It is one of the most permissive methods of tax optimization and we chose to detail it because we noticed that it is used quite rarely by companies. We have had quite a few clients that have submitted projects to obtain non-reimbursable funds for the purpose of purchasing new technologies and machines, unfortunately they have proved insufficient compared to the need for financing of the private sector. That is why, we believe that this option offered by the Romanian Tax Code can be a useful tool, in the absence of non-reimbursable financing.

Who can apply the tax exemption for the reinvested profit?

It is a measure intended exclusively for companies subject to income (profit) tax, so micro-enterprises cannot apply.

Regarding the companies that apply the specific tax (bars, restaurants, hotels, etc.) to some activities, the opinions are divided, the legislation does not clearly stipulate that these companies cannot apply the tax exemption on reinvested profit, as there is no official point of view of any state institution coordinating the economic activity and fiscal matters and no jurisprudence in this regard. However, our opinion is that these companies cannot apply the tax exemption to reinvested profit, because the law governing this tax scheme (170/2016) is a derogation from Title II of the Tax Code on corporate income tax, and this means that, as there is a special law, both the provisions of the Fiscal Code and those of Law 170/2016 on the tax specific to certain activities cannot be applied preferentially.

For what purchases can we reinvest the profit?

  • Technological equipment (machines, machinery and working installations)
  • Electronic computers and peripheral equipment
  • Control and billing machines and appliances
  • Software, as well as the right to use software

These goods must exist in the Catalog on the classification and normal operating times of fixed assets, approved by Government decision, subgroup 2.1, respectively in class 2.2.9 (details here).

Remarks:

  • In order to apply the tax exemption on reinvested earnings, the assets acquired must be new.
  • Assets acquired from the above classes, for which this legal provision has been applied, must be kept in the company’s patrimony for at least half of the useful life provided by law, but not more than 5 years. If these assets are removed more quickly, the obligation to recalculate the income tax occurs.
  • The assets for which the tax exemption of the reinvested profit was applied cannot be depreciated using the accelerated method, being applicable only the linear and degressive methods.

How to apply the reinvested profit tax exemption?

The tax exemption on the reinvested profit is calculated annually or quarterly.

Companies that become subject to income tax during a fiscal year calculate the exemption starting with the quarter in which they apply this tax system.

The tax exemption on reinvested profits is calculated on the basis of the accrued accounting profit from the beginning of a fiscal year until the date of receipt of those assets and is limited by its value.

For more details, see the examples in the Methodological Rules for the application of the Fiscal Code, available here.

Note: The text is valid on the date of its publication, is for guidance purposes and is an interpretation of the specialists of the company Cont Consulting, without intending to replace the legal provisions in force. We are not liable for any damages caused by the use of this material for legal purposes or as evidence in any dispute.