Romania remains an attractive jurisdiction for many foreign investors across various industries, but it faces challenges related to fiscal administration and predictability. A notable example is the introduction of a new taxation regime for large companies, which became effective on January 1, 2024. Naturally, this initiative triggered several reactions from the business community. Initially, efforts were made to prevent the enactment of such legislation or to propose amendments to mitigate the envisaged fiscal impact. Subsequently, in response to the law’s implementation, companies have begun analyzing different restructuring scenarios to establish optimal business structures that would allow them to continue operating while neutralizing the fiscal burden.
The legislative amendments applicable from this year affect: i) large companies with a turnover exceeding EUR 50 million, ii) companies activating in the oil and gas sector with an annual turnover exceeding the same threshold, and iii) companies activating in the bank sector, irrespective of the annual turnover. This article focuses on the provisions affecting the first two categories of taxpayers.
The minimum turnover tax (MTT) applies to companies with an annual turnover exceeding EUR 50 million. Unlike the corporate income tax, which is due on the recorded fiscal profit, this new tax functions primarily as a tax on revenues. The calculation starts with the annual turnover, from which non-taxable income, investments in assets, and asset depreciation are deducted. To this base, a 1% tax is applicable. The MTT is compared with the corporate income tax (calculated using the 16% corporate income tax rate applicable on fiscal profit), and in case the MTT is higher than the normal corporate income tax, companies are required to pay MTT.
One major disadvantage of the MTT is that it disregards the company’s profitability. This tax is mandatory even if a business ends the year with a loss, potentially placing a disproportionate burden on certain industries. For instance, industries or sectors where profit margins are significantly lower than 6.25% of turnover are severely impacted by this measure.
In this context, business owners have considered splitting their activities, where feasible, while ensuring that the restructuring process complies with legal regulations.
Moreover, the MTT has raised concerns about tax fairness, as the EUR 50 million turnover threshold appears to have been established arbitrarily, without any clear justification.
A positive aspect of the MTT is that it allows companies to deduct investments in assets under construction and the depreciation of assets from their taxable income. However, this benefit seems disproportionate when compared to the overall financial impact of the tax.
The additional tax for companies operating in the oil and gas sector (MTT in oil and gas) is owed by legal entities carrying out oil and gas activities, as defined by specific NACE codes listed in the legislation. Similar to the MTT, it applies to companies with an annual turnover exceeding EUR 50 million in the previous year, however, as opposed to the MTT, MTT in oil is levied in addition to the standard 16% corporate income tax.
The MTT in oil and gas rate is 0.5% of the annual turnover, calculated after deducting taxable income, investments in assets under construction, and asset depreciation. As can be noticed, the taxable base is like that for the MTT, with the primary difference being the tax rate.
MTT in oil and gas applies to companies operating in the oil and gas sector, regardless of whether this activity is primary or secondary. A common question in practice is: What percentage of revenues obtained from oil and gas activities would make a company subject to it? Despite the complexity of this issue, the answer is simple and unfavorable to the taxpayer: under the current legislation, in the absence of a specified minimum percentage of revenues from oil and gas activities, a company is required to pay the MTT in oil and gas on its entire revenue in addition to the normal corporate income tax, even in the case when only 0.1% of its total revenue comes from oil and gas activities.
As a final remark, further developments are expected regarding the MTT in oil and gas, aimed at further strengthening the application of this new tax. According to a draft law – currently under public consultation – it is proposed to extend the applicability of the MTT in oil and gas also to non-residents that supply goods or provide services within Romania while engaging in activities in the oil and gas sectors.
By Ramona Chitu, Tax Partner, Tuca Zbarcea & Asociatii
This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
