Corporate taxation in Cluj-Napoca
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Resident companies are taxed on their worldwide income; nonresident companies are taxed only on Romania-source income. The tax base for computation of the corporate income tax is the difference between income from any source (i.e. gross income) and expenses incurred in carrying out the company’s economic activity, reduced by nontaxable income and increased by nondeductible expenses. Items similar to income and expenses also are taken into account.
Taxation of dividends
Dividend income received by a Romanian legal entity from another Romanian legal entity is not taxable, but dividend income received from a foreign legal entity is taxable. Dividends may be exempt from taxation in certain circumstances (see below under “Participation exemption”).
A company is resident in Romania if it is incorporated in accordance with Romanian legislation or if its place of effective management is in Romania. The definition of resident also includes legal entities headquartered in Romania, but incorporated under EU rules (e.g. the Societas Europaea and European cooperative).
Losses may be carried forward for seven years. The carryback of losses is not permitted.
The standard corporate tax rate is 16%. Micro enterprises are subject to a rate of 1%, 2% or 3% rather than the 16% rate, depending on certain factors.
Dividends derived by a resident company from a company in an EU member state or a non-EU country that has concluded a tax treaty with Romania are exempt from tax if the Romanian recipient company holds at least 10% of the distributing company's shares for an uninterrupted period of at least one year.
Foreign tax credit
A foreign tax credit is granted if provided for in a tax treaty between Romania and the relevant jurisdiction and if the taxpayer can demonstrate that income tax was paid abroad. However, the tax credit may not exceed the Romanian tax payable on the income.
All income generally is taxable, except for income that is specifically exempt (e.g. certain dividends, see below under “Participation exemption”).
Gains derived by resident and nonresident entities from the sale of shares and real property are included in overall profits and taxed at the general corporate tax rate of 16%. However, capital gains may be exempt (see below under “Participation exemption”).
Other taxes on corporations
Real property tax
Local taxes on buildings and land apply. For buildings owned by a company, the building tax rate is set by the local council and ranges from 0.08% to 0.2% for residential buildings and from 0.2% to 1.3% for nonresidential buildings. There are special rules for establishing the taxable rate, which may vary on a case-by- case basis. Special rules also are applicable for mixed purpose buildings.
An employer must make the following contributions on the total gross salary: a social security contribution of 15.8% (for normal working conditions), multiplied by the number of employees; a health fund contribution of 5.2%; an unemployment contribution of 0.5%; the salaries guarantee fund contribution of 0.25%; a work- related accident and disease contribution of 0.15%-0.85%; a disabled persons contribution of 4%, multiplied by the number of employees
Depending on the nature of the taxpayer's business, other taxes may apply (e.g. specific taxes for the energy sector and the pharmaceutical industry).
No payroll tax is due from the employer, but the employer must compute and withhold tax on salaries on a monthly basis and remit these taxes to the Romanian state budget by the 25th day of the month following the month in which the salaries/income are paid.
Compliance for corporations
Late payment of tax is subject to interest at a rate of 0.02% per day of delay, with an additional late payment penalty of 0.01% per day of delay. An additional penalty of 0.08% per day applies to unreported or erroneously reported tax amounts.
Resident individuals are taxed on their worldwide income irrespective of the type or source of income; nonresidents are taxed only on Romania-source income.
An individual is resident in Romania if he/she satisfies at least one of the following conditions: the individual has his/her domicile in Romania; the individual's center of vital interests is in Romania; the individual is present in Romania for a period or periods that exceed in the aggregate 183 days during any consecutive 12- month period ending in the relevant calendar year; or the individual is a Romanian citizen who is serving abroad as an official or employee of Romania in a foreign state.
Each taxpayer must file a tax return; joint filing is not permitted.
Advance pricing agreements are available. Personal taxation:
Corporate income tax compliance is carried out on a quarterly basis, followed by the final year-end computation, declaration and payment of tax. Corporate income tax is computed and paid on a quarterly basis based on actual figures. Quarterly returns and payments are due by the 25th day of the month following the reporting quarter (applicable for the first three quarters). At year- end, the annual corporate income tax must be computed, declared in the annual tax return and paid by 25 March of the year following the tax year.
