TITLE I - General provisions

CHAPTER I - Purpose and scope of application of Fiscal Code

ART. 1 - Purpose and scope of application of Fiscal Code

(1) The present code shall establish the legal framework for the taxes and duties provided in Article 2, which are income to the state budget and to local budgets, shall specify the taxpayers which must pay such taxes and duties, as well as the manner of calculating and paying such taxes and duties. The present code shall include the procedure modifying such taxes and duties. Likewise, by this code the Ministry of Public Finance shall be authorised to draw up methodological norms, instructions and orders for the application of the present code and of the agreements for the double tax avoidance.

(2) The legal framework for the administration of the taxes and duties governed by the present code shall be provided by the legislation on fiscal procedures.

(3) In fiscal matters, the provisions of the present code shall prevail over any provisions from other statutory instruments; in case of conflict among such provisions, the provisions of the Fiscal Code shall be applied.

(4) If any provision of the present code is contrary to any provision of any treaty which Romania is a party to, the provision of such treaty shall be applied.

(5) Any measure of a fiscal nature which represents a state aid shall be granted according to the provisions of the Government Emergency Ordinance No 117/2006 on the national procedures in matters of state aid, as approved with amendments and additions by the Law No 137/2007.

ART. 2 - Taxes and duties governed by the Fiscal Code

The taxes and duties governed by the present code shall be the following:

a) the profit tax;

b) the income tax;

c) the tax on the incomes of micro-enterprises;

d) the tax on the incomes obtained from Romania by non-residents;

e) the tax on representative offices;

f) the value-added tax;

g) the excise duties;

h) the local taxes and duties.

CHAPTER II - Interpretation and amendment of the Fiscal Code

ART. 3 - Principles of the taxation system

The taxes and duties governed by the present code shall be based on the following principles:

a) the neutrality of the fiscal measures as regards the various categories of investors and of capital, forms of ownership, ensuring equal conditions for investors and for the Romanian and foreign capital;

b) the certitude of taxation, by drawing up clear legal norms, which should not lead to arbitrary interpretations, while the time limits, manner and payable amounts must be clearly established for each payer, and such payers should be permitted to follow and understand the fiscal burden devolving on them and should be permitted to determine the impact of their financial management decisions on their fiscal burden;

c) the fiscal equity at the level of natural persons, by different taxation of incomes depending on the size of the incomes;

d) the efficiency of taxation by providing long-term stability of the provisions of the Fiscal Code, so that such provisions do not to lead to unfavourable retroactive effects for natural and legal persons, as compared to the taxation in force on the date when they adopt certain major investment decisions.

ART. 4 - Amendment and addition of Fiscal Code

(1) The present code shall be modified and completed only by law, promoted, as a rule, 6 months before the date when such law enters into force.

(2) Any amendment or addition to the present code shall enter into force beginning with the first day of the year following the year when it was adopted by the law.

ART. 5 - Methodological norms, instructions and orders

(1) The Ministry of Public Finance shall have the attribution to draw up the norms necessary for the unitary application of the present code.

(2) Within the meaning of the present code, by norms it is understood the methodological norms, instructions and orders.

(3) The methodological norms shall be approved by the Government by a decision and shall be published in the Official Gazette of Romania, Part I.

(4) The orders and instructions for the uniform application of this code shall be issued by the minister of public finance and shall be published in the Official Gazette of Romania, Part I. The orders and instructions referring to procedures for administration of taxes and duties regulated by this code, payable to the consolidated general budget, shall be issued by the president of the National Agency of Tax Administration and shall be published in the Official Gazette of Romania, Part I.

(5) The public institutions under the subordination of the Government other than the Ministry of Public Finance may not draw up and issue norms which are related to any provision of the present code, except for those provided in the present code.

(6) On an annual basis, the Ministry of Public Finance shall collect and systematise all the norms in force which are related to the provisions of the present code and shall make this official collection available to other persons for publication.

ART. 6 - Establishment and operation of Central Tax Commission

(1) The Ministry of Public Finance shall establish a Central Tax Commission which shall be responsible for drawing up decisions regarding the unitary application of the present code.

