Romania Corporate Income Tax (CIT)

This guide provides a detailed overview of Romania corporate income tax (CIT) regime, including rates, residency, taxable income calculation, filing procedures, deductions, and other relevant aspects.

Romania Corporate Income Tax Rates:

Standard Rate: The general Romania corporate income tax rate is 16%. This applies to the taxable profit of most Romanian companies, foreign companies operating through a permanent establishment (PE) in Romania, and foreign companies considered tax resident in Romania due to their place of effective management.
Micro-Companies: Companies classified as micro-companies can benefit from reduced tax rates:
- 1%: Applicable to micro-companies with revenues not exceeding EUR 1 million, provided they have at least one employee.
- 3%: Applies to micro-companies with revenues exceeding EUR 1 million or those involved in specific activities not eligible for the 1% rate (even with employees).
Special Cases: Certain industries like gambling and nightclubs are subject to a different tax regime. They are taxed at either 5% of their revenue from such activities or 16% of their taxable profit, whichever is higher.

Romania Corporate Income Tax – General Information:

Residence: A company is considered resident in Romania if it’s incorporated under Romanian law, has its legal seat, or its place of effective management located in Romania.
Taxable Income: Resident companies are taxed on their worldwide income, with potential adjustments based on double tax treaties. Taxable profit is calculated as the difference between revenues and expenses, with specific adjustments for non-taxable income, tax deductions, non-deductible expenses, and similar elements.
Non-Resident Companies: Non-resident companies operating through a PE in Romania are liable for CIT on the taxable profit attributable to the PE.

Tax Period, Returns, and Assessment:

The tax period typically follows the calendar year. Companies can choose a different fiscal year according to accounting regulations, but filing requirements may differ.
Corporate income tax is generally calculated and paid quarterly. Advance payments are made for the first three quarters, with the final calculation and payment for the entire year due by March 25th of the following year.
Exceptions to the standard filing and payment schedule apply to specific entities like companies with a non-calendar year fiscal year, non-profit organizations, and educational institutions.

Deductions and Carry-Forward of Losses:

As a general rule, expenses incurred for legitimate business activities are deductible, unless classified as limited-deductible or non-deductible by law.
Starting with the 2024 tax year, companies can carry forward annual tax losses and offset them against taxable profits in the following five consecutive years, with a maximum offset of 70% per year.

Research and Development (R&D) Incentives:

Companies can benefit from a 50% additional deduction for qualifying R&D expenses. Additionally, accelerated depreciation for R&D equipment is available.

Tax Exemptions for Reinvested Profit:

Profit invested in new and specific technological equipment can be exempt from CIT, provided the equipment is used for business purposes for a significant portion of its useful life.
Profit reinvested in supporting vocational-dual education programs may also qualify for a CIT exemption.

Withholding Tax (WHT):

Domestic Dividends: Generally, dividends paid by a Romanian company to another Romanian company are subject to an 8% withholding tax. However, this tax is waived if the receiving company has held at least 10% of the Romanian company’s shares for at least one year.
WHT for Non-Resident Companies: The applicable withholding tax rates for non-resident companies vary depending on the type of income:
- Dividends: 8% (potentially exempt under the EU Parent-Subsidiary Directive).
- Payments to bank accounts in non-cooperative countries: 50% (only for payments deemed artificial transactions).
- Other income from Romania: 16%.

Dividends Paid:

Non-resident companies typically face an 8% withholding tax on dividends received from Romania. However, the EU Parent-Subsidiary Directive can eliminate this tax if specific ownership and holding period requirements are met.

Interest and Royalties:

Withholding tax rates of 16% generally apply to interest and royalty payments made to non-resident companies.
The EU Interest and Royalties Directive can potentially exempt these payments from withholding tax if specific holding period requirements are fulfilled.

Anti-Avoidance Rules:

Romania’s thin capitalization rules were abolished in 2018. Instead, a new concept of “exceeding borrowing costs” was introduced. This limits the deductibility of interest expenses exceeding certain thresholds.

Controlled Foreign Company (CFC) Rules

Romania has implemented Controlled Foreign Company (CFC) rules to prevent companies from shifting profits to low-tax jurisdictions. A Romanian taxpayer who controls a foreign company may be subject to Romanian Corporate Income Tax on the undistributed income of that foreign company under certain conditions:

Ownership and Control: The Romanian taxpayer must directly or indirectly own (alone or with associates) more than 50% of the voting rights or capital of the foreign company, or be entitled to receive more than 50% of its profits.
Lower Effective Tax Rate: The foreign company must be subject to a corporate income tax rate significantly lower than the Romanian CIT rate (16%).

Transfer Pricing:

Transactions between related parties (both domestic and involving non-resident entities) are subject to transfer pricing rules. These rules ensure transactions are conducted at arm’s length, meaning the prices are comparable to what unrelated parties would charge in similar circumstances. Failure to comply with arm’s length principles can lead to adjustments to taxable income by the Romanian tax authorities.

International Aspects – Double Tax Treaties:

Romania has concluded double tax treaties (DTTs) with numerous countries. These treaties aim to eliminate double taxation and prevent tax evasion. When a DTT exists, the most favorable tax rate (between the domestic Romanian rate and the treaty rate) applies. To claim treaty benefits, the non-resident recipient of income may need to provide a tax residence certificate to the Romanian payer.

Conclusion about Romania Corporate Income Tax:

Understanding Romania corporate income tax regime is crucial for businesses operating in the country. This guide provides a comprehensive overview, but it’s always recommended to consult with a Romanian tax professional for specific advice and to stay updated on any changes to the tax laws.

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