Dunlop Mills S.R.L.

Dunlop Mills provides regular tax and business tips and tax warnings to clients.

A selection of recent 'tax and business tips' follow.

TAX WARNING

From 1st January 2008, the VAT simplification rules that applied to immovable property have now been abandoned.

This means that VAT will now be chargable in cash terms by VAT registered sellers.

Previously, if both buyer and seller were VAT registered, they could simply offset the VAT on paper.

This new ruling increases the initial investment fund required by 19%.

Improvements in VAT recovery procedures are expecting to compensate to some degree.

• The normal way of carrying on a business in Romania is via a Private Limited Company. However, unless you are purchasing land as a foreign national, you might wish to consider a partnership or sole trader business. A number of tax treaties exempt taxation on funds repatriated to your country of tax residence.
• You may consider a micro enterprise company that pays tax at currently 2.5% on sales if your revenue is less than Euro 100,000 per annum and you have a least one employee. Your business should not represent more than one half in consulting services.
• If you are purchasing land as part of a real estate investment you should consider opening a 'holding' company in Cyprus, Luxembourg or The Netherlands. Preferential tax treaties apply.
• If you are financing your own company in Romania with a loan contract, keep the contract as repayable within one year and there is no requirement to register it with the Romanian authorities.
• The maximum interest you can charge on a foreign currency denominated loan for tax relief purposes is 7%. (This is subject to change).
• Company business losses may be carried forward for 5 years only.
• As a director of a Romanian company you might consider a Comodat contract that restricts your local taxation to 16% and avoids substantial Payroll tax.
• Romania expects companies to revalue their foreign denominated loans annualy. Gains lead to taxation and losses are usually not allowable as most investors fund their company via loan capital and not shares. This inequitable system due to 'thin capitalisation' rules may be offset by currency hedging, restatement of loan contracts and business structuring changes.
• Romania applies a minimum share capital to establish a Private Limited Company. Do not be tempted to simply apply the minimum. As the minimum is increased periodically it will cost you time and legal costs to upgrade your constitutional paperwork. Aim for double the minimum capital which is, nevertheless, still small change and is likely to save you more in changing the paperwork.
• Setting up a Private Limited Company in Romania should cost you not more than Euro 650-700. This should include all relevant paperwork, VAT registration and arrangement of 'objects of activity'. Prices quoted much less or much more should be questioned.
• Romania has legal limits on the amount of cash that a company may withdraw on a daily basis and in respect of paying your suppliers. Large amounts of cash drawings inevitably lead to attention from the Finance Ministry unless covered by valid receipts.
• The leasing of foreign imported assets continues to be a troublesome aspect for many foreign owned businesses. Good legal advice should be taken before deciding on a leasing plan.
• The regime for offsetting expenses against business profits is generally more harsh in Romania than in many other E.U. countries. In many cases, the headline tax rate of 16% can rise to nearer 20%. The offset of foreign travel expenses is assisted if the person travelling is a director of the Romanian company.
• The use of 'offshore' companies is mainly outlawed in Romania with the recent penal code of July 2005 specifying prison sentences for false invoicing and deception. An 'offshore' company is not in itself illegal, but it is the use you make of it that produces the problem. Romania accepts 'on shore' foreign companies and 'consortia' if they are transparent.
• Foreign consultancy contracts with Romanian residents (including Romanian companies) are required to be officially registered with the relevant government authority. Our understanding is that agency contracts do not need to be registered.

 This is a selection of varied topics that Dunlop Mills deals with on a daily basis.