Ordinance no. 16/2022 for the amendment and completion of Law no. 227/2015 on the Fiscal Code, the abrogation of some normative acts and other financial-fiscal measures

On 15 July, Ordinance no. 16 was published in the Official Gazette, which brings major changes regarding the abrogation of some normative acts and other financial-fiscal measures.

Among the main amendments to the Fiscal Code are the following:

Corporate Income Tax

The Ordinance extends the application of the reinvested profits tax incentive to assets used in production and processing activities and assets representing re-technologization. These assets will be established by order of the Minister of Finance issued within 120 days from the date of publication of this Ordinance.

Dividend tax

• The tax rate for dividends is increased from 5% to 8% for all dividend beneficiaries (individuals and legal entities, from Romania and abroad) starting with dividends distributed from 1 January 2023;
• Clarifications are provided regarding the conditions that must be met by the beneficiary of dividends and by the payer of dividends in order to exempt the dividends from tax at source;
• Regarding the dividend income obtained from Romania by pension funds (both residents and non-residents), the tax exemption was eliminated.

Microenterprise income tax

From 1 January 2023, the tax on micro-enterprises income will become optional. At the same time, the 3% tax rate for micro-enterprises is eliminated and a single 1% tax rate is introduced.

The conditions to qualify as a micro-enterprise are modified as follows:

• the revenue threshold is decreased from EUR 1 million to EUR 500,000;
• the revenue, other than consultancy and/or management revenue, is more than 80% of total revenue;
• the existence of at least one employee;
• the shareholders owning more than 25% of the value/number of shares or voting rights in maximum three Romanian legal entities that qualify to apply the microenterprise income tax system.

Clarifications were also provided on the new rules for exiting the microenterprise income tax system during the year.

At the same time, starting with 1 January 2023, Law no. 170/2016 regarding the specific tax on certain activities will be repealed. The Romanian legal entities that carry on activities corresponding to HoReCa NACE codes may opt from 1 January 2023 to pay income tax on micro-enterprises or corporate income tax.

Also, the list of persons excluded from micro-enterprise income tax system has been extended to:

• the Romanian legal entity that carries on activities in the banking field;
• the Romanian legal entity that carries on activities in the fields of insurance and reinsurance, of the capital market, including the one that carries out intermediation activities in these fields;
• the Romanian legal entity that carries on activities in the field of gambling;
• the Romanian legal entity that carries on activities of exploration, development, exploitation of oil and natural gas deposits.

The option for micro-enterprises that have a subscribed share capital of at least RON 45,000 and have at least 2 employees to apply the corporate income tax system has been eliminated.

It has also been clarified the order to deduct the amounts representing tax credits from the income tax on micro-enterprises. The tax reduction under the provisions of GEO No 153/2020 applies to the amount resulting after deducting all tax credits.

Clarifications have also been introduced regarding the deadline for submitting the informative declaration for sponsorships. Thus, the legal deadline for submitting this declaration is 25 June of the year following the year in which the sponsorships were granted.

Personal income tax and social charges

Non-taxable income

• The indemnity for the care of cancer patients is a non-taxable income as of 19 July 2022.

Salary income:

As of 1 January 2023, the exemption from income tax and social charges currently provided for supplementary benefits received by mobile workers (within the ceiling of 2.5 times the statutory level of the delegation/secondment allowance for staff of public authorities and institutions) is limited to workers engaged in mobile road transport activities.

Also from 1 January 2023, a monthly non-taxable cap of 33% of the base salary related to the workplace occupied is introduced, subject to certain conditions and limits set by the Ordinance, for which no income tax and social charges are due. The concerned income relates to (their order, for salary taxes exemption, being set up by the employer):

• additional benefits received by employees under the mobility clause - except for those received by workers performing mobile road transport activities);
• cost of food provided by the employer for its employees;
• accommodation and rental costs for the accommodation/living accommodation provided by the employer to employees;
• cost of tourist and/ or treatment services, including the transport, during vacation, for the employees and family members;
• contributions to a facultative pension fund;
• voluntary health insurance premiums, as well as medical subscriptions;
• amounts granted to telework employees to cover their expenses.

As of January 2023, the income tax exemption for salary income earned based on a 12 months employment contract concluded with entities performing seasonal activities in HoReCa field is eliminated.

