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How you can benefit from tax reduction by increasing the company’s capital

In case you didn’t know, if you own a Romanian company, increasing the company’s capital can bring you a reduction of its tax due for the period 2021 – 2025. More precisely, according to an emergency ordinance approved by the Romanian government, Romanian companies that increase their capital with a minimum percent can benefit in the next period of significant tax reductions.

Through this ordinance, the Romanian government wants to stimulate the recapitalization of companies that have negative capital.

We describe below the conditions under which you can benefit from the provisions of this ordinance and what is the tax reduction that can be applied to your company.

First, we consider it important to specify that this incentive came into force with the publication of Emergency Ordinance 153/2020. Thus, according to the provisions of this ordinance, the Romanian companies that can benefit from a decrease of their tax burden by increasing their own capital are:

  • companies subject to tax on profit;
  • companies subject to microenterprise taxation regime;
  • companies subject to specific regime of taxation (less the banks and the insurance companies).

What is the tax decrease you can benefit of by increasing the company’s capital?

The measures taken by the government provide that during the period 2021 – 2025 Romanian companies can benefit from tax reductions under the following conditions:

  • Companies that have positive accounting capital in a certain tax year will benefit from a 2% reduction of the tax due for that year; to benefit of the decrease in tax, an additional condition applies: the company’s accounting capital must be at least equal to 50% of its share capital;
  • Companies that record an annual increase in adjusted capital compared to that recorded in the previous year, and also meet the condition from the first point above, may benefit from one of the following tax reductions in the respective year:
Annual increase in adjusted capitalAnnual tax reduction (%)
less than or equal to 5%5%
between 5% and 10% inclusively6%
between 10% and 15% inclusively7%
between 15% and 20% inclusively8%
between 20% and 25% inclusively9%
more than 25%10%
  • In addition, as of year 2022, Romanian companies recording an increase in adjusted capital above the percentage set out in the table below compared to that recorded in 2020 will benefit from a 3% decrease of their annual tax due; assuming they also fulfil the condition from the first point above. This reduction will apply starting with tax year 2022.
Annual increase in adjusted capitalThe year for which the tax is due

Can a company cumulate all three tax reductions described above?

Yes, indeed, according to the provisions of Ordinance 153/2020, a company can benefit from all the three tax reductions. Thus, if the company meets the conditions for the first one, it can apply it, if it qualifies for the second, it can cumulate it with the first, and so on. In this way, the percentages of reductions can be cumulated, coming to benefit from the maximum possible tax reduction.

At what moment can the tax reduction be applied?

The moment at which the corporate tax reduction can be actually applied will be as follows:

  • companies subject to tax on profit: the reduction will be applied to the payment of the annual tax for the year in which the conditions are met;
  • companies subject to microenterprise taxation regime: the reduction will apply to the tax amount due for the fourth quarter of the specific year;
  • companies subject to specific regime of taxation: the reduction will be deducted from the tax due for the second semester of the specific year.

The capital increase tax incentives enforced through the Ordinance 153/2020 represent the initiative of the Romanian Ministry of Public Finance, which claims that there are currently many Romanian companies with negative capital. According to the Ministry, this is a common situation especially among small firms, which tend to actively distribute dividends throughout the year.

Thus, it is desired to ensure a financial stability of companies by capitalization, which will be encouraged by the tax reductions described above.

The initiators of the ordinance claim that such measures to stimulate capitalization have also been applied in other European countries such as Belgium, Italy or Portugal.

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