(2) The Organisation and Operation Rules of the Central Tax Commission shall be approved by an order of the minister of public finance.

(3) The Central Tax Commission shall be co-ordinated by the Secretary of State in the Ministry of Public Finance who is in charge of the tax policy and tax legislation.

(4) The decisions of the Central Tax Commission shall be approved by order of the minister of public finance.

(5) *** Repealed

(6) *** Repealed

(7) *** Repealed

(8) *** Repealed

CHAPTER III - Definitions

ART. 7 - Definitions of common terms

(1) Within the meaning of the present code, with the exception of Title VI, the terms and expressions below have the following meaning:

1. activity - any activity pursued by a person for the purpose of obtaining income;

2. dependent activity - any activity pursued by a natural person within an employment relationship;

3. dependent activity at the main position - any dependent activity which is declared as such by a natural person, in accordance with the provisions of law;

4. independent activity - any activity pursued regularly by a natural person other than a dependent activity;

5. association without legal personality - any joint venture, economic interest group, civil society or other entity which is not a separate taxable person within the meaning of the income tax and profit tax, according to norms issued for application;

6. competent tax authority - the tax body within the Ministry of Public Finance and the specialised services of the local public administration authorities, as the case may be, which have fiscal responsibilities;

7. financial leasing contract - any leasing contract satisfying at least one of the following conditions:

a) the risks and benefits of the property right over the asset which is subject to leasing are transferred to the user at the moment when the leasing contract produces effects;

b) the leasing contract specifically provides for the transfer of the property right over the asset which is subject to leasing to the user at the moment when the contract expires;

c) the user may choose to buy the asset at the time when the contract expires, and the residual value expressed in percentages in less than or equal to the difference between the normal period of full use and the length of the leasing contract, in ratio to the normal period of full use, expressed in percentages;

d) the leasing period exceeds 80% of the normal period of full use of the asset which is subject to leasing; within the meaning of this definition, the leasing period shall include any period for which the leasing contract may be extended;

e) the total value of the leasing instalments, less the accessory expenses, is less than or equal to the entry value of the asset;

8. operational leasing contract - any leasing contract concluded between a lessor and lessee, that transfers to the lessee the risks and benefits of the ownership right, less the risk of realisation of asset at it residual value, and that does not meet any of the conditions provided in point 7 b) - e); the risk of realisation of the asset at its residual value occurs when the buy option is not exercised in the beginning of the contract or when the leasing contract expressly provides that the asset be returned when the contract expires;

9. commission - any payment cash or in kind made to a broker, general commission agent or other person assimilated to a broker or general commission agent, for the intermediation services provided in connection with a trading operation;

10. mandatory social contributions - any contributions which must be paid, in accordance with legislation in force, for the protection of the unemployed, for health insurance or for social insurance;

11. fiscal credit - a reduction in the income tax or profit tax by the amount of the tax paid abroad, according to agreements for the double tax avoidance or as provided in the present code;

12. dividend - a distribution cash or in kind made by a legal person to a participant in the legal person, as a consequence of the ownership of securities in such legal person, except for the following:

a) a distribution of additional securities which does not modify the percentage of ownership of the securities of any participant in the legal person;

b) a distribution made in connection with the acquiring/redemption of its own securities in the legal person which does not modify the percentage of ownership of the securities of any participant in such legal person;

c) a distribution cash or in kind made in connection with the liquidation of a legal person;

d) a distribution cash or in kind made on the occasion of cutting down the registered capital actually constituted by participants;

e) a distribution of issue premiums, proportionally to the part devolving on each participant.

The following amount shall be treated as dividends from a fiscal viewpoint and shall be subject to the same fiscal regime as the incomes from dividends:

- the amount paid by a legal person for the goods or services acquired from a participant in the legal person exceeding the market price for such goods and/or services, if such amount was not subject to taxation at the beneficiary with the tax on income or profit tax;

- the amount paid by a legal person for the goods and services supplied to the advantage of a participant in the legal person, if the payment is made by the legal person to its personal benefit.