Amendments were brought to the tax incentives applicable to employees in construction, agriculture and food sector:

• Starting with the salary income for August 2022, the threshold subject to tax incentives decreases from RON 30,000 to RON 10,000;
• as of 19 July 2022, updated provisions for determining the 80% quota from the turnover;
• as of income related to January 2023, the tax incentives are applicable to employees with an employment contract only.

Starting with the salary income for August 2022, social security and health contributions due from full-time or part-time employees may not be lower than those applied to the minimum national gross salary in force in the month for which they are due. However, the Ordinance also provides for exceptions from such obligation. If there is still such an obligation, the employer/payer will bear the difference between the contributions calculated on the salary earned and those due on the minimum national gross salary.

• Changes are also made to the personal deductions applicable to salary income.  In brief, two types of personal deduction are provided:    
  • Basic: for a gross monthly income of up to Ron 2,000 exceeding the minimum national gross salary (according to a scale laid down in the Ordinance);
  • Supplementary:
    • 15% of the minimum national gross salary for individuals aged up to 26 with a salary income not exceeding Ron 2,000 above the level of the minimum national gross salary;
    • Ron 100 per month for each child up to the age of 18, if the child is enrolled in an educational establishment, regardless of the level of the employee's salary.

Income from independent activities:

Starting with the 2023 related income:

• The cap for the switch from taxation based on income norms to real system, is reduced from 100,000 EUR to 25,000 EUR;
• An additional computation base of 24 minimum national gross salaries is introduced for the annual computation basis of the social security contribution, for individuals earning income from independent activities and / or income from intellectual property rights, if the annual earned income exceeds 24 minimum national gross salaries (beside the existing one of 12 salaries);
• The annual computation base for health fund contribution also changes. Thus, the contribution shall be computed based on three thresholds, depending on the level of the earned income: 6, 12 or 24 minimum national gross salaries (the current one is set up at 12 salaries).

Income from dividends

• The income tax on dividends earned by individuals, either from or outside Romania, is increased from 5% to 8% starting with distributions made from 1 January 2023.

Income from transfer of properties

• From 1 January 2023, the non-taxable ceiling of 450,000 RON is eliminated. Such income shall be taxed as follows:
• 3% for properties held for up to and including 3 years;
• 1%, for those owned for a period longer than 3 years.

Rental income:

• For rental income earned starting 1 January 2023 (other than for agricultural land lease and rental for tourism purposes), the income tax shall be due on gross income (thus, the deductible rate of 40% is eliminated);
• The registration of rental contracts with the tax office is reintroduced for contracts concluded starting 1 January 2023. Such registration is due within 30 days after being concluded/ after amendments are brought to the contracts.

Health insurance contribution

For income earned staring 1 January 2023, three thresholds are introduced for the computation base of the health contribution where payment is mandatory: 6, 12 or 24 gross minimum wages per country (currently 12 wages).

Thus, the persons earning income subject to such contribution (e.g., income from rental, investments, other sources, independent activities) will have to pay 10% of the new calculation bases, depending on the level of income earned.

Value Added Tax Changes

The VAT changes enter into force starting 1 January 2023.

Reduced VAT rates

•  Supply of non-alcoholic beverages falling within CN codes 2202 10 00 and 2202 99 is excluded from the application of the reduced rate of 9%, being subject to standard VAT rate.
• Supply of chemical fertilizers and chemical pesticides of the type normally used in agricultural production, provided by Joint Order of the Minister of Finance and the Minister of Agriculture and Rural Development fall under the reduced rate of 9% until 31 December 2031 inclusive.
• The following goods and services, for which the reduced VAT rate of 5% is currently applied, have been included in the category of goods and services subject to the reduced rate of 9%:
  • accommodation in the hotel sector or in sectors with a similar function, including renting of land arranged for camping
  • restaurant and catering services, excepting alcoholic beverages and non-alcoholic beverages falling within CN codes 2202 10 00 and 2202 99
• The reduced VAT rate of 5% for the delivery of firewood applies until 31 December 2029 inclusive.

