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Taxation of investment income – from 2023

Law no.142 amending and supplementing Law no.227/2015 on the Tax Code was published in the Official Gazette (Part I) no.502 on 23 May 2022, with applicability from 1 January 2023.

Thus, individual investors on the stock exchange will benefit from the tax reduction next year, according to the new Law 142/2022.

According to the new amendments, income from transactions with derivative financial instruments, as defined in article 7, item 23, made through an intermediary defined according to the relevant legislation, Romanian tax resident or non-resident who has in Romania a permanent establishment that has the quality of intermediary, with which the individual has opened an account, is considered as being obtained in Romania, regardless of whether it is received in Romania or abroad.

              The determination of the gain/loss on the transfer of securities, other than financial derivative instruments, shall be made, as the case may be, on the date:l

  1. a) on the date of payment of the transaction price, on the basis of supporting documents, by the income beneficiary, if the transaction is not carried out through one of the entities referred to in Article 96^1 paragraph (1);
  2. b) on the date of conclusion of the short sale transaction, irrespective of the method of settlement, by the entities referred to in Article 96^1 paragraph (1), on the basis of supporting documents, in the case of short sale transactions. If the transaction is not carried out through one of the entities referred to in Article 96^1 paragraph (1), the determination of the gain/loss shall be carried out by the recipient of the income on the basis of the supporting documents;
  3. c) on the date of payment of the commission related to the securities lending operation provided for in the loan contract, in the case of securities lending operation.

The determination of the gain shall be made by the entities referred to in Article 96^1 paragraph (1), on the basis of supporting documents. If the operation is not carried out through one of the entities referred to in Article 96^1 paragraph (1), the income beneficiary shall determine the gain on the basis of the supporting documents;

  1. d) on the date of determination of the redemption value of the units, in the case of redemption of units in collective investment undertakings, by the entities referred to in Article 96^1 (1). If the operation is not carried out by one of the entities referred to in Article 96^1 paragraph (1), the obligation to determine the gain/loss shall lie with the income beneficiary;
  2. e) at the time of the transaction, on the basis of supporting documents, in the case of transfer of ownership of units in collective investment undertakings as a result of their trading on regulated markets or alternative trading systems, by the entities referred to in Article 96^1 paragraph (1).

If the transaction is not carried out through one of the entities referred to in Article 96^1 paragraph (1), the obligation to determine the gain/loss shall lie with the income beneficiary.

We remind you that the entities mentioned in article 96^1, paragraph (1) of the Tax Code are intermediaries defined according to the relevant legislation, investment management companies, self-managed investment companies, managers of alternative investment funds, Romanian tax residents or non-residents having in Romania a permanent establishment which has the quality of intermediary, as the case may be, who carry out the transfers/operations provided for in Articles 94 and 95, both for income obtained in Romania and for income obtained abroad, other than from the transfer of investment gold.

Determination of income from transactions with derivative financial instruments carried out through intermediaries defined according to the relevant legislation:

The gain/loss on derivative transactions represents the positive/negative difference between the income realised on closed positions and the expenses related to these positions, registered in the account, for each type of contract and maturity, regardless of whether or not it has reached maturity. In the case of derivative financial instruments which provide for periodic settlements between the parties, without closing the position, the gain/loss on transactions in such financial instruments shall be the positive/negative difference between the income realised on periodic settlements and the related expenses registered in the account.

The determination of the gain/loss from operations with derivative financial instruments is made by the intermediary, as defined by the legislation in this matter, Romanian tax resident or non-resident who has in Romania a permanent establishment that has the quality of intermediary, at the time of each transaction, based on supporting documents.

The income realized from transactions with closed positions with derivative financial instruments represents the actual receipts from all these transactions, with closed positions, registered in the income beneficiary’s account, less the principal receipts.

Expenses related to transactions with closed positions in financial derivatives represent the payments related to these closed positions registered in the income beneficiary’s account, including transaction costs, less principal payments.

The determination of the gain/loss is made at the time of each transaction for derivative financial instruments, in the case of closed positions, by the intermediary defined according to the legislation on the matter, Romanian tax resident or non-resident who has in Romania a permanent establishment that has the quality of intermediary.

Determination of income from derivative transactions, which are not carried out through intermediaries defined according to the relevant legislation (new article):

The profit/loss from transactions with derivative financial instruments which are not carried out through an intermediary defined according to the relevant legislation, Romanian tax resident or non-resident who has a permanent establishment in Romania which has the quality of intermediary, shall be determined according to the provisions of Article 95 paragraph (1), for closed positions starting from the first trading day of the tax year and up to and including the last trading day of the tax year. The determination of the gain/loss shall also be carried out in accordance with Article 95(1) in the case of derivative financial instruments which provide for periodic settlements between parties, without closing the position, within a financial year.

The determination of the gain/loss shall be made annually, cumulatively, at the end of the tax year, by the income beneficiary, on the basis of supporting documents.

Income from transactions with closed positions in financial derivative instruments and expenses related to such transactions shall be determined in accordance with the provisions of Article 95 (3) and (4).”