13. interest - any amount which must be paid or received for the use of money, regardless whether it must be paid or received within a debt, in connection with a deposit, or in accordance with a financial leasing contract, instalment sale or other deferred payment sale;

14. franchise - a trading system based on a continuous collaboration between natural or legal persons, independent from a financial viewpoint, whereby a person, called franchiser, grants to another person, called the beneficiary, the right to exploit or develop a business, a product, a technology or a service;

15. know-how - any information regarding an industrial, commercial or scientific experience necessary for the manufacturing of a product or for the application of an existing process and which can not be disclosed to other persons without the authorisation of the person providing such information; to the extent to which it comes from experience, the know-how represents everything that a producer can not know from a simple examination of the product and from a simple awareness of technical progress;

16. fixed asset - any tangible fixed asset, held in order to be used in the production or supply of goods or in the provision of services, for the purpose of being rented to third parties or for administrative purposes, if the asset has a normal period of use of more than one year and a value higher than the limit laid down by Government decision;

17. non-resident - any foreign legal person, any non-resident natural person and any other foreign entities, including collective investment organisms in securities, without legal personality, not registered in Romania, according to the law;

18. non-profit organisation - any association, foundation or federation established in Romania in accordance with legislation in force, but only if the incomes and assets of the association, foundation or federation are used for an activity of general, Community or non-patrimony interest;

19. participant - any person who is the owner of a security;

20. person - any natural or legal person;

21. affiliated persons - a person is affiliated with another person if the relationship between them is defined by at least one of the following cases:

a) a natural person is affiliated with another natural person if such persons are spouses or relatives up to the 3rd degree inclusive. Among the affiliated persons, the price of transfer of tangible or intangible assets or the price of service provision is the transfer price;

b) a person is affiliated with a legal person if the person owns, directly or indirectly, the holdings of the affiliated persons, representing a minimum of 25% of the value/number of securities or of the voting rights held in the legal person, or effectively controls the legal person;

c) a legal person is affiliated with another legal person if:

(i) at least the first person holds, directly or indirectly, the holdings of the affiliated persons, representing a minimum of 25% of the value/number of the securities or of the voting rights held in the other legal person, or if it controls the legal person;

(ii) at least the second legal person holds, directly or indirectly, the holdings of the affiliated persons inclusive, representing a minimum of 25% of the value/number of securities or of the voting rights held in the first legal person;

(iii) at least a third legal person holds, directly or indirectly, the holdings of the affiliated persons, representing a minimum of 25% of the value/number of securities or of the voting rights held both in the first and the second legal person.

22. non-resident natural person - any natural person who is not a resident natural person;

23. resident natural person - any natural person who satisfies at least one of the following conditions:

a) the person has his or her domicile in Romania;

b) the centre of the vital interests of the person is located in Romania;

c) the person is present in Romania for a period or several periods exceeding in full 183 days during any period of 12 consecutive months ending in the calendar year in question;

d) the person is a Romanian citizen who is serving abroad as an official or employee of Romania in a foreign state.

As an exception to the provisions of letter a) - d), a resident natural person shall not include a foreign citizen with diplomatic or consular status in Romania, a foreign citizen who is an official or employee of an international and intergovernmental organisation registered in Romania, a foreign citizen who is an official or employee of a foreign state in Romania or any members of the family of such foreign citizens;

24. Romanian legal person - any legal person which has been established in accordance with the Romanian legislation;

24^1. legal person established according to the European legislation - any legal person which has been established under the terms and by the mechanisms provided by the European regulations;

25. foreign legal person - any legal person which is not a Romanian legal person and any legal person which has been established according to the European regulations which does not have a registered head office in Romania;

26. market price - the amount which an independent customer would pay to an independent supplier at the same time and place, for the same good or service or for a similar good or service, under conditions of fair competition;

27. real estate - any land, building or other construction erected or incorporated in land;

28. royalty - any amount which must be paid cash or in kind for the use of, or for the right to use, any of the following:

a) a copyright of a literary, artistic or scientific work, including of films, tapes for radio or television broadcasts, as well as for carrying out audio or video recordings;

b) any patent, invention, innovation, license, trademark, trade name, franchise, design, drawing, model, plan, sketch, secret formula or production process, or software.

