New Law on Tax relief for profit reinvested

New law applicable starting 1 July 2014 tax relief granted for profit reinvested in the production and/or acquisition of technical equipment put into operation no later than 31 December 2016.

Profit reinvested in technical equipment (machines, equipment and work installations) used for carrying out economic activities is exempt from corporate tax. The types of equipment eligible for this tax relief are defined in subgroup 2.1 of the Catalogue which lists the classification and the normal useful life of fixed assets (available only in Romanian).

The profit which can be reinvested represents the balance of profit account for the period, namely the accumulated accounting profit from the beginning of the year, in the year in which the investment is realized. The tax relief is granted up to the limit of corporate tax due for the period in which these investments are made.

During the period 1 July – 31 December 2014, the tax exemption will be applied for the accounting profit registered starting from 1 July 2014 and reinvested in the produced and/or acquired fixed assets which have started functioning after this date.

The tax relief will be calculated quarterly or annually on a case by case basis, and the amount of profit which will benefit from the tax relief will be allocated with priority for the setting-up of reserves, up to the level of the accounting profit recorded at the end of the financial year. These reserves will become taxable at the moment they are used or, in the case of reorganisations, if they cannot be taken over by the company which is the beneficiary of the reorganisation.

The corporate tax relief applies only for new fixed assets.

Taxpayers which benefit from this incentive are also required to keep the specific fixed assets for at least half of their normal useful economic life established according to the applicable accounting regulations, but for no more than 5 years.
Not complying with the above mentioned condition will lead to the recalculation of corporate tax and penalties from tax relief date until breaking the condition.

Technological equipment transferred through reorganizations, disposed of during bankruptcy/liquidation operations, as well as destroyed, lost or stolen equipment for which justifying documentation exists, will not fall under the provisions recalculation and penalties mentioned above.

Taxpayers which benefit from this incentive cannot apply the accelerated depreciation method for this equipment.

Similar provisions were applicable for the period 1 October 2009 – 31 December 2010; at that time, they were in fact just short postponement of corporate income tax, as the fiscal value of the equipment was simultaneously reduced by the amount exempt from corporate tax, which was equivalent to a reduction of fiscal depreciation deductions for the relevant equipment.

The new incentive, applicable as from 1 July 2014 is therefore far more attractive, as taxpayers could also benefit from fiscal depreciation deductions for the full fiscal value of the equipment purchased under the incentive.

 

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