Tax exemption for reinvested profit

(Emergency Ordinance no. 19 / 2014, published in the Official Gazette No. 308 on 25 April 2014)

The Emergency Ordinance amends the Fiscal Code by reintroducing the tax exemption scheme for profit invested in the production and/or acquisitions of technological equipment as provided in subgroup 2.1 of the Catalogue regarding the classification and the normal useful life of fixed assets.

This profits tax exemption is applicable in case of technological equipment produced and/or acquired after 1 July 2014 and put into use up to 31 December 2016.

Similar to the provisions of the previous profit tax exemption scheme (Law no. 329/2009), the reinvested profit represents the balance of the profit and loss account, respectively the accounting gross profit cumulated from the beginning of the year, in the year when the respective technological equipment was put into use.

The reserve created further to the incentive’s application is not subject to the provisions of art. 22, par. (6) regarding tax incentives, being taxed at the time of use in any form, as well as in case of reorganization operations, if the recipient entity does not take over this reserve (i.e. no interests and late payment penalties are due).

The Emergency Ordinance also modifies other rules, e.g. related to the period of retention in the patrimony of the technological equipment, which cannot exceed 5 years, with certain exceptions (e.g. cases where technological equipment is destroyed, lost or stolen, etc.).

Certain provisions remain similar to the ones provided by former facility granted for reinvested profit, inter-alia: (i) cases where investments were performed in prior quarters, (ii) the distribution of the profit amount for which the exemption was granted at the end of the financial exercise, and (iii) technological equipment developed during several consecutive years.

Taxpayers benefiting from the tax exemption for reinvested profit may not use the accelerated depreciation method for the respective technological equipment.

For taxpayers who opted for a financial year different from the calendar year, the above provisions are applicable accordingly to the modified fiscal year.