Government Emergency Ordinance (GEO) no. 19/2019, amending and completing some normative acts, was published on 29 March 2019. This normative act amends:
- GEO no. 114/2018 on the introduction of measures in the field of public investments and fiscal-budgetary measures;
- GEO no. 50/2010 on consumer credit contracts;
- GEO no. 52/2016 on consumer credit agreements for real estate;
- Law on Electricity and Natural Gas no. 123/2012;
- OUG no. 33/2007 on the organisation and functioning of the National Regulatory Authority for Energy (ANRE);
- GEO no. 111/2011 on Electronic Communications;
- Law no. 159/2016 on the Physical Infrastructure Regime of Electronic Communications Networks;
- Law no. 411/2004 on privately managed pension funds.
The most important provisions are outlined below.
Tax on banks’ financial assets
The new Ordinance amends the tax on financial assets calculation method, including provisions providing for the following:
- The tax is no longer index-linked to ROBOR indicators.
- The tax due is calculated by applying a rate of 0.2% or 0.4% to the taxable base of a bank's balance sheet net financial assets as at the end of the half-year and of the year for which the tax is due, as stated in the accounting records. Unlike the former provision, of GEO no. 114/2018, the following financial assets are excluded from the tax base:
- cash balances at central banks at net value, excluding non-performing exposures;
- non-performing exposures at net value;
- debt securities issued by public authorities at net value, excluding non-performing exposures;
- loans and advances to public authorities at net value, excluding non-performing exposures;
- state-guaranteed loans granted by credit institutions to the non-government sector, at net value, excluding non-performing exposures;
- loans to credit institutions, receivables and amortised amounts, at net value, excluding non-performing exposures;
- deposits with credit institutions, receivables and amortised amounts, at net value, of which non-performing exposures are excluded;
- correspondent accounts with credit institutions (nostro) and linked receivables, at net value, excluding non-performing exposures;
- reverse repo transaction and lent securities, linked receivables and amortised amounts, at net value, excluding non-performing exposures.
- The tax rate is 0.2% for banks with a market share below 1% and 0.4% for those with a market share equal to or above 1%.
- The tax is annual and paid twice a year.
- It is possible for financial institutions to reduce the tax due by increasing lending amounts over a certain target and / or reducing the interest margin below a certain level. Specifically:
- where financial intermediation increases by increasing the balance of loans:
- the tax is reduced by 50% if the increase in loans to non-financial institutions and households is equal to or greater than the loan growth target (8% in 2019);
- the tax is reduced by up to 50% if the increase in the balance of loans to non-financial institutions and households is less than the loan growth target (8% in 2019), in which case the percentage of tax assets reduction is apportioned according to a formula set out in GEO no. 19/2019;
- the balance of loans as at the end of 2018 is used as the reference point for calculation of the balance of loans development.
- where the interest margin is lowered:
- the tax is reduced by 50% if the interest margin calculated at the level of the half year / year for which it is due is below the reference interest margin (4% in 2019), or if the interest margin reduction is equal to or above the interest margin reduction target (- 8% in 2019);
- the tax is reduced by up to 50% if the reduction of the interest margin is lower than the target net interest margin reduction (- 8% in 2019), in which case the percentage of tax assets reduction is apportioned according to a formula provided in GEO no. 19/2019;
- the initial reference to which the calculation of the interest margin is made is given by the interest margin as at the end of 2018.
- For the first half year, this tax is reported and paid by 25 August of the year for which it is due. The tax is not due or reported for the first half year in the following situations:
- if it has reached 100% loan growth target; or
- if it has met the 100% interest rate reduction target; or
- if the aggregate percentage of loan growth and interest rate reduction is at least 100%.
- For the purpose of annual adjustment, a new calculation is made based on the indicators determined at the level of the year for which the asset tax is due. The additional sums due on top of the amounts paid at the half year level have to be paid by 25 August of the following year for which the asset tax is due, and the amounts paid in excess have to be refunded / compensated according to the provisions of Law no. 207/2015 on the Fiscal Procedure Code.
- Banking institutions registering an accounting loss before the calculation of the tax on assets are not subject to this tax.
- If the tax exceeds the level of the accounting profit, it is capped at the accounting profit, without affecting the future tax payments.
- Expenditure on this fee is a deductible expense.
- The methodology for calculating the market share, interest margin, net financial assets and those to be deducted from the taxable base, as well as the reporting of indicators required to calculate the asset tax, is to be established through methodological norms.
Private pension funds
- The additional obligations regarding the minimum share capital needed to manage private pension funds have been suspended until 31 May 2019. During the period of suspension, the minimum share capital needed to manage a pension fund is the RON equivalent of EUR 4 million (calculated on the basis of the exchange rate of the National Bank of Romania on the capital set-up date).