Within the meaning of the present law, a royalty shall not include the remuneration cash or in kind paid for the acquisition of software designed exclusively for operating such software, without changes other than those necessary to install, implement, store or use such software. Likewise, within the meaning of the present law, a royalty shall not include the remuneration cash or in kind paid for the acquisition of the entire copyright of a computer program;

c) any transmission, including public transmissions, direct or indirect, by cable, satellite, fibre-optic or other similar technologies;

d) any industrial, commercial or scientific equipment, any movable asset, means of transport or containers;

e) any know-how;

f) the name or image of any natural person or other similar rights relating to a natural person.

In addition, a royalty shall include any amount which must be paid cash or in kind for the right to record or broadcast under any form performances, shows, sports events or other similar activities;

29. resident - any Romanian legal person, any foreign legal person having the place from where the actual management in Romania, any legal person with a registered head office in Romania, which has been established according to the European regulations, and any resident natural person;

30. Romania - the territory of the state of Romania, including the territorial waters and the air space above the territory and the territorial waters, over which Romania exercises its sovereignty, as well the contiguous area, the continental plateau and the exclusive economic area over which Romania exercises its sovereign rights and jurisdiction in accordance with its legislation and under the norms and principles of the international law;

31. transferable securities - any stock or other share in a general partnership, limited partnership, joint-stock company, limited partnership by shares, limited liability company, or other legal person or in an open investment fund;

31^1. securities - any transferable securities, participation titles to an open investment fund or other financial instrument, qualified as such by the National Securities Commission, including derivatives, as well as shares;

32. transfer - any sale, assignment or alienation of the property right, as well as the exchange of the property right for services or for another property right.

33. fiscal value represents:

a) for assets and liabilities, other than those mentioned in letters b) and c) - the value of the registration in the patrimony, according to the accounting regulations;

b) for participation titles/securities - the purchase value or the contribution value, used for the calculation of profit or loss, within the meaning of the income tax or of the profit tax;

c) for depreciable fixed assets and land - the purchase price, the production price or the market value of the fixed assets obtained free of charge or constituted as contribution, on the date when they entered the taxpayer's patrimony, used for calculating the fiscal depreciation, as applicable. The fiscal value shall include the accounting revaluations carried out under the law. In case there are carried out revaluations of the depreciable fixed assets that lead to an decrease in their value below the purchase price, the production price or the market value of the fixed assets obtained free of charge or constituted as contribution, as applicable, the fiscal value not depreciated of the depreciable fixed assets shall be recalculated up to the level of the one established pursuant to the purchase price, the production price or the market value of the fixed assets obtained free of charge or constituted as contribution, as applicable. In case of revaluation of lands that leads to a decrease in their value below the purchase price or the market value of the fixed assets obtained free of charge or constituted as contribution, as applicable, the fiscal value shall be the purchase price or the market value of the ones obtained free of charge or constituted as contribution, as applicable.

d) for provisions and reserves - deductible value when calculating the taxable profit.

(2) The criteria for determining whether an activity pursued by a natural person is a dependent activity or an independent activity shall be provided in the norms.

ART. 8 - Definition of permanent head office

(1) Within the meaning of the present code, a permanent head office is a location through which the activity of a non-resident is fully or partly pursued, either directly or through a dependent agent.

(2) A permanent head office shall include a place of management, subsidiary, office, factory, shop, workshop, as well as a mine, crude oil or gas well, quarry or other place of extraction of the natural resources, as well as the place where an activity continues to be pursued with the assets and liabilities of a Romanian legal person which undergoes a reorganisation process provided in Article 27^1.

(3) A permanent head office shall include a building site, a construction, assembly or installation project or supervisory activities in connection therewith only if the site, the project, or the activities last more than 6 months.

