The New Fiscal Code entered into force in Romania on 1 January 2016 addressing important changes in tax area. The New Tax Code introduced the definition of place of effective management, which represents the place where strategic decisions for the activity of the foreign entity are taken or the place where the executive directors perform their activities in respect of the foreign entity. Foreign legal entities with the place of effective management in Romania are considered taxpayers for CIT purposes.
For dividends distributed between Romanian legal entities that do not meet the exemption conditions, the dividend withholding tax (WHT) has been decreased from 16% to 5% effective January 1, 2016.
Among the few unfavorable changes, the restrictions on the deductibility of interest expenses and foreign exchange losses for nonbank loans have been tightened. The deductible rate of loan interest has been reduced from 6% to 4%. For purposes of calculating the debt-to equity ratio, loans with a repayment term of longer than one year for which no interest is due under the loan instrument now will be taken into consideration.
The legislation introduces the anti-abuse rule for preventing unlawful tax practices used to obtain tax benefits contrary to the Directive’s principles.
The amendments will take effect from January 1, 2016 or January 1, 2017.
