About the Fiscal Code and the Fiscal Procedure Code

After huge efforts of both the experts within the Ministry of Finance and the experts who took part (pro bono) in consultations in all these years, which started ever since 2011, the Parliament finally passed the new codes, i.e. the fiscal code and the fiscal procedure code.

Now when I write this material the codes have not been promulgated yet by the President, there being reasons of concern regarding the effects of some rate reductions, and in particular the VAT rate reduced from 24% to 19%. I start from the assumption that these two codes will be promulgated and published in the Official Gazette in the form in which the Parliament passed them.


We have two directions of change compared to the Fiscal Code in force.

The first direction confirms a serious rupture which occurred in the fiscal philosophy of the Government at the end of last year. If in 2012, 2013 and at the beginning of 2014 we witnessed the frenzy to increase the taxes and duties or to introduce new duties (such as the 1.5% tax on constructions), starting with the second half of 2014 we noticed a reverse trend: tax reductions. We first witnessed the substantial decrease of the social security contribution due by the employer (from 20.8% to 15.8%), the reduction of the tax on constructions (from 1.5% to 1%), the exemption from corporate tax, under certain conditions, of capital gains (which placed Romania on the map of locations for holding companies!), but also the considerable VAT reduction for all food and non-alcoholic beverages (from 24% to 9%). The tax reductions continue also in the new Fiscal Code, in particular in the field of indirect taxes.

1. VAT
The first and probably the most important reduction is that of the standard VAT rate, from 24% to 19%, coming back this way to the VAT rate in June 2010. In addition, the deputies also decided to apply the 9% rate for beer mugs served in restaurants and increased to RON 450,000 (from RON 380,000) the threshold up to which the reduced VAT rate (5%) is applied for deliveries of dwellings.

Another important measure is the reintroduction of reverse taxation measures for real estate deliveries, a measure which has a double impact: the reduction of the industry VAT fraud, but also of the financing costs in case of real estate acquisitions (buildable land and buildings). Moreover, the management costs are also reduced considerably, with the elimination of a significant number of VAT reimbursement claims.


2. Excise
After in 2013 and 2014 the excise increased considerably (by adopting an artificial rate of conversion), in particular for gas and diesel fuel (additional excise of 7c/l), and in 2015 their decrease was avoided by passing to the excise calculated in RON (using however an exchange rate of RON 4.738/EUR 1), the new Code brings considerably lower excise (approximately 20%) for alcohol and fuel. For instance, the excise for diesel fuel decreases from 1,897.08 RON/1,000l to 1,518.04 RON/1,000l, a 20% decrease. In addition, the new fiscal code comes with the complete elimination of nonharmonized excise, for luxury goods (cars with a capacity exceeding 3,000 horsepower, jewellery, yachts, etc.).


3. Tax on constructions
The tax on constructions introduced with no consultations in 2014 was eliminated in whole from the new Fiscal Code. It is a wise measure which remedies a serious mistake of tax policy. In fact, this tax – already reduced from 2015 was an investment tax which affected not only the energy industry (for which it was introduced in fact), but also the agriculture or the logistics.


4. Dividend tax
The tax on dividends received by residents gets back to the level in 2004 – 5% compared to current 16%. It is a significant reduction, which could have been however bigger since in the variant adopted by the government the dividend tax had been fully removed.


The second direction of modification of the fiscal code is the reformation of some taxes, reestablishment of the calculation base. There are two taxes subject to this type of transformations: the mandatory social contributions and the tax on buildings. Unfortunately, in both cases the reforms were only half made, neither the Government, nor the Parliament being determined to go the whole way. In addition, another field which needed mostly to be reformed was the tax on cars, which was not modified at all, for reasons that I myself did not understand.

5. Social contributions
As you know, the mandatory social contributions represent the major source of income for consolidated budgets, even bigger than the VAT. However, the regulation of such contributions has evolved chaotically, the need to extend the calculation base for the contributions leading to numerous changes, some of them with ridiculous effects in practice: persons with no income, but who received ridiculously low amounts (many times unclaimed) as dividend from the shares received following the privatization process. Personally, I saw a tax decision of RON 468 for an income of RON 8 (!!!). Moreover, the regulation of the contributions had become too complicated and confusing, the contributions being practically regulated for each type of income in part, with huge differences between them. For instance, for the same total cost for the beneficiary, the net result for the provider is 60% higher in case of copyright income compared to income from employment agreements…


The new code comes with a few important things:

  • It reduces the differences between the contributions due for various types of income;
  • It caps the calculation base for the individual health insurance contribution (5.5%) in case of salary income and income from independent activities.

Unfortunately, these measures are only a small part of the reform that we requested and it is unlikely that they will help normalize the labour market, on which Romania’s attractiveness for investors relies.