(4) By way of derogation from the provisions of paragraphs (1) - (3), a permanent head office shall not include the following:

a) the use of an equipment solely for the purpose of storage or display of products or assets belonging to a non-resident;

b) the maintenance of a stock of products or assets belonging to a non-resident solely for the purpose of storage or display;

c) the maintenance of a stock of products or goods belonging to a non-resident solely for the purpose of being processed by another person;

d) the sale of products or goods belonging to a non-resident, which were previously displayed during temporary or occasional exhibitions or fairs if the products or assets are sold no later than one month as from the end fair or exhibition;

e) the maintenance of a fixed place of activity solely for the purpose of purchasing products or goods or collecting information for a non-resident;

f) the maintenance of a fixed place of activity solely for the purpose of pursuing any activity of a preparatory or auxiliary nature for a non-resident;

g) the maintenance of a fixed place of activity solely for a combination of activities provided in letters a) - f), provided that the entire activity pursued at such fixed place is preparatory or auxiliary in nature.

(5) By way of derogation from the provisions of paragraphs (1) and (2), a non-resident shall be deemed as having a permanent head office in Romania with respect to the activities which a person, other than an agent with independent status, undertakes on behalf of the non-resident if the person is acting in Romania on behalf of the non-resident and if one of the following conditions is satisfied:

a) the person is authorised and exercises in Romania the authority to conclude contracts on behalf of the non-resident, unless the activities in question are limited to those provided in paragraph (4) a) - f);

b) the person maintains in Romania a stock of products or goods from which the person delivers products or goods on behalf of the non-resident.

(6) A non-resident shall not be deemed as having a permanent head office in Romania only because it carries on an activity in Romania through a broker, agent, general commissioner or any other intermediary with independent status, provided that the activity is the regular activity of the agent, according to the description in the constitutive documents. If the activities of such an agent are pursued fully or almost fully on behalf of the non-resident and there are conditions in the commercial and financial relations between the non-resident and the agent which are different from those which would exist between independent persons, then the agent shall not be considered an agent with independent status.

(7) A non-resident shall not be considered to have a permanent head office in Romania only because it controls or is controlled by a resident or by a person which carries on an activity in Romania through a permanent head office or otherwise.

(7^1) The Romanian legal persons which are beneficiaries of the provision of services of the nature of activities of construction works, assembly, surveillance, consulting, technical assistance and any other activities, executed by foreign legal persons and non-resident natural persons on Romanian territory, shall have the obligation to register the contracts concluded with these partners with the competent fiscal bodies, according to the procedure established by an order of the president of the National Agency of Tax Administration. The contracts concluded by the Romanian legal persons with foreign legal person and non-resident natural persons for activities pursued outside the Romanian territory shall not be subject to registration according to these provisions. In order to classify a construction site or a construction project, assembly or surveillance activities related thereto or other similar activities as permanent establishments, the date of beginning of activity from the contracts concluded with the beneficiary Romanian legal persons or any other information which are evidence of the beginning of activity shall be had in view. The periods used for carrying out some connected contracts which are directly related to the first contract that was executed shall be added to the period used for carrying out the main contract.

(8) Within the meaning of the present code, the permanent head office of a natural person shall be considered to be the fixed base.

CHAPTER IV - Rules of general application

ART. 9 - Currency for the payment and for the calculation of taxes and duties

(1) The taxes and duties shall be paid using the national currency of Romania.

(2) The amounts shown on a tax statement shall be expressed in the national currency of Romania.

(3) The amounts expressed in a foreign currency shall be converted into the national currency of Romania as follows:

a) in case of a person which carries on an activity in a foreign state and who keeps the accounting records for such activity in the currency of that foreign state, the taxable profit or the net income from independent activities and the tax paid to the foreign state shall be converted into the national currency of Romania by using an average of the currency exchange rates for the period to which the taxable profit or net income relates;

b) in any other case, the amounts shall be converted into the national currency of Romania by using the currency exchange rate on the date when the respective amounts are received or paid or on any other date provided in norms.

(4) Within the meaning of paragraph (3), the currency exchange rate used to convert amounts expressed in foreign currency into the national currency of Romania shall be the currency exchange rate communicated by the National Bank of Romania, except for the cases specifically provided in the norms.

ART. 10 - Incomes in kind

(1) Within the meaning of the present code, the taxable incomes shall include the incomes in cash and/or in kind.

