Romania: a revamped R&D tax incentive framework for 2023

In the EU, the past 10 years brought an increased offering of R&D tax incentives for taxpayers, especially since the Council of Ministers set the ‘Barcelona Goal’ of spending 3% of European GDP on R&D and innovation. This target was reaffirmed in 2020 by the Council via its new European Research Area conclusions. Thus, many EU countries further incentivised business investments in R&D, intending to foster innovation by introducing and upgrading their tax incentives legislation. 

Moreover, considering the current economic context with high inflation rates and governments seeking to reinvigorate economies after the pandemic, countries needed to revamp their R&D incentives. This is also the case for Romania, where at the end of 2022, the national tax authorities brought certain amendments to the R&D specific legislation.

The R&D tax incentive framework is not new, as it was introduced via Romanian tax legislation in 2010. However it went through several amendments up until 2022, and currently it provides the following available options:

• A super deduction of 50% of the eligible expenses incurred for R&D activities;

• Taxpayers can apply an accelerated depreciation regime for assets used in R&D projects (i.e., 50% of the tax value is depreciated during the first year and this is applicable for fixed assets and intangible assets as well); and

• A full exemption from corporate income tax for the first 10 years of business, applicable for companies performing exclusively R&D activities.

Employees performing R&D eligible activities are exempt from personal income tax (at a rate of 10%).

To benefit from this set of tax incentives, the eligible R&D activities should fulfill the following conditions:

• They should be carried out in order to obtain research results, which can be harnessed by the respective company;

• They should be carried out on national territory (i.e., Romania) and/or in the member states of the EU or in the countries belonging to the European Economic Area;

• They should qualify as applied research and/or technological (experimental) development and be relevant for the activity carried out by the taxpayer; and

• They should pertain to a project, containing at least the following elements: the objective of the project, the timeline, the financing sources, the category of the result (e.g., studies, schemes), and the innovative character.

The OECD Frascati Manual is used as a reference from a definition perspective, especially with respect to the five criteria (novelty, creativity, uncertainty, systematic, transferrable) that are tested to accurately qualify an activity as R&D.

The expenses eligible for the additional 50% deduction for CIT purposes include among others:

• Depreciation expenses in relation to assets used in R&D activities;

• Personnel expenses;

• Maintenance and repair expenses; and

• Operating expenses and overheads (based on direct allocation or on an allocation key).

Although legislative norms for the application of R&D tax incentives were issued in 2016, certain clarifications have been delayed (such as regarding the certification of R&D projects by technical experts appointed by taxpayers). However, the legislation was amended and significantly supplemented at the end of 2022, showing that the Romanian authorities are open to encouraging Romanian taxpayers to benefit from such incentives. The main relevant amendments brought in the legislation are:

• A new detailed procedure issued for certifying R&D projects;

• The R&D experts are designated by the Ministry of Research, Innovation and Digitalization and are included in REXCD database; and

• Certification from a designated R&D expert is mandatory as of 2023 for large taxpayers (and recommended for all other taxpayers for tax inspection purposes).

Romania revamped its legislation and procedures for applying R&D tax incentives and provided taxpayers with updated rules. These include a clear procedure on how to assess and certify that the activities performed are R&D, together with clear access to qualified R&D experts that can provide such certification. The Romanian R&D tax incentives represent a great way for companies to optimise their tax position and improve their cash-flow, thus the R&D sector is highly relevant from a business perspective going forward in Romania.