On 4 September 2020, Romania enacted Government Emergency Ordinance no. 153/2020 (GEO 153/2020), which introduces progressive bonifications for companies improving their equity position.
GEO 153/2020 also includes new provisions regarding the calculation of annual corporate income tax (CIT) vis-à-vis government-granted bonifications in response to the COVID-19 pandemic.
Between 2021 and 2025, companies paying CIT, microenterprise income tax or activity-specific taxes that have improved their equity position compared to previous years could be eligible for receiving the following bonifications.
A bonification of 2% of the tax due will be granted to companies and to the permanent establishments of non-residents (PE) if the equity is positive, as per financial statements.
For companies and PEs recording an annual increase of the adjusted equity for the year the tax is due (as compared with the previous year), the tax reduction ranges between 5% and 10%, based on the increase of the adjusted equity. (Specific thresholds range from “up to 5%” to “above 25%”). In this case, the adjusted equity should be positive as well.
Starting in 2022, a bonification of 3% of the tax due will be granted if the taxpayer records the following increases in the adjusted equity compared to 2020:
An increase of at least 5% in 2022;
An increase of at least 10% in 2023;
An increase of at least 15% in 2024; and
An increase of at least 20% in 2025.
In order to benefit from the 3% bonification, the accounting equity of the company must be positive.
In all of the scenarios listed above, company equity (although positive) should not be lower than half of the share capital, as per the Companies’ Law.
The above provisions will be applicable starting 1 January 2021 or the first day of the 2021 adjusted tax year. In cases where a taxpayer is eligible for more than one of the above bonifications, the respective percentages will be cumulated.
In addition, GEO 153/2020 brings clarifications on the bonification for the advance payment of CIT, which was introduced through Government Emergency Ordinance no. 33/2020. (More details on these bonifications can be found here). As a result, for the calculation of annual CIT and the declaration through the annual CIT return, the bonification will be deducted from the annual CIT. The bonification will be set at the level of the CIT in cases when the amount of annual CIT is lower than the bonification. If taxpayers did not include the bonification in the calculation of annual CIT, they can submit a rectifying CIT return and correct the annual CIT.
For more information on how these tax changes could affect your business, contact local CMS experts Roxana Popel, Andrei Tercu and Ramona Tudor or your regular CMS advisor.