(2) In case of income in kind, the amount of income shall be determined on the basis of the quantity and the market price for such goods or services.

ART. 11 - Special provisions for the application of Fiscal Code

(1) In determining the amount of any tax or duty within the meaning of the present code, the tax authorities may disregard a transaction which does not have an economic purpose or they may re-characterise the form of a transaction in order to reflect the economic substance of the transaction.

(1^1) The tax authorities may disregard a transaction carried out by a taxpayer declared inactive by order of the president of the National Agency for Fiscal Administration.

(1^2) Likewise, the tax authorities shall disregard the transactions carried out with a taxpayer declared inactive by an order of the president of the National Agency for Fiscal Administration. The procedure for declaring the inactive taxpayers shall be established by an order of the National Agency of Tax Administration. The order and the list of taxpayers declared inactive shall be communicated to the taxpayers for whom they are intended and to the parties concerned, being posted on the website of the National Agency of Tax Administration.

(2) In a transaction among affiliated persons, the tax authorities may adjust the amount of the income or of the expenditure of either person, as necessary, in order to reflect the market price for the goods or services provided in the transaction. In determining the market price for transactions among affiliated persons, the most appropriate of the following methods shall be used:

a) the price comparison method, whereby the market price is determined based on the prices paid to other persons which sell comparable goods or services to independent persons;

b) the cost-plus method, whereby the market price is determined based on the costs of the good or service supplied in the transaction, increased by an appropriate profit margin;

c) the resale price method, whereby the market price is determined based on the resale price of the good or service sold to an independent person, decreased by the selling expenses and other expenses of the taxpayer and a profit margin;

d) any other method recognised in the transfer prices guidelines issued by the Organisation for Economic Cooperation and Development.

ART. 12 - Incomes obtained from Romania

The following incomes shall be considered as obtained from Romania, regardless whether the incomes are received in Romania or abroad as:

a) incomes attributable to a permanent head office in Romania;

b) incomes from dependent activities pursued in Romania;

c) dividends from a Romanian legal person;

d) interest from a resident;

e) interest from a non-resident which has a permanent head office in Romania, if the interest is an expense of the permanent head office;

f) royalties from a resident;

g) royalties from a non-resident which has a permanent head office in Romania, if the royalty is an expense of the permanent head office;

h) incomes from real estate located in Romania, including the incomes from the exploitation of natural resources located in Romania, incomes from the use of real estate located in Romania and incomes from the transfer of the property right over the real estate located in Romania;

i) incomes resulting from the transfer of units, as defined in Article 7 (1) point 31, in a legal person, if the legal person is a Romanian legal person or if the most part of the value of the fixed assets of the legal person, either directly or through one or more legal persons, constitute real estate located in Romania, as well as the incomes from the transfer of securities, as defined in Article 65 (1) c), issued by Romanian residents;

j) incomes from pensions received from the social insurance budget or from the state budget;

k) incomes from the provision of services in Romania, excluding the international transport and the provision of accessory services to such transport;

l) incomes from the provision of management or consulting services in any field, if such incomes are obtained from a resident or if those incomes are expenditure of a permanent head office in Romania;

m) incomes representing remunerations received by non-residents acting in the capacity of administrator, founder or member of the managing board of a Romanian legal person;

n) commissions from a resident;

o) commissions from a non-resident which has a permanent head office in Romania, if the commission is an expenditure of the permanent head office;

p) incomes from sports or entertainment pursued in Romania, regardless whether the incomes are received by the persons actually participating in such activity or by other persons;

q) *** Repealed

r) incomes from prizes granted at contests organised in Romania;

s) incomes obtained from gambling in Romania;

t) any other incomes obtained from an activity pursued in Romania.

ţ) incomes obtained from the liquidation of a Romanian legal person.

ART. 12^1 - Special provisions regarding the information exchange with the Member States of the European Union

The minister of public finance shall decide by order the necessary measures for the implementation of the system of administrative co-operation and information exchange with the Member States of the European Union in the field of value-added tax, excise duties and income tax.