Emergency Ordinance 153/2020 introduced, among other legislative changes, a new tax facility aimed at taxpayers paying profit tax, microenterprise income tax, and activity-specific tax. Why this facility is welcome and what impact it could have on the Romanian economy is explained below by Dan Schwartz, Managing Partner of RSM Romania.

Unlike the tax facilities previously granted to the business environment, which targeted companies affected by the economic context generated by the Covid-19 pandemic, the tax facility introduced through Ordinance 153 grants bonuses to taxpayers who aim (and succeed) to maximize their profits and implicitly their capital — taxpayers who invest, who retain the profits earned within the company, who discourage losses and dividend distributions.

This facility, which consists of reducing the annual profit tax owed by percentages between 2 and 10%, is available to taxpayers paying profit tax, micro-enterprise income tax, and activity-specific tax — whether they are commercial companies or permanent establishments registered in Romania of commercial companies from the European economic space. The discounts will be accessible for the next 5 years (2021-2025); the adjusted equity will be calculated for each year for which the facility is granted by reference either to the previous year or to the year 2020.

The size of the discounts varies depending on the evolution of positive equity — year-over-year increases, for example, are rewarded with reductions between 5 and 10%, while increases compared to 2020 (the reference year) are rewarded with 3%. The Ordinance grants a 2% profit tax deduction even to companies that do not register increases in equity but that present in the financial statements at the end of the year positive equity, also fulfilling the condition provided by Law no. 31/1990 regarding the share of equity capital in the share capital (namely, that it represents at least 50% of the entity's share capital). In other words, companies with accumulated losses whose value diminishes the value of equity will not be able to benefit from this reduction unless they resolve their equity-to-equity problem.

The initiative promises a positive impact on the Romanian economy.

There is a good chance that it will contribute to the recovery of the Romanian economy by transforming companies that have accumulated losses for many years into companies that present positive financial statements — companies that are profitable and not loss-making, as their financial statements show at the moment. Of course, there are normal situations in which companies can show losses: when they are at the start-up stage, when they require investments, when they access a new market, or if they are active in certain fields (such as energy or automotive). Then, losses can still be recorded for a certain period due to unfavorable circumstances or ineffective management. But a company that consistently records losses regardless of the field of activity and the moment of life, for an unlimited period and without disappearing from the market is a problem from a tax point of view.

Secondly, and perhaps most importantly, the criteria for granting this tax relief are set in such a way as to encourage companies that develop their activity, which aim to make profits for the development of the activity, and not for the shareholders' consumption. Thus, it contributes to economic growth and development — the impact of this tax facility will certainly be seen in the future evolution of the business environment and the Romanian economy.

This topic, as well as other tax facilities introduced by Ordinances 29/2020, 33/2020, and 99/2020, was discussed by Doina Georgescu, Head of Tax RSM Romania, and Adrian Șerban, Partner, Tax, during a webinar held on October 2.