After the official launch of the National Investment and Economic Recovery Plan, the Romanian Government comes with concrete measures for its implementation. These include the approval of the emergency ordinance which intends to grant bonuses to companies that increase and / or improve their equity. The measure is welcome and can be a starting point in encouraging companies to align with normalcy and comply with applicable legal regulations. In addition, the draft also provides for a significant change in the annual income tax return and payment deadline.
A poorly capitalized company does not have the financial strength to grow on its own, much less in crisis situations, and at the same time does not have access to external financing, given that financial stability is a key criterion for financial institutions. , and not only, in granting loans. Given that, in Romania, according to official data, approximately 280,000 companies (around 40% of the total) have negative equity, SME Invest financing programs cannot prove their effectiveness because, beyond the fact that the loan it is guaranteed by the state for the most part, and the interest is subsidized, the financial situation of a debtor with debts higher than his own funds is precarious and cannot guarantee the repayment of the loan. Moreover, a company with limited access to financing usually resorts excessively to supplier credit (delays the payment of invoices to suppliers), a practice that can lead to chain blockages and even insolvencies or bankruptcies.
Positive equity, a basic condition for accessing tax credits
According to the draft ordinance, companies that will maintain their own positive capital and at a level of at least half of the share capital will benefit from a reduction of profit or income tax, in the case of micro-enterprises, or of specific tax, in the case of companies from the hospitality industry, of 2% annually. In addition, companies will be able to benefit from a bonus of between 5% and 10% of the profit tax due, for the annual increase of equity, depending on the evolution compared to the previous year (from 5% to over 25%). For a period of three consecutive years, starting with 2022, the project also provides for a 3% reduction in tax depending on the minimum percentage increase of equity compared to the level reported by the annual financial statements for 2020.
It is important to note that the total tax reduction that a company can benefit from is determined by cumulating the said percentages, as the necessary criteria are met. The application period of the measure is 2021-2025.
Compared to the expectations created by the introduction of the measure in the National Investment Plan, there is a welcome diversification of the applicable bonuses, the tax reduction being directly proportional to the share of capital increase registered by the company.
In addition, the draft ordinance proposes a specific way of calculating equity, different from the accounting definition. It is noteworthy that the revaluation reserves related to fixed assets (mainly real estate) are not included in the calculation of adjusted equity used in the application of tax credits.
This "reward" is, in fact, a tool to stimulate the improvement of liquidity at the level of companies, which, implicitly, should also lead to a healthier financial structure for the business environment. Similar measures are in force in other EU countries, known as the 'notional interest deduction', and allow companies applying the corporate tax regime to deduct a nationally valid interest calculated on the basis of the increase in equity.
Expected changes in the tax return and payment deadline
A notable change contained in the draft normative act, derived from the need to determine the annual equity, is the one regarding the deadlines for submitting the declarations and paying the taxes concerned, during the application of these facilities. Thus, the established deadlines (in most cases, January 25 and March 25, respectively) will be extended until June 25, which is, in most cases, after the closing date of the balance sheet and, therefore, with all the more appropriate.
In conclusion, granting tax reductions to increase equity is a measure that could have beneficial effects on companies, individually, but also on the economic environment in general, because a solid company from the point of view of