A few important things still have to be done in the future:

  • The reduction of the cap for the calculation base of the contributions to 3 average salaries (and not 5);
  • Capping also the calculation base of the social contributions due by the employer. We now only have the capping of the calculation base of the social security contribution (15.8%), but also of the salary fund (no. of employees*5 average salaries), but not of the amount of the calculation bases for the individual contribution;
  • The elimination of various contributions due in case of salary income and other types of income;
  • The simplification of the regulations and, possibly, the unification of the contributions in a single one.

6. Tax on buildings

At present, the tax on buildings is calculated depending on the owner (natural or legal person), the type of building (in case of natural persons) or the inventory value (in case of legal persons). In case of natural persons, the tax also depends on the size of the buildings, the city and area of the city where such are located, but also on other criteria.


This calculation system has enough disadvantages, listed below:

  • Since the tax due by natural persons is much lower than the one due by legal persons, there are competitive distortions;
  • The tax due by legal persons calculated depending on the inventory value (which depends also on the quality of the construction, not only on the size) discourages (by over-taxation) the quality investments;
  • Since the inventory value must be re-evaluated every 3 years, it is impossible to foresee both the tax-related expenses and the revenues of the local budgets. In addition, there are risks for the companies which either omit to perform the re-evaluation, or simply fail to correctly record it in the accounting books.

The New Fiscal Code manages to eliminate (only in part) just the issue of the competitive distortions between natural and legal persons, the differentiation being now made depending on the use of the building (dwelling/other uses), but not also the issue of the taxable value equal to the inventory value (except for buildings with destination of dwelling owned by natural persons, where the taxable value remains the current one).

In short, the taxes on buildings shall be calculated as follows:

  • In case of buildings with the destination of dwelling, the tax shall range between 0.08% and 0.2% of the taxable value. At present, the rates are 0.1% for natural persons and between 0.25% and 1.5% for legal persons. For natural persons the taxable value is computed depending on the values set forth in the Fiscal Code, for natural persons, and the inventory value for legal persons. Therefore, we note a considerable decrease of the tax due for dwellings by legal persons;
  • In case of buildings with other destination (mainly buildings with commercial destination: offices, industrial premises, retail premises, hotels and restaurants) the tax shall range between 0.2% and 1.3% (now, between 0.25% and 1.5%) from the inventory value, irrespective of the owner. Apparently, we note a decrease in the rates, but in fact they can be higher (1.95% compared to current 1.8%) by applying the increase permitted by law for local councils by another 50% (currently 20%). Personally, I do not understand the sense of this increase as long as there is anyway a range in which the local councils may decide;
  • Apart from the above-mentioned 50% increase, the local councils may also order the increase of up to 500% of the tax in case of agricultural land which was not cultivated for at least 2 years.

It should be noted that the increase of the tax by up to 300% was completely eliminated in case of natural persons holding several buildings, as well as the increase for buildings bigger than 150 square metres owned by natural persons.

The complete elimination of tax differences between natural and legal persons (for the same type of building), as well as giving up the inventory value as a calculation base of the tax still remain to be done in the future.


If in case of the Fiscal Code we may state that it is substantially better than what we have now, beyond any doubt, we cannot say the same thing about the new Fiscal Procedure Code, which does not eliminate the imbalances between the procedural rights of the National Agency of Fiscal Administration and those of the taxpayer.

Not even the introduction in the Procedure Code of the principle ‘in dubio contra fiscum’ (the unclear provisions of the tax law are construed in favour of the taxpayer – art. 13 paragraph (6)) is not likely to be much useful, because of the additional conditions which were introduced. Since before applying this principle, ‘the provisions of the fiscal legislation likely to have more meanings are construed with the meaning that corresponds best to the scope and purpose of the law (art. 13 paragraph (4))’, it is difficult to believe that the inspector shall have any doubt any more, the scope and purpose of the law being obviously the determination and payment by the taxpayer of the tax and not its non-payment…

Nevertheless, it should be noted that many of the current excesses in the draft Fiscal Procedure Code approved by the Government were filtered by the Senate and then by the Chamber of Deputies, the decisional chamber.

However, this did not happen also in the case of the newly introduced nondeclaration penalty, which is to apply, in addition to the delay interest (0.02%/day and penalty (0.01%), for all amounts additionally established by the fiscal control authorities. Practically, for all amounts additionally established by the inspectors, the accessories increase from 0.05%/day at present to 0.11%/day starting with January 1st 2016, i.e. more than double! The regulation of this new penalty also includes a provision which is at least odd: it does not apply if the main fiscal obligations erroneously declared by the taxpayer and additionally established by the inspector in a tax decision result from the application of the legislation by the taxpayer according to the rules, instructions communicated to the taxpayer by the central tax authority(!!!). In other words, the Procedure Code states that the central tax authority is not trustworthy for the taxpayer… In this context, what happens to ‘in dubio contra fiscum’?

Obviously, there are many other things to be done, but I have the conviction that a constant and sustained dialogue, based on good faith, between the representatives of the business environment and those of the Ministry of Finance, including of the National Agency of Fiscal Administration, may bring better provisions, more efficient, for both the taxpayer and the state. There are win-win solutions, as noted in the case of the Fiscal Code.