According to the new law (Law no.73/1996) and effective 1 January 1997, taxpayers will no longer be classified as large and small taxpayers. The taxable profit will be calculated as the difference between revenues and the expenses incurred in generating such revenues, plus nondeductible expenses.
The following deductions should be noted:
- interest becomes fully deductible;
- depreciation, calculated according to the Law no.15/1994 and the Norms for its application is deductible;
- protocol and advertising expenses within the limit provided by the Budget Law (currently 3% of profit) and sponsorship with a limit of 5%;
- reserves created by banks, within the limit of 2% of the balance of the credits granted, as well as the reserve fund set up according to the Banking Law, no.33/1991;
- technical reserves of insurance and reinsurance companies;
- the statutory reserve fund set up by companies, within the limit provided by the Company Law, no.31/1990.
There is no adjustment for inflationary effects on share capital etc.
More importantly, yearly losses can only be carried forward for a period of 36 months, with no inflationary adjustment.
The taxable profit and the profit tax are calculated monthly, cumulated from the beginning of the year.
The profit tax is to be paid quarterly, by 25th of the first month of the following quarter, except for the banks which have to make monthly payments.
Law 73 provides for the following incentives:
i. 50% reduction of the tax corresponding to the profit used for new investments in relation to the modernization of the technology, extension of activities, or for environmental protection, provided that sums equivalent to the reduction be used for the same purpose;
ii. 50% reduction of the tax corresponding to the profits obtained from exports of goods and provision of international services;
iii. profit tax reduction for taxpayers that have more than 250 employees among which at least 3% are persons with physical or mental handicap. The reduction is calculated proportionally with the number of such employees, compared to the total number of employees.
The law does not include any transitory provisions (depreciation etc) for 1995 and 1996, especially in relation to loss carry forward and large taxpayers. Furthermore there are a number of ambiguities that need to be sorted out. It is stipulated, however, that until it becomes effective (1 January 1997), the Government will issue instructions for its application and a Central Committee for Direct Taxes will be set up, in order to ensure the unitary application of the profit tax regulations.
We shall keep you informed of developments.
Contact information
Further information can be obtained from:
Ron Barden or Anca Troaca-Dragoman Price Waterhouse Romania Union International Center Strada Ion Campineanu nr 11 Sector 1, Bucharest Romania Telephone : 40-1-311-2455 Fax : 40-1-312-3334
Disclaimer:
The above information is a short summary of recently published information and is not intended to be advice on any particular matter. Price Waterhouse expressly disclaims any liability to any person in respect of anything done in reliance of the contents of this publication.