Establishment of the obligations of intermediaries defined according to the relevant legislation, investment management companies, self-managed investment companies and managers of alternative investment funds, Romanian tax residents or non-residents who have in Romania a permanent establishment which has the quality of intermediary (new article introduced)

            Intermediaries defined according to the relevant legislation, investment management companies, self-managed investment companies, managers of alternative investment funds, Romanian tax residents or non-residents who have in Romania a permanent establishment having the quality of intermediary, as the case may be, which carry out the transfers/operations referred to in Articles 94 and 95, both for income obtained in Romania and for income obtained abroad, other than from the transfer of investment gold, have the following obligations:

  1. a) calculation of the gain/loss for each transfer/transaction carried out for the taxpayer;
  2. b) the calculation, withholding, declaration and payment of income tax, according to article 97 paragraph (81) to (85);
  3. c) the transmission to each taxpayer of the information on the total gains/losses and the tax calculated and withheld at source, in written form or by electronic means, for transactions carried out during the tax year, by the last day of February of the current year for the previous year;
  4. d) the annual submission of the declaration provided for in Article 132 paragraph (2). (2) Entities through which transfers of investment gold are carried out have the following obligations: a) determination of the gain/loss for each transfer; b) submission to each taxpayer of the information on the total gains/losses, in written form or by electronic means, for the transfers made during the previous tax year, within the deadline provided for in Article 132 paragraph (2); c) annual submission of the statement on the total gains/losses, for each taxpayer, within the deadline provided for in Article 132 paragraph (2), according to the procedure established by order of the President of ANAF. “

Income in the form of gains from the transfer of securities and from transactions with financial derivatives, determined in accordance with Articles 94 and 95, for transfers/transactions carried out through the entities referred to in Article 96^1 paragraph (1), shall be withheld at source as follows:

  1. in case of securities:
    • by applying a rate of 1% to each gain on the transfer of securities which have been acquired and alienated within a period of more than 365 days, inclusive, from the date of acquisition;
    • by applying a rate of 3% to each gain on the transfer of securities which have been acquired and alienated within a period of less than 365 days from the date of acquisition;

 

  1. b) in the case of derivative transactions:
  • by applying a rate of 1% on each gain from derivative transactions held for more than 365 days, inclusive, from the date of acquisition;
  • by applying a 3% tax rate to each derivative transaction gain held for less than 365 days from the date of acquisition. For the determination of the period held, securities and financial instruments are deemed to be acquired/redempted in the same order in which they were acquired, i.e. first in – first out, on each symbol.

The following rules apply for determining the income tax due in the case of transfer of securities/derivative transactions:

  1. a) for the tax year from 1 January 2022 to 31 December 2022 inclusive, the following shall apply:
  • for gains/losses relating to the period, the tax liability shall be that in force at the date of realisation of the gain/loss;
  • the net loss obtained from the transfer of securities and from operations with derivative financial instruments which have not been carried out through the entities referred to in Article 96^1 paragraph (1), for the tax year 2022, i.e. the period from 1 January 2022 to 31 December 2022, inclusive, shall be carried forward and offset, according to the carry forward rules;
  1. b) in the case of the transfer of securities and derivative transactions, carried out through the entities referred to in Article 96^1 paragraph (1), acquired before 1 January 2023, the tax shall be calculated as follows:
  • by applying a rate of 3% on the gain realised as from 1 January 2023, for those held for a period of less than 365 days from the date of acquisition;
  • by applying a rate of 1% to the profit determined in accordance with the law, realised as from 1 January 2023, for those held for a period of more than 365 days, inclusive, from the date of acquisition;
  1. c) losses obtained and not compensated until January 1, 2023 from the transfer of securities and from operations with derivative financial instruments carried out through the entities referred to in Article 96^1 paragraph (1) shall not be carried forward, these representing definitive losses of the taxpayer regardless of the date on which they were registered.

Entities referred to in Article 96^1 paragraph (1) through which non-resident individuals obtain income from the transfer of securities issued by Romanian residents have the following obligations:

  1. a) to apply to the Romanian tax authority for the tax identification number of the non-resident person who does not have this number;
  2. b) to keep the original or a certified copy of the tax residency certificate or another document issued by an authority other than the tax authority, which has powers in the field of residency certification according to the domestic legislation of that state, accompanied by an authorized translation into Romanian;
  3. c) to calculate the gain/loss on each transfer/transaction carried out for the non-resident individual taxpayer;
  4. d) to calculate, withhold, declare and pay the income tax, according to article 97 paragraph (81)-(85), for the non-resident individual who does not provide proof of residence in a state with which Romania has a double taxation agreement;
  5. e) to transmit to each non-resident individual taxpayer the information on the total gains/losses and the tax calculated and withheld at source, in written form or by electronic means, for transactions carried out during the tax year, by the last day of February of the current year for the previous year;
  6. f) to submit annually the declaration provided for in Article 132 paragraph (2), both for the non-resident individual taxpayer who does not provide proof of residence in a State with which Romania has concluded a double taxation convention, and for the non-resident individual taxpayer who provides proof of residence in a State with which Romania has concluded a double taxation convention.

It is very important to note that all the above provisions enter into force on 1 January 2023.

Legal basis:

-Law 142/2022 amending and supplementing Law no. 227/2015 on the Tax Code;

-Tax Code (approved by Law no.227/2015, published in the Official Gazette no.688 of 10.09.2015), as amended and supplemented.