New provisions regarding tax exemptions on reinvested profit

The Romanian Government has adopted Emergency Ordinance No. 19/2014 amending the Fiscal Code to introduce corporate tax exemptions for profit reinvested as of 1 July 2014.

The new tax exemption applies to profits reinvested in new technical equipment (as described in Group 2.1 of the Catalogue containing the classification and the normal useful lives of fixed assets) used for business purposes that was produced and/or purchased after 1 July 2014 and becomes operational by 31 December 2016.

Taxpayers benefiting from this tax exemption on reinvested profits are required to retain the asset in question for at least half of its useful life, but for no more than 5 years. If this condition is not respected, the corporate tax liability will become due retroactively, together with late payment interest and penalties. This provision will not apply, however, in the case of technical equipment that is transferred to another company during reorganisation or liquidation/bankruptcy procedures, or if the equipment is destroyed, lost or stolen.

Additionally, taxpayers will not be allowed to apply the accelerated depreciation method for the technical equipment in respect of which tax relief was obtained.

The profit that qualifies for exemption is defined as the gross accounting profit cumulated from the beginning of the year in which the asset in question became operational. Tax exemption is then granted within the limit of the corporate income tax due for the relevant period.

Taxpayers would need to book a reserve with respect to the amount of profit for which the tax exemption is applied. This reserve becomes taxable in the moment it is used, as well as in cases where it is not taken over by the beneficiary as part of a reorganization procedure. As opposed to the previously applicable provisions regarding reinvested profits (applicable during the period 1 October 2009 – 31 December 2010), the fiscal value of the technical equipment is no longer diminished by the amount of profit for which the tax exemption was applied.

Source: Emergency Ordinance no.19/2014 amending the Fiscal Code, published in the Official Gazette of Romania no. 308/25.04.2014