Articles

AMENDMENTS TO THE FISCAL CODE

22 June 2005 (Invest Romania)

Additional adjustments of the fiscal rules have been brought by the means of the Law No. 163/2005 concerning the approval of the GEO No. 138/2004 concerning the amendment and completion of the Law No. 571/2003 regarding the Fiscal Code. Published in the Official Gazette no. 466/01.06.2005, the enactment came into force three days later (i.e. June 4th, 2005), save for certain provisions specifically deferred for a longer period. A summary of the main amendments brought to the Fiscal Code may be found below.

Taxes applicable to revenues from interests. Pursuant to Law No. 163/2005, the taxation rates applicable to the income deriving from interests may vary in consideration of the date on which the instrument generating it has been set up. Thus, in case of all instruments (time deposits, savings instruments, civil agreements etc) set up before 1st of June 2005, the 1%-tax rate shall remain applicable, whereas for the instruments originated after this date, the tax rate shall be of 10%.

Taxation of incomes resulted from securities transfer. Law No. 163/2005 brings certain distinctions between the taxation rates applicable to the transfer of securities, in consideration of elements like: the date of the acquisition of such securities, the duration for which they have been held within the portfolio, respectively the envisaged category of securities.

According to the above-mentioned criteria, the taxation rates applicable to the incomes obtained as a result of the transfer of shares, are as follows: - 1% for the securities acquired before May 31st, 2005, irrespective of the date of their subsequent assignment; - 1% for the income gain from the transfer of securities acquired and assigned during 1st of June, 2005 and December 31st, 2005; - 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; - 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.

Establishment of the basis for taxation of the gain obtained from securities transactions. In case of securities transactions, the related gain or loss shall be determined made at the date of the completion of such transaction, based on the agreement concluded between the parties, as difference between the assignment and respectively the acquisition price, for each type of securities, as diminished with the corresponding prices.

In this respect, we note that the notion of “fees due to the intermediaries”, such as used in the former regulations, has been replaced with the “corresponding costs”, which could be extended, so as to diminish the basis for taxation, and implicitly to the diminishing of the quantum of the tax.

Law No. 163/2005 also comprises rules for determining the net earning at the end of the fiscal year, taking into account the entire portfolio of securities. Therefore, the net earning shall be determined as positive difference between the gains and the losses registered during the year as a result of the securities transfer, except for those acquired free of costs within the Mass Privatization Program.

Rules regarding the withholding and payment of tax. In case of earnings resulted from securities transfer assigned earlier than 365 days as of their acquisition, the obligation to determine and pay the tax belongs to the person holding and transferring such securities. The time limit for the payment of the tax is January 25th of the next financial year. The same rules on the payment of the tax are also applicable in case of securities transferred on a regulated market, irrespective of the duration for which such securities have been held.

However, in case of securities held for more than 365 days, the obligation to determine and pay the tax is incumbent the intermediaries, and the time limit for the payment of such tax is the 25th calendar day of the following month.

As a transitory rule, please note that during 1st of June 2005 – December 31st, 2005, the obligation to withhold and pay the tax on gains from securities transfer acquired and assigned during the above-mentioned period is incumbent on intermediaries, irrespective whether the securities have been held more or less than 365 days.

As regards the calculation and withholding of the tax on gains resulting from the share transfer, the existing rules remained unchanged, such obligations belonging to the assignee at the moment of the execution of the transaction, in accordance with the agreement existing between the parties.

Taxation of the incomes obtained from real estates’ transfers. In case of real estate transfer, the gain resulted from such operation shall be subject to taxation, if such transfer takes place prior to expiry of a 3 years period as from the date of the acquisition. The same rule applies in case of free of constructions land plots, which have been acquired after the date of January 1st, 1990.

By way of exception, the taxation is not applicable to the contribution in kind to the share capital of companies as well as to the above-mentioned gains in case the respective goods have been acquired by the seller/assignor by the following means: (i) restitution of the property right, (ii) inheritance or donation between relatives up to the forth grade inclusive and (iii) real estate exchange.