In the Official Gazette no. 885 of 10 November 2017, Emergency Ordinance no. 79 concerning the modification and completion of Law no. 227/2015 regarding the Tax Code has been published by the Romanian Government.

According to the new rule a taxpayer will be subject to corporate income tax at the rate of 16% for transfer of business carried out by a permanent establishment, transfer of assets or transfer of residence. The taxable base will have to be calculated as the difference between the market value of the assets and their taxable value.

The new rules have replaced the current in forced interest deductibility rules. According to the new rule from 1 January 2018, the excess borrowing costs (calculated as the difference between any debt-related costs – including currency and capitalized interest charges – as well as income from interest and similar consideration) acquired in a fiscal period which exceed the deductible threshold of EUR 200,000 will be deductible for corporate income tax purposes up to the limit of 10% of the calculation base. The non-deductible credit costs can be passed on indefinitely. The limit also applies to debt-related costs related to loans granted by financial institutions.

The basis of calculation is the gross accounting profit, minus non-taxable revenues, plus exceeding borrowing costs and deductible tax depreciation.

If the calculation basis is zero or negative, the excess borrowing costs are treated as non-deductible for corporate income tax during the current tax period, but can be carried forward indefinitely.

The above interest deduction schemes also apply to financial institutions, but not to independent companies (companies that are not part of consolidated financial accounting groups, have no affiliates and permanent establishments) that can fully deduct excess borrowing costs.

The new rules also apply to interest and foreign exchange losses carried forward from the past and accumulated as at 31 December 2017.

The Ordinance introduces a new abuse rule applicable to an agreement or series of agreements which are not genuine in relation to all relevant facts and circumstances and which have been carried out principally or principally for purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law. In particular, the above-mentioned rules need not be taken into account when calculating tax liabilities attributable to a taxable person.

The Ordinance also introduces the idea of Controlled Foreign Company (“CFC”). According to the new rule the Controlled Foreign Company is considered as controlled, directly or indirectly, by a taxpayer with over 50% of the CFC’s capital or the taxpayer entitled to receive more than 50% of the CFC’s profits.

The effective corporation tax on the profits of the CFC is lower than the difference between the corporate tax paid by the Romanian taxpayer who controls the CFC and the actual income tax that the CFC pays within its area of responsibility. CFC rules also apply to websites that generate profits that are not exempt from corporate income tax.

According to the new Tax Code, the application of the micro-enterprise income tax has been modified. Therefore, from 1 January 2018, the turnover below which a company applies the micro-enterprise tax regime will be increased from EUR 500,000 to EUR 1 million. Taxpayers who are currently carrying out exempted activities (such as banking, insurance and re-insurance, capital markets, gambling, etc.) will be subject to the micro-enterprises taxation regime.

The provisions of the Ordinance will enter into force on 1 January 2018.