Tax on inbound investment in Romania, Legoloxy – Getting the Deal Through, December 2020

Tax treatment of different acquisitions

What are the differences in tax treatment between an acquisition of stock in a company and the acquisition of business assets and liabilities?

For a corporate buyer with no presence in Romania, the acquisition of stock in a Romanian company does not have fiscal implications. Tax implications will arise only in cases where there are transactions between the buyer and the company acquired.

If business assets and liabilities are to be acquired, the buyer must fscally register in Romania before such an acquisition takes place. The business acquired will generate a permanent establishment in Romania for the buyer, which will become a Romanian taxable entity for the activity acquired.

Step-up in basis

In what circumstances does a purchaser get a step-up in basis in the business assets of the target company? Can goodwill and other intangibles be depreciated for tax purposes in the event of the purchase of those assets, and the purchase of stock in a company owning those assets?

A step-up in basis in the business assets is only permitted by using the tax depreciation of the assets scenario. However, goodwill and similar intangibles are not recognised for tax purposes. Also, in the event of the purchase of stock in a company owning those assets, it is not permitted to alter the value of the assets for tax purposes (ie, no stepup in basis of the assets).

Domicile of acquisition company

Is it preferable for an acquisition to be executed by an acquisition company established in or out of your jurisdiction?

The acquisition of a business’s assets and liabilities by a non-Romanian entity will generate a permanent establishment in Romania for that entity. Therefore, for business assets and liabilities transfers, it does not matter if the acquisition company is a foreign one or not; it will become a Romanian entity by virtue of law.

In consideration of shares purchase transactions, it is preferable that the buyer is established in Romania owing to numerous exemptions provided to corporate income tax computation. According to Romanian fscal legislation, the following types of income are non-taxable:

• dividends received from a Romanian company and from foreign subsidiaries, provided that the subsidiary meets the following criteria:
• income from the valuation, revaluation, sale, transfer of shares and liquidation proceeds of a Romanian or foreign entity located in states with which Romania has concluded double taxation treaties; the minimum holding must be 10 per cent for an uninterrupted period of at least one year;
• and income registered through a permanent establishment in a foreign state when the double taxation treaty provides the method of exemption for avoiding double taxation.