Specific rules for supplies of housing

• The threshold for the supplies of homes that fall within the application of the reduced rate of 5% (which have a usable area of maximum 120 sqm, excluding household annexes, including land on which they are built, excluding value added tax, purchased by individuals, individually or jointly with another natural person/other natural persons) has been adjusted so it cannot exceed Ron 600,000.
• Any natural person can purchase, starting from 1 January 2023, individually or jointly with another natural person, a single home with a reduced rate of 5%.
• Updates are made regarding the conditions related to the "Register of home purchases with a reduced VAT rate of 5% starting on January 1, 2023", including references to a procedure for organizing this register by ANAF Order, issued with the consultation of the National Union of Notaries Public from Romania.

As an exception to the new provisions introduced regarding the criteria for applying the reduced rate of 5% for the supply of housing, transitory measures were introduced for contracts concluded before 1st of January 2023. Also, these rules cover the Register of housing acquisitions with a reduced VAT rate of 5% starting with 1 January 2023, and the obligations of public notaries

Excise Duties Tax Changes

Starting from August 1, 2022, the following changes to the Fiscal Code regarding excise duties will enter into force:

• Manufactured tobacco:
  • Excise duty is increased on cigarette (the specific excise duty is increased to Ron 459.386 /1,000 cigarettes until 31 March  2023; the total excise duty is increased to Ron 594.97 /1,000 cigarettes, following successive annual increases according to the calendar provided in Annex 1;
  • The legal percentage used to calculate the ad valorem excise tax applied to the retail price of cigarettes released for consumption is reduced to 13% and then by one percentage point per year, so it will be 10% in 2025;
  • Exemption from updating the excise duty level with the consumer prices increase applies to fine-cut tobacco intended for rolling in cigarettes, other smoking tobacco, cigarettes and leaf cigarettes, tobacco contained in heated tobacco products and liquid containing nicotine. For these products, the excise duty level is provided in Annex 1 and will be applied starting from 1 April of each year.
• Alcohol and alcoholic beverages:
  • The excise duty on alcohol and alcoholic products is increased by approximately 5% (for example, for beer the excise duty increases from Ron 3.77 to Ron 3.96/Hl/1 degree Plato and for ethyl alcohol from Ron 3778.89 to Ron 3968.38/hl of pure alcohol).
• Energy products:
  • The level of excise duties provided in  Annex 1  is lower for the following categories of products: petrol (leaded/unleaded), diesel, fuel oil, LPG, natural gas and electricity, lamp oil, coal and coke of coal.
  • In addition, for petrol and diesel fuel, the exception regarding the update of the excise duty level with the consumer prices increase, applies for the period January 1, 2023 - December 31, 2023. If the excise duty level for these products will be lower than the minimum level provided by Directive 2003/96/ EC regarding the restructuring of the Community framework for taxation of energy products and electricity, the minimum level of the Directive will be applied.
• Non-harmonized excisable products:
  • Excise duties are increased for liquids with nicotine content (from Ron 0.57 /ml to Ron 0.64 /ml) and tobacco contained in heated tobacco products (from Ron 438.8 /kg to Ron 594.97 /kg).  

There is an annual increase of the excise duties according to the calendar provided in Annex 2 for the period 2023-2026.

Building tax

Starting with 1 January 2023, for residential buildings the tax rate will be minimum 0.1% applied to the value of the building and for non-residential buildings will be minimum 0.5% on the value of the building. By exception, non-residential buildings used for agricultural purposes are taxed at a rate of 0.4% applied to the value of the building.

The building tax rate is established by decision of the local council. At the level of the Municipality of Bucharest, this is the responsibility of the General Council of the Municipality of Bucharest.

For buildings used for both residential and non-residential purposes, the building tax is determined according to the use of the areas with a share of more than 50% and is calculated by applying the tax rate corresponding to the main use to the value of the whole building.

Changes are also introduced with respect to the taxable value of the building. The taxable value of the building will be assessed based on the Market Studies on the indicative values of real estate in Romania, administered by the National Union of Public Notaries of Romania.

In case the value from the Market Studies administered by the National Union of Public Notaries of Romania is lower than the taxable value recorded at 31 December 2022 based on the provisions in force at that date, the tax rates of minimum 0.1% (for residential buildings), respectively minimum 0.5% (for non-residential buildings) will be applied to the value recorded at 31 December 2022.

At the same time the differences in taxation depending on the quality of the owner (individual or legal entity) are eliminated.

For more details, please consult the Official Gazette no. 716 published 15 July 2022.

The EY Team is available for further details on the above.