Romania: Direct and Indirect Tax Issues/Ernst and Young

The standard rate of income tax for both companies and individuals in Romania is 16%. The Merger Directive, the Parent-Subsidiary Directive, the Savings Directive and the Directive on Mutual Assistance by the competent authorities of the Member States in the field of direct taxation and taxation of insurance premiums are fully implemented. Complete implementation of the Interest and Royalties Directive has been postponed until 2011. Meanwhile, Romanian legislation provides for a reduced 10% withholding tax for interest and royalty income obtained by EU beneficiaries fulfilling conditions similar to the ones stated by the Directive (i.e., the recipient holds at least 25% of the shares of the payer and the holding period exceeds two years at the date of the payment). Current Romanian tax legislation does not provide for capital duties, so the EU Capital Duty Directive (69/335/EEC) has not been implemented. Accession has brought various changes in Romanian VAT legislation. In particular, VAT regulations governing crossborder transactions carry significant implications for businesses. The movement of goods to Romania from another Member State will now be deemed an intra-Community acquisition instead of an import. Movements of goods between Romania and a non-EU country will be deemed exports and imports and will follow a similar VAT treatment as before. However, VATregistered businesses can now apply the "postponed accounting" mechanism, whereby import VAT is paid and deducted in the same VAT return giving, in principle, a net effect of nil for fully taxable businesses. Various simplifications have also been enacted, including, amongst others, simplifications for call-off stock, and multi-party transactions regarding work on movable property.