- However, any additional share capital provided initially in GEO 114 has to be contributed by 31 December 2019.
Variable-interest RON-denominated loans
The variable interest rate calculation method for consumer loan agreements, including for real estate purchases, is no longer linked to ROBOR index for loans denominated in RON and has been changed as follows:
- the interest will be composed of a reference indicator calculated exclusively on the basis of interbank transactions at certain time intervals, to which the creditor may add a certain fixed margin for the entire duration of the contract. The reference value for variable-interest RON-denominated loans is published each working day on the BNR website and the interest rate is calculated as an average of interest rates weighted by the volumes of transactions in the interbank market. The reference indicator is calculated at the end of each quarter as the arithmetic mean of the daily interest rates determined for the previous quarter, to be applied by each credit institution for the following quarter.
- The price cap (RON 68 / MWh) for gas sold by producers to the suppliers of households and those of the thermal energy producers, for the quantity of natural gas used for the production of thermal power in cogeneration plants and in thermal power stations intended for the use of the public has been postponed by one month. It will apply as of 1 May 2019 until 28 February 2022 (compared to the initial deadline stated in GEO no. 114/2018 of 1 April 2019, until 28 February 2022).
- The gas price cap has been eliminated for industrial consumers. The cap is retained for households and producers of thermal power supplying central heating systems to the public.
Regulated Profitability Ratio (RRR)
- For the calculation of transportation tariffs and distribution tariffs for electricity and natural gas, in the period 2019-2024, the return on invested capital ratio, representing the average cost of invested capital, expressed in real terms, before tax, is 6.9%.
Public gas distribution service concessions
Advance specific authorisations, as provided under the legislation in force, are required for the concession grantor/holder, before setting up a gas distribution system (for the extension of the concession area).
Annual monetary contribution due to ANRE
- The annual monetary contribution of 2% of turnover, established by GEO no. 114/2018, is owed by holders of licences issued by ANRE for activities in the areas of electricity and gas (not in the area of cogenerated electric and thermal energy).
- Holders of commercial exploitation licences for coal-fired power generation and electric and thermal energy production in cogeneration do not have to pay the 2% on turnover monetary contribution, ANRE will issue a separate order for those licence-holders.
- The penalty of 0.1% per day will apply on the previous year’s turnover of telecom providers using a radio frequency without a licence. The initial reference figure for the penalty was the previous year’s turnover recorded at the level of the relevant CAEN branch for the activity. The penalty no longer applies for telecom providers/those using a radio frequency after the expiry of the licence validity.
- Suspended until 1 September 2019 - application of fines of up to 10% of turnover (calculated in proportion to the number of users served without authorisation, at 1% per 100 users) to be imposed on telecom providers concluding contracts for installation, maintenance, replacement of electronic communications networks and infrastructure elements necessary to support them, or conducting works without having access rights to a property or without a building permit.
Source: Emergency Ordinance no.19/2019, published in the Official Gazette no. 245 on 29 March 2019
Bank assets tax
The bank asset tax is no longer index-linked to ROBOR. Instead, the tax is calculated based on the banking institution’s market share. The tax rates are lower than those set out in GEO no. 114/2018. In addition, there are ways to reduce this tax, by 50% to 100%, under certain conditions.
Privately managed pension funds – additional minimum capital requirement
The additional minimum share capital requirement for privately managed pension funds is suspended until 31 May 2019 but must be fulfilled by the end of the year.
Consumer credit – new variable interest rate calculation method
A new method of calculating the variable interest rate has been provided for consumer loan agreements, including for real estate purchases.
The capping of gas prices for industrial consumers has been abolished. The cap is maintained only for household customers and producers supplying heat to public centralised heating systems.
The regulated rate of profitability for calculating transport tariffs and distribution of electricity and natural gas in the period 2019 - 2024 has also been set, at 6.9%.
The entities subject to payment of the annual monetary contributions due by ANRE licence holders have been clarified. Holders of commercial exploitation licences for coal-fired power generation and electric and thermal energy production in cogeneration do not have to pay the 2% on turnover monetary contribution. ANRE will issue a separate order for those licence-holders.
Telecommunications – penalties for use of unlicensed radio frequencies
The penalties have been clarified for using radio frequencies without a licence.
Furthermore, the application of fines of 10% on turnover has been suspended until 1 September 2019 for telecommunications providers concluding contracts for the installation, maintenance, replacement of electronic communications networks and infrastructure elements necessary to support them, or conducting works without having access rights to property or without the building permit.