institutions – Romanian legal entities and Romanian branches of credit institutions – foreign legal entities.

An additional tax of 2% is established (until December 31, 2025), respectively 1% starting from January 1, 2026 on the turnover derived by credit institutions – Romanian legal entities and Romanian branches of credit institutions – foreign legal entities, tax in addition to the profit tax due.

Additional tax on turnover for legal entities that carry out activities in the oil and gas sectors and that register a turnover of over EUR 50 million in the previous year. The formula for calculating the tax on turnover is: 0.5% x (VT – Vs – I – A).

2. Microenterprise tax

3. Income tax

4. Social contributions

5. VAT

6. Excise duties

7. Special tax on high value goods

8. Generalized B2B RO-invoice system

Fiscal changes – entry into force from July 1, 2024

Measures aimed to strengthen financial discipline – entry into force November 14, 2023

In light of the global pandemic and the widespread adoption of remote work, nonresident companies have increasingly turned their attention to the Romanian workforce, particularly in sectors that can easily accommodate remote work arrangements. As part of their strategies to attract and retain employees, these companies are considering entering into individual labor agreements with Romanian tax residents who will work from their home offices in Romania.

Permanent establishment in Romania for tax liabilities

However, before proceeding with such agreements, it is essential for these companies to conduct a thorough analysis of the risk of generating a permanent establishment (PE) in Romania.

The concept of a permanent establishment holds significant importance as it determines the potential corporate income tax liabilities that nonresident companies may face in Romania. Recent declarations made by the Romanian tax authorities have emphasized the necessity for nonresident companies to carefully evaluate whether their activities conducted through their employees in Romania satisfy the criteria for establishing a permanent establishment.

Determining the existence of a permanent establishment involves considering various factors, such as the nature and duration of the activities conducted, the presence of employees or agents in Romania, the utilization of facilities, and the level of authority exercised within the country. It is advisable for nonresident companies to engage professional guidance and conduct a comprehensive examination of the available information to accurately assess the potential PE risk.

Social contributions in Romania for non-resident companies

In Romania, there are several social contributions that are in the charge of the employee on a monthly basis: health insurance contribution and social (Pension) insurance contribution, while the work insurance contribution is in the employer’s charge.

The currently available alternatives for nonresident companies to declare and pay social contributions in Romania are the following:

Each alternative entails pros and cons which shall be discussed on a case-by-case basis.

Rely on experienced Romanian advisors for a peace of mind

Our team of experts not only provides valuable insights and guidance but also offers a range of additional benefits to streamline your business operations. By entrusting Accace with your agenda, you can save precious time as our dedicated advisors communicate with authorities and handle all necessary documentation. We ensure that every form is meticulously filled, sparing you the hassle of paperwork.

Moreover, our expertise allows us to identify the proper registrations required for your specific needs, eliminating unnecessary costs.

The tax and corporate advisory team of Accace Romania is able to assist you in the entire process starting from the analysis of the permanent establishment risk, preparation of the employment agreement, tax registration and monthly tax and payroll assistance in any of the above mentioned alternatives.

With Accace, you can rest assured that you’re on the right track, making informed decisions and optimizing your resources.

We are getting very close to the most important tax deadline of the year when individuals who derive income from Romania or from abroad, other than salary related revenues, are required to prepare and file the Unique Tax Return for revenues earned during 2022, as well as for the estimations performed for 2023 and settlement of the tax payments for 2022.

Thus, according to the Romanian tax calendar25th May 2023 represents the deadline for declaration and payment of the income tax and social contributions for 2022 and revenue-estimation for 2023. The types of revenues falling under this obligation are: revenues from freelancing activities / liberal professions, rent, dividends, capital gains, interest, cryptocurrency revenues, etc.

If this legal obligation applies to you or you would like to know more details, our tax specialists may assist you in the entire flow starting from assessment of the tax status of the individual, determining the correct tax treatment, as well as in the preparation and submission of the Unique Tax Return.

The Romanian Tax Department colleagues are gladly available to address any questions which may arise in relation to the above information, as well as to any other tax area.

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