Romanian Update – Government Proposes Regulation Amendments

The Ministry of Finance published a draft Ordinance which amends some of the current GEO 114/2018 provisions and eases the tax burden set on the companies enveloped by it.
Energy Sector

In the energy sector, the Romanian government intends to keep the turnover tax at 2% for energy producers, however an exemption is proposed for thermal and coal-fired power plants. Meanwhile the cap on electricity prices remains until the end February 2022.

Meanwhile, the energy regulator (ANRE) decided that the return on capital invested for electricity and gas transmission companies will be increased from 5.66% to 6.9%. The newly set rate will be valid for the regulatory period 2019-2024 and is expressed in real terms.

Banking Sector

According to the draft Ordinance for the amendment of the so-called greed tax, the Government plans to lower the bank tax to 0.2%-0.4% a year based on market share. Banks which hold a market share of less than 1% will have to pay tax at a rate of 0.2%, while companies holding a market share of above 1% will have a tax levied at a 0.4% rate. The tax would be due twice a year, despite the banks’ request for the procedure to be an annual one.

An important change in regulation will be that the tax will not be imposed on banks which record a net loss, and in case of profitable banks, the tax will not exceed the profit level. According to media writings, banks demanded that the tax be capped at 16% (the same as profit tax), which would virtually mean a doubling of the profit tax to a 32% share.

Note that banks will be able to cut the tax in half if they achieve government targets which will be set annually. For 2019, the credit growth target is 8% (similar to credit growth last year), while the decrease of net margin is set at 8% (e.g. decrease from 5% to 4.6%). If the prescribed credit increase is not achieved, then the tax rate decreases according to the formula:

R1 = [(increase in credits / credits growth target) * 50%]

*R1 = % by which the initial tax rate is decreased

For example, a 6% credit increase would lead to a 37.5% decrease in the tax rate, which would then amount to 0.25%. The same half-tax reduction applies for the interest margin. Therefore, banks may end up paying no fees if they simultaneously meet all the conditions set by the Government.

The government also plans to replace the ROBOR index, used as a reference in calculating variable interest rates on household loans, with a reference to be calculated by the NBR based on transaction averages (quarterly). Note that the new index will be used for new loans and would not replace the ROBOR index for ongoing loans.

Financial assets which are excluded from the bank tax:
  • Cash
  • Net cash amounts in central banks, excluding non-performing exposures
  • Non-performing net exposures
  • Debt bonds issued by public administrations, excluding non-performing exposures
  • Loans and advances issued to public administrations, excluding non-performing exposures
  • Loans given out to the non-governmental sector that hold guarantees from the central public administration, excluding non-performing exposures
  • Loans given out to credit institutions, attached debts and amortised amounts, excluding non-performing exposures; correspondent accounts at credit institutions; reverse repo operations and borrowed bonds, excluding non-performing exposures.

Category : Flash News

Want to invest? Do not know how and where? Contact us and we will solve everything for you.