The Romanian Tax Code will provide since April 2014 the methodology for applying for a new tax exemption for reinvested profit, decision taken by the Government in order to increase budget revenues.
The reinvest profits represent the balance between the profit and loss, respectively cumulative accounting profit early used for this purpose in the year of investment. Profit tax exemption is granted to investments made in the limit of the income tax due for that period.
For taxpayers who are required to pay tax on a quarterly basis, in situations where investments are made in previous quarters, from the cumulative accounting profit recorder from the beginning of the year is subtracted the amount of the previously invested profit, as provied by the Romanian Tax Authorities.
In order to benefit from the tax exemption for reinvested profit, the applicant must meet certain characteristics provided by the law. Moreover, the reinvested profit can be directed only to certain categories provided by the regulations in the field.
The law on tax exemption for reinvested profit also provides that the taxpayers which benefit from the law’s provisions have the obligation to preserve the heritage assets in question for a certain period of time, calculated in accordance to the time of their normal functioning, established according to the Catalogue of the classification and useful life of fixed assets. In case of failure to observe these conditions, the amounts of tax shall be recalculated and there shall be established penalties for delay, from the date of application of the facility.
From these provisions are exempted the transferred assets in the reorganization actions where the beneficiary company takes the reserves for the exempted profit. In this case, the company must assume the rights and obligations of the transferring company, as well as the assets disposed by liquidation or bankruptcy procedure, as provided by the Romanian law.
The benefits of tax exemption on reinvested profits are certain and a good example in this sense can be considered other countries which have recently implemented legislation for holding companies. In these countries, the tax exemption on reinvested profits is applicable for tax corporate profits, which are taxed only in the distributed profits, not on reinvested profits.
Contact us for further information about this new tax exemption in Romania.