Consolidated returns are not permitted; each company must file a separate return.
A flat rate of 16% applies.
Calendar year, although taxpayers can opt for a fiscal year corresponding to a financial accounting year.
All salaries and related income are subject to tax. The taxable income of employees under an employment contract is determined as the difference between gross income from salaries (including salary-related allowances and benefits in kind) and allowable personal deductions, union dues paid, mandatory social contributions due at the level of the employee and contributions to private pension/private health insurance funds (contributions to each fund are limited to EUR 400 per year).
Capital gains generally are taxed at the normal individual income tax rate (but see below under “Rates”).
Deductions and allowances
There are certain allowances for children and personal deductions for taxable persons having dependents.
Other taxation in Cluj-Napoca
Value added tax
Filing and payment
VAT returns must be submitted on a monthly basis. Quarterly payments and filing are available for taxable persons with an annual turnover of less than EUR 100,000. However, if a taxable person performs at least one intra-community acquisition of goods, VAT returns must be submitted monthly.
The standard rate of VAT is 20%, with two reduced rates of 9% and 5%. Exports, intra-community supplies of goods and international transports are exempt. Social, medical, educational, cultural, financial and banking services, certain real estate transactions, as well as the supplies of goods related to exempt transactions also are VAT exempt.
VAT is levied on the supply of goods and services.
VAT registration is required for persons carrying out transactions that are taxable, VAT exempt with credits or where the place of taxation is abroad, if the VAT would have been deductible in Romania. A VAT registration obligation also is triggered where a person carries out intra-community acquisitions. Taxable persons with annual turnover of less than EUR 65,000 are eligible for a special VAT exemption regime.
The tax authorities may disregard a transaction or reclassify the nature of a transaction to reflect economic substance if the transaction is viewed as artificial or would not form part of an entity’s regular business. Tax treaties and EU directives are not applicable in cases of artificial transactions.
Interest expense on loans from banking institutions, finance leasing companies or other legal persons granting credit in accordance with the law is fully deductible, provided the loans are incurred to generate taxable income. The deductibility of interest expense related to other loans is limited to an interest rate of 4% for foreign currency-denominated loans and the interest reference rate set by the National Bank of Romania for local currency loans. Interest expense exceeding these limits is nondeductible and may not be carried forward.
Foreign exchange control
The national currency is fully convertible and residents are allowed to make external payments in foreign currency (with banks generally requiring documentation).
Accounting principles/financial statements
Romanian accounting standards follow the fourth and seventh EU directives. IFRS also is accepted as a second set of financial statements, but only for certain companies. Banks, financial institutions and companies whose securities are traded on a regulated capital market must apply IFRS for accounting purposes.
Principal business entities
These are the joint stock company, general partnership, limited partnership, limited partnership by shares, limited liability company, branch of a foreign company and representative office.
As from 1 January 2016, the general withholding tax on dividends paid to a nonresident is 5% (reduced from 16%). A 5% rate also applies to dividends paid by a Romanian legal entity to a legal entity resident in another EU member state, or to a permanent establishment (PE) of a company from an EU member state situated in another EU member state if the dividends do not qualify for an exemption under the EU parent-subsidiary directive (a minimum 10% holding for an uninterrupted period of at least one year). The rate is 0% if the directive applies.
A 50% withholding tax is levied on payments made to a jurisdiction that has not concluded an agreement with Romania for the exchange of information if the payment is made in relation to an artificial transaction.
Technical service fees
Service fees paid to a nonresident entity generally are subject to a 16% withholding tax, unless otherwise provided under a tax treaty.
A 16% withholding tax is levied on interest paid to a nonresident company, unless the rate is reduced under a tax treaty or the EU interest and royalties directive.
A 16% withholding tax is levied on royalties paid to a nonresident company, unless the rate is reduced under a tax treaty or the EU interest and royalties directive.
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