The new implementation rules of the Fiscal Code, recently drafted by the Ministry of Finance, establish, among others, a series of general conditions that must be met by income-related expenses in order to be deductible.
Expenses incurred by a company may be deductible if:
a) they are incurred within the scope of activities carried out for the purpose of generating income and are supported by documentation;
b) they are included in the expenses of the financial year during which they were paid;
c) they comply with the depreciation rules provided in Title II, as applicable;
d) insurance premium expenses are incurred for:
- tangible or intangible assets within the business’s patrimony;
- assets serving as collateral for loans used in carrying out the taxpayer’s authorized activity;
- professional risk insurance premiums;
- individuals earning income from salaries, as per Chapter III of this Title, provided that the insurance premium amount is taxed to the beneficiary at the time of payment by the sponsor.
What Do the New Rules Say?
Firstly, before discussing non-deductible expenses, the new rules refer to gross income, which includes all income in cash and in-kind, such as: income from the sale of products and goods, income from the provision of services and performance of works, income from the sale or rental of business assets, and any other income obtained from carrying out the activity, including interest income received from banks for the business’s cash reserves, as well as from other related activities.
Gross income also includes amounts collected after the termination of independent activity, based on previously issued and uncollected invoices.
“Related activities” are defined as all activities connected to the authorized business scope.
In the event of the permanent cessation of activity, proceeds from the liquidation of assets recorded in the Inventory Register — such as fixed assets, inventory items, and similar — as well as remaining stocks of raw materials, supplies, finished products, and goods, are included in gross income.
If assets and rights from the business patrimony are transferred into the taxpayer’s personal patrimony, this is considered a transfer for tax purposes. The corresponding value is included in gross income and must be evaluated at market prices or through technical expertise.
When assets and rights are reorganized and transferred to another business of the same taxpayer, those with a remaining depreciable value are entered in the Inventory Register at that value, which also forms the depreciation base.
For fully depreciated assets and rights transferred to another business of the same taxpayer during reorganization, no depreciation is calculated as a deductible expense for the new activity.
The Following Are Not Considered Gross Income:
- Contributions made at the start or during the course of the business;
- Amounts received as bank loans or loans from individuals/legal entities;
- Compensation received;
- Amounts or goods received as sponsorships, patronage, or donations;
- Assets and rights transferred during the reorganization of one business to another owned by the same taxpayer, when their intended use is maintained.
In Case of Business Reorganization During the Year:
The net income/loss is determined separately for each period during which the independent activity was carried out under a specific business form. These are recorded separately in the tax decision to establish the cumulative net income tax for the entire fiscal year. Any fiscal loss during the taxable period can be carried forward according to the rules in Article 80.
From the gross income, only those expenses incurred with the purpose of generating income are deductible, as derived from the taxpayer’s accounting records, in accordance with Article 48, paragraphs (4)–(7) of the Fiscal Code.
General Conditions for Deductibility:
a) Must be directly related to the business activity;
b) Must represent actual expenses and be justified by documents;
c) Must be included in the expenses of the financial year in which they were paid.
Examples of Deductible Expenses Include:
Interest on loans received from individuals or legal entities (other than professional lending institutions), if used for business purposes, based on a contract and within the National Bank of Romania’s reference interest rate;
Expenses related to meal vouchers and vacation vouchers granted by the employer in accordance with the law;
Other expenses incurred for the purpose of generating income.
Special Provision:
By exception to Article 24(16), taxpayers investing in the establishment and operation of medical practices can recover those costs only through depreciation deductions, as per Article 24.
Also deductible are expenses for the maintenance and operation of business premises, even if the documents are issued in the name of the property owner rather than the taxpayer.
