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Option for Entities to Use a Financial Year Different to the Calendar Year
Entities obliged to maintain accounting records and prepare annual financial statements (e.g. Romanian legal entities, Romanian branches of non-resident legal entities) have the possibility to use the financial reporting year applied for group reporting purposes if this is different from the calendar year, while maintaining the same time span of 12 months and 365 days. Taxand Romania identifies how to apply the different reporting options, and details both the benefits and impact for Romanian entities that are part of multinational groups.
Order no. 864/2010 of the Romanian Ministry of Public Finances provides for the procedural requirements to be fulfilled by entities applying a financial year different to the calendar year.
As a general rule, in Romania the year used for financial reporting purposes is the calendar year. Romanian subsidiaries and Romanian branches pertaining to a foreign group of companies may use the group reporting year starting with the yearly financial statements to be prepared for a period ending subsequent to 1 January 2010.
In order to apply the group reporting year for domestic accounting purposes, qualifying entities shall inform the competent tax authorities by means of an official written notification at least 30 days before the beginning of the relevant financial year. Qualifying entities that have already applied a different financial year shall submit the official written notification within 30 days since the publication of Order 864/2010 (i.e. by 12 May 2010).
Entities applying a different financial year are also required to prepare and submit an annual report to the Romanian tax authorities. Such an annual report follows, in general, the content and templates used for drafting the annual financial statements. The report shall contain the following:
1. statement of the assets, liabilities, and owners' equity
2. statement of income and expenses
3. informative data
4. the statement of non-current assets.
The legal deadline to submit the annual report to the Romanian competent tax authorities is 150 days from the end of the relevant financial year.
The possibility to apply the group reporting year does not apply to Romanian specifically regulated and supervised entities, such as financial institutions, non-banking financial institutions (e.g. lease companies), insurance entities, entities authorised, regulated, and supervised by the Romanian National Securities Commission, and Romanian private pension fund institutions authorised, regulated, and supervised by the Romanian Private Pension System Supervisory Commission.
The change of the reporting year is not however allowed for tax purposes. To this end, the calendar year continues to be used for tax purposes and, thus, adjustments should be made to the accounting records if the financial year differs from the calendar one in order to assess the corporate income tax liabilities and comply with the tax reporting obligations assessed by reference to the calendar year.
Romanian entities that are part of multinational groups which apply, for group reporting purposes, a financial year different than the calendar year can now opt to report their Romanian accounts for the same period. This could decrease administrative costs at group level, considering the administrative obligations of their Romanian subsidiaries and/or branches, as one of the two sets of accounts can now be eliminated. However, additional administrative costs may still be incurred in Romania for maintaining separate tax records, as the year used for Romanian tax purposes remains the calendar year, regardless of the period for financial reporting.
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