Changes to the tax rules for capital gains by individuals from the transfer of securities and operations with derivative financial instruments: Law no. 142/2022

The takeaway

As of 2023, the current income tax rate of 10% on capital gains by individuals from the transfer of securities and from operations with derivative financial instruments made through intermediaries (Romanian tax residents or non-residents with a permanent establishment in Romania) will be reduced to:

• 1% for securities and instruments held for more than one year, and
• 3% for securities and instruments held for less than one year.

The Romanian intermediary/permanent establishment in Romania will withhold the tax at source for each transfer/operation. It represents the final tax. Losses from these transfers/operations performed by these entities and not compensated by 1 January 2023 are not carried forward, and they represent definitive losses regardless of the date on which they were recorded.

For gains/losses on transfers made through non-resident intermediaries, individuals are still required to calculate, declare and pay income tax.

In detail

Law no. 142/2022 introduced new obligations for intermediaries defined under the relevant legislation as investment management companies, self-managed investment companies and alternative investment fund managers, Romanian tax residents or non-residents with permanent establishments in Romania.

In addition to the existing obligations prior to Law no. 142/2022, those intermediaries will also have to calculate, withhold, declare and pay income tax for capital gains/losses obtained by individuals in Romania and abroad. The obligation to withhold at source, declare and pay income tax related to individuals’ capital gains/losses does not apply to entities through which investment gold transfers are made.

Capital gains from the transfer of securities and from operations with derivative financial instruments, as determined according to the specific provisions of the Fiscal Code, by Romanian tax resident entities or non-residents with permanent establishments in Romania are liable for withholding tax.

• For the transfer of securities:
• 1% on the capital gains from each transfer of securities disposed of more than 365 days after the acquisition date;
• 3% on the capital gains from each transfer of securities disposed of less than 365 days after the acquisition date.

• For operations with derivative financial instruments:
• 1% on any capital gains from the operation of derivative financial instruments held for a period of more than 365 days, inclusive, as of the acquisition date;
• 3% on the capital gains from carrying out operations with derivative financial instruments held for a period of less than 365 days as of the acquisition date.

The tax is declared and transferred to the state budget by the 25th of the month following that in which it was withheld. It is the final tax.

To determine the holding period, securities and financial instruments are considered alienated/redeemed in the same order in which they were acquired.

To calculate the capital gains, the tax value is determined by applying the weighted average price method, including the costs related to the transfer/operation, regardless of the holding period.

Losses from the transfer of securities and from operations with derivative financial instruments, realised through Romanian or non-resident tax resident entities with permanent establishments in Romania and the quality of intermediary, are not carried forward and are not compensated. These represent final losses to the taxpayer.

The following transitional rules apply for determining the income tax due for transfers of securities or transactions in derivative financial instruments:

• For the fiscal year 1 January 2022 to 31 December 2022:

i) for capital gains/losses related to the period, the fiscal obligations are those in force as at the date of the realisation/registration of capital gain/loss;

ii) the net loss obtained from the transfer of securities and from operations with derivative financial instruments not carried out by intermediary Romanian tax resident entities or non-residents with a permanent establishment in Romania as an is carried forward and offset according to the reporting rules;

• For the transfer of securities and operations with derivative financial instruments, acquired before 1 January 2023, carried out by intermediary Romanian tax resident entities or non-residents with a permanent establishment in Romania as an intermediary, the tax is calculated as follows:

i) by applying a tax rate of 3% to the capital gains realised as of 1 January 2023 for those held for a period of less than 365 days following the acquisition date, or

ii) by applying a tax rate of 1% on the capital gains realised as of 1 January 2023 for those held for a period longer than 365 days following the acquisition date;

• Losses obtained and not compensated by 1 January 2023 from the transfer of securities and from operations with derivative financial instruments performed by intermediary Romanian tax resident entities or non-residents with permanent establishments in Romania are not carried forward. They represent losses to the taxpayer, regardless of the date on which they were registered.

The following remain unchanged from the period prior to the entry into force of Law no. 142/2022:

• Income tax declaration and payment obligations.
• The method of calculating the capital gains/losses from the transfer of securities, perations with derivative financial instruments and transfers of investment gold not realised through intermediary Romanian resident or non-resident taxable entities with permanent establishments in Romania .

The new provisions will enter into force on 1 January 2023.

Source: [Law no. 142/2022 for the amendment and completion of Law no. 227/2015 on the Fiscal Code, published in the Official Gazette no. 502 dated 23 May 2022]