Senior Associate, Luca Mihai Cătălin Law Office
Government Emergency Ordinance no. 79/2017, amending and supplementing Law no. 227/2015 on the Fiscal Code, adopted on November 8th , was published in the Official Gazette no. 885/November 1st 2017.
By way of derogation from the provisions of art. 4 of the Law 227/2017 regarding the Fiscal Code (provisions stipulating that any amendment of the Fiscal Code is amended and supplemented by law, which comes into force within at least 6 months since its publication in the Official Gazette of Romania, Part I) the provisions of the Ordinance shall enter into force on January 1st 2018.
According to the Fundamental Note, the urgent situations that imposed adopting of fiscal measures by emergency ordinance are represented by the need to implement the fiscal measures included in the governance program, to elaborate the State Social Insurance Budget Law and the State Budget Law for the year 2018 , for the business environment, the predictability of the 2018 fiscal framework applicable to the business environment, the introduction of measures to reinforce the revenues from the tax on micro enterprises and VAT, and the need to reform public social systems in Romania in order to increase the degree of collecting revenue to the state social security budget and making employers accountable for timely payment of statutory social contributions, with the employer continuing to establish, retain, declare and pay the obligations owed.
The Ordinance is to be submitted in the next period for debate to the Parliament, which may order, by law, its approval or rejection.
In the field of gambling, the main changes applicable since the entry into force of the Ordinance are the inclusion of these activities in the micro-enterprise sector and, as a consequence, the change in the way in which the income from these activities is taxed and the changes in the social contributions.
The micro-enterprise is a Romanian legal entity, owned by persons other than the state and the administrative-territorial units, which are not dissolved, followed by liquidation, registered in the trade register or in the courts, according to the law and which, on December 31st of the previous fiscal year, achieved revenues that did not exceed the equivalent in lei of 1.000.000 euros. The exchange rate for determining the euro equivalent is the one applicable at the closing of the financial year in which the revenue was recorded.
In other words, Romanian gambling organizers, whose income is below the limit of EUR 1,000,000 at the end of the financial year (December 31st), will be liable to income tax of 1% if they have one or more employees, respectively, 3% of income if they do not have employees instead of 16% profit tax.
In order for a micro-enterprise to apply 1% of the income tax, it is mandatory for the micro-enterprise to employ at least one employee for an indefinite period or for a fixed period of at least 12 months. If, during the fiscal year, the number of employees of the organizer changes, the tax rates change as of the quarter in which the change was made.
If, during the fiscal year, the company records revenue above the EUR 1,000,000 threshold, it will be liable for profit tax starting with the quarter in which the limit was exceeded.
Revenue to be taken into account for the determination of the micro-enterprise status and the taxable amount of the income tax shall be the income from any source and the following will be deducted:
a) revenue related to the cost of product stocks;
b) revenues related to the costs of services in progress;
c) income from the production of tangible and intangible assets;
d) income from subsidies (grants);
e) income from provisions, impairment adjustments or for loss of value, which were non-deductible expenses in calculating the taxable profit or we- re established during the period when the Romanian legal entity was subject to the tax on the incomes of the micro-enterprises;
f) income from the restitution or cancellation of interest and / or late payment penalties, which were non-deductible expenses when calculating taxable profit;
g) Income from indemnities, from the insurance / reinsurance companies, for the damages caused to the goods of the nature of the stocks or of the own tangible assets;
h) income from foreign exchange rate differences;
i) financial income related to debts and debts subject to a currency exchange rate resulting from their valuation or settlement;
j) the amount of trade discounts after invoicing, registered in account “709”, according to the applicable accounting regulations;
k) income from payment titles obtained by the entitled persons, according to the law, original holders registered in the Central Commission for Compensation or their legal heirs;
l) damages received on the basis of the judgments of the European Court of Human Rights;
m) the income obtained from a foreign state which Romania has concluded a convention for avoidance of double taxation with, if these were taxed in the foreign state (abroad).
As of January 1st 2018, the level of contributions paid for gross salary is to decrease by 2 percentage points, from 39.25% to 37.25%, but out of the total of 22.75% contributions due by the employer, 20 points are transferred to the employee.
Thus, of the gross salary, 35% will be contributions retained by the employer on behalf of the employee and the remaining contributions to the employer, namely 2.75% will decrease to 2.25% and will cover the risks of unemployment, labor accidents, salary claims.
It is the duty of the employer to calculate, to retain and to transfer these amounts to the state budget.
Another notable change is the reduction from 16% to 10% of the income tax on individuals, also applicable to gambling organizers’ prizes in promotional campaigns. The reduction applies only to income earned by participants after January 1st 2018.
Although expected by a significant part of the gambling organizers and participants, the change regarding the taxation of gambling revenues, for the purpose of transferring from the participant to the organizers the obligation to calculate, withhold and refund the due tax, was not adopted by the Government.
It remains to be seen whether this will be included in the approval law expected in January or February of 2018.