With this in mind, the Romanian authorities introduced in 2014 two sets of rules with the clear goal of increasing investment levels and making the country more attractive for new and existing players in the economy.
Tax exemption for capital gain and dividends
Starting January 1 2014, revenues from the sale of shares and from dividends received by Romanian companies are not taxable providing two conditions are met: the beneficiary of revenues is holding at least 10% of the shares in the company from which the revenues are derived; and the participation is held for an uninterrupted period of at least one year. Moreover, the facility is also available for revenues obtained from Romania by foreign companies registered in countries that have concluded double taxation treaties with Romania. In this context, it is worth mentioning that the new regulations offer interesting tax planning opportunities, considering that Romania has an extended network of double taxation treaties concluded with 84 countries around the world and that some of these treaties provides for advantageous tax treatments for investors.
There is one more element required to make this incentive fully operational in the Romanian economy: the tax ruling mechanism and procedures must be improved by the tax authorities, because for the time being there are still deficiencies in the system. As long as this is solved, the holding regulations (as they are known by the business environment) shall start showing their benefits towards investors.
Tax exemption for reinvested profits
For companies operating in Romania, a new facility has been available starting July 1 2014: the profits which are reinvested in new non-current assets falling under the category of industrial equipment are exempt from corporate income tax. The equipment acquired using this incentive has to be kept and used by the company for a period representing half of the useful life of each asset (but not more than five years).
From an accounting perspective, the reinvested profit has to be "frozen" in a reserve account and cannot be distributed as dividends. When the management of the company decides to distribute this profit the corporate income tax is due to the tax authorities. However, no interest or penalties for late payment are due.
It is worth mentioning that the tax exemption for reinvested profits is applicable only for the profits obtained by Romanian companies by December 31 2016. Hence, those interested in making use of this facility must consider this constraint.