Clarifications on the application of tax incentives granted to the construction sector through GEO 114/2018

In brief

Emergency Ordinance no. 43/2019 (GEO 43/2019), amending and completing some normative acts, was published on 21 June 2019. It amends to the Labour Code and the Fiscal Code to clarify the application of the tax incentives granted to the construction sector through OUG 114/2018 – here you can consult our Tax and Legal Alert on this topic.

In detail

Labour Code Amendments

 

The guaranteed national minimum gross monthly salary for the construction sector has been set at RON 3,000 / month – provision extended beyond 1 January 2020

  • Until 31 December 2019, the guaranteed national minimum gross monthly salary for a full-time work schedule, for the fields of activity referred to in the Fiscal Code, Article 60, paragraph 5, is set at RON 3,000 per month (not including allowances, bonuses and other).
  • As of 1 January 2020, the guaranteed national minimum gross monthly salary for a full-time work schedule, for the fields of activity referred to in the Fiscal Code, Article 60, paragraph 5, will be at least RON 3,000 per month (not including allowances, bonuses and other).

What happens in the event of non-compliance with the guaranteed national minimum gross monthly salary in the construction sector?

 

Failure to comply with the provisions on the payment of the guaranteed national minimum gross monthly salary in the construction sector:

  • is a contravention and sanctioned with fines from RON 300 to RON 2,000;
  • results in annulment of the tax incentives granted. Contributions and income tax will be recalculated in accordance with the Fiscal Code, with interest and late-payment penalties applied to the differences resulting from the recalculation, in accordance with the Fiscal Procedure Code.

 

Fiscal Code Amendments

The tax incentives granted for the period 1 January 2019 to 31 December 2028 in the construction sector (according to the list of NACE codes provided in the Fiscal Code, Article 60, paragraph 5) have been amended and clarified as follows:

  • New NACE codes have been introduced: 2351 - Manufacture of cement, 2352 - Manufacture of lime and plaster, 2399 - Manufacture of other non-metallic mineral products;
  • NACE Code 711 - Architectural, engineering and technical consulting services have been moved to a new point, (iii), separate from the fields of production of building materials;
  • New rules have been introduced regarding how to calculate turnover in the construction sector and other specific activities, as follows:
  • For newly-established companies, the turnover is calculated cumulatively from the beginning of the year, including the month in which the incentives apply;
  • For companies existing as at 1 January of each year, the basis of calculation is the turnover registered in the previous year. Where more than 80% of turnover is generated from the activities for which tax incentives are granted, they apply throughout the current year. For companies that do not achieve this minimum turnover limit, the principle for newly-established companies applies.
  • Turnover is realised based on contracts or orders, including labour costs, materials, machinery, transport, equipment, endowments and other related activities. Moreover, turnover includes both realised and unrealised output.

 

  • Clarifications are also brought regarding the gross monthly earnings from salaries, or income treated as such, for which the tax incentives are granted:
  • Income of at least RON 3,000 per month is calculated at a gross salary for eight hours of work per day;
  • The exemption applies only to amounts of monthly gross income of up to RON 30,000 (i.e. the facility does not apply to the income exceeding that amount);
  • The phrase regarding employment contracts, from article 60 (income tax - exemptions) has been deleted from the Fiscal Code.

The National Commission for Strategy and Prognosis will issue an Order establishing the mechanism for calculating the turnover for the application of the tax incentives.

Source: GEO no. 43/2019 amending and completing some normative acts establishing measures in the field of investments, published in the Official Gazette no. 507 dated 21 June 2019

The takeaway

  • Until 31 December 2019, the guaranteed national minimum gross monthly salary for a full-time work schedule for the construction sector is set at RON 3,000 / month. In the event of non-compliance with these provisions, companies can be fined from RON 300 to RON 2,000, and the tax incentives annulled.
  • Three new NACE codes for which tax incentives are granted in the construction sector have been introduced, i.e. 2351 - Manufacture of cement, 2352 - Manufacture of lime and plaster, 2399 - Manufacture of other non-metallic mineral products.
  • New provisions have been introduced regarding the calculation of turnover in the construction sector and other specific activities, as well as regarding the minimum and maximum level of the salary incomes for which the tax incentives can be applied.
  • These provisions enter into force on 21 July 2019.
  • Article 91 of GEO 114/2018 has been amended so that references to compliance with state aid regulations apply only to employer contributions.

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