Articles

CAPITAL GAINS TAXATION

27 July 2005 (Insight)

Initiated at the beginning of 2005, the fiscal reform continued with the enactment and entry into force starting with 4th of July 2005 of Law No. 163/2005 on the approval of the Government Emergency Ordinance no. 138/2004 on the amendment and completion of Law no. 571/2003 regarding the Fiscal Code.

The new enactment clarifies the legal regime governing the taxation of capital gains earned by natural persons. For conformity, it should be noted that the income earned by legal persons from such capital transactions are not subject to a special taxation regime, being governed by the general rules applicable to profit tax.

Essentially, the capital gains tax quotas vary depending on the equity/other securities acquisition date and the duration of their holding in portfolio.

Based on these criteria, the capital gains tax quotas are as follows: (i) 1% for the securities acquired before May 31th, 2005, irrespective of the date of their subsequent assignment; (ii) 1% for the income gain from the transfer of securities acquired and assigned during 1st of June, 2005 and December 31st, 2005; (iii) 16% for the net incomes obtained from the transfer of securities acquired starting with June 1st, 2005 and transferred after January 1st, 2006 within less than 365 days as of the acquiring of such securities; (iv) 1% for the net incomes obtained from the transfer of securities acquired after June the 1st, 2005 and transferred further beginning with 1st of January, 2006 within more than 365 days as of the acquiring of such securities.

The gains resulted from transfer of securities on a regulated market shall be taxed in accordance with the above-mentioned rules, but only starting with 1st of January, 2006.

As a general rule, the tax computation base shall be determined as positive balance between the nominal value/purchase price and securities’ sale price, decreased, if the case, with related costs and also taking into account the specifics of each type of instruments.

In what concerns the shares in limited liability companies (“social parts”) and securities in non-listed companies, the obligation to compute, withhold and pay the capital gains tax rests with securities’ acquirer. As regards the other types of instruments, the above obligation is incumbent on the person holding and trading such instruments or on the brokers, depending on the types of instruments and/or the duration of their holding, whilst, in what concerns the gains from the redemption of fund units in open investment funds, this obligation rests with the investments management company.