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New system for payment of corporate income tax applicable as of 1 January 2010
As of 1 January 2010, Romanian companies must calculate their corporate income tax obligations only at year end, by contrast to quarterly calculations and payments that used to be in force up to now. However, quarterly prepayments on account of annual corporate income tax obligations will still need to be made during the year. The amount of prepayments needs to be calculated based on the taxable profits earned in the previous year, indexed for inflation. Taxand Romania discusses how this new system will impact multinationals and budget planning for 2010.
As of 1 January 2010, the old system of calculating payment of corporate income tax liabilities on a quarterly basis has been replaced by a system of quarterly prepayments, while actual figure calculations are made only at year-end, by 25th of April of the following year. The prepayment system has been applied last year by banking institutions only and now has been extended to all categories of taxpayers.
The amounts of quarterly prepayments are calculated as one quarter of the annual corporate income tax paid in the previous year, indexed for inflation (the inflation index to be used in computing 2010 prepayments is of 3.5%). Companies having ended the previous year in a tax loss position must make quarterly prepayments of one quarter of the minimum corporate income tax level corresponding to their turnover level. Newly setup entities also calculate the level of their prepayments based on the minimum level of corporate income tax provided under law, as one quarter of the minimum corporate income tax corresponding to the first turnover threshold (i.e. RON 2,200). For entities set up during the year, prepayment calculations are adjusted (on a proportionate basis) to match the remaining of the calendar year over which the entity exists.
An annual profit tax statement must be submitted by 25th of April of the following year, and the differences between final amounts of tax computed based on actual figures and cumulated prepayments made over the year should be settled within the same deadline.
The new prepayments system may have beneficial effects on the cash-flow of companies earning higher profits in 2010 compared to 2009, as well as for companies having undergone significant investment in 2009 which come to earn taxable profits starting 2010. Conversely, companies earning lower profits in 2010 than in 2009 would undergo additional stress on their cash flows due to having to pay in advance larger amount on account of corporate income tax and recover overpaid amounts upon settlement of actual figure corporate income tax liabilities at year end. The same adverse effect will be incurred by companies that will come to earn less accounting profits in 2010 as a result of undergoing significant investments in 2010, as during investment periods accounting profits tend to decrease.
From an administrative perspective, the prepayment system should benefit all taxpayers by reducing the pressure of having to make actual figures calculations at the end of each calendar quarter.
The prepayment system in respect of corporate income tax is aimed to lower the administrative burden at the level of Romanian corporate income tax payers, by imposing actual figure calculations of corporate income tax liabilities only once a year and not every calendar quarter, as in the past.
Romanian corporate income tax payers will need to comply with the new prepayment system and prepare for its potential adverse effects, if in the position to earn less taxable profits in 2010 compared to 2009. The impact of the prepayment system on the cash flows of Romanian companies, as well as permanent establishments of foreign companies operating in Romania, should be taken into account for budget planning purposes.
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