Hello and welcome.
We’re here to introduce a new concept- for the first time in Romania. Regular meetings with KPMG specialists to talk about the latest developments in finance, tax and accounting. We’re looking forward to receiving your comments, opinions and questions at the following e mail address kpmgro@kpmg.ro Keep those e mails coming and we’ll try to answer your questions!
Serban Toader, Senior Partner: Some important changes were made to the Fiscal Code at the end of 2010. Social contributions have now been included in it, and, as I understand it, there have been other changes too. Ramona, can you tell me more?
Ramona Jurubita, Tax Partner: Yes, certainly the main change is that social contributions are now included in the Fiscal Code, with effect from 1 January 2011. But another very important change is that the cap of 5 average gross salaries has been reintroduced. This is a very positive development, and presents an opportunity for savings. So employers need to think about the way they structure their payroll, because they might find that a new structure will help them to gain more benefits from this measure.
S.T.: What sort of tax incentives are being offered to business?
Niculae Done, Senior Tax Partner: Under current legislation there aren’t really very many incentives. But there is one important one; the right for companies to deduct 20% for Research and Development expenses. What does this mean in practice? It means that industrial companies, like equipment producers, car manufacturers, and clothing manufacturers can benefit if they have a Research and Development centre which creates intellectual property, or models or technology related to the manufacturing process. This is a useful incentive because 16% tax deduction applied to 20% of R & D expenses is quite a big amount for a company. But having said that, there are few fiscal incentives in Romania. Why? Because before Romania joined the EU, the facilities which existed at the time were eliminated as part of the accession process. Effectively, the EU asked Romania to eliminate some incentives, to meet its obligations under EU competition law.
S.T.: What about recovering VAT on cars? Last year I heard some suggestions that this might become possible again. Has anything changed on this?
J.R.: Yes, and it’s less good news, because the Ministry of Finance has got the EU Commission’s agreement to extend the non-deductibility to 31 December 2011. This means that companies which want to replace their fleet of cars might do better to wait until 2012 or use leasing, which would allow them to deduct the VAT on the lease installments.
S.T.: As we’re near the start of the year, can you please help me with a question about inventories. What will happen to the pluses and minuses which were in inventories at the end of 2010?
N.D.: The rules on inventories are quite harsh. Pluses are considered taxable income, so profit tax has to be paid on them. But minuses are non-deductible, so again profit tax has to be paid on them. But financial directors and accountants need to know that it’s not all bad news. There are still opportunities for deduction of some minuses. For example, perishable goods which can no longer be sold, or items which have been stolen, can be deductible if the right documents can be provided. This can lead to savings of both profit tax and VAT.
S.T.: I’ve heard that the INCOTERMS delivery conditions have been changed with effect from 1 January. This sounds complicated. Can you explain what this is all about?
J.R.: It sounds complicated but it isn’t really. It’s true that the INCOTERMS delivery conditions have been changed. What’s happened is that some new conditions have been added and some others changed. So firms need to look again at their purchase and delivery contracts to see how far they’re affected by these changes. Very briefly, I’m referring here to the way income and expenses are recognized, and, of course, the tax implications related to payment of profit tax and VAT.