Romania: innovation incentives overview

R&D is the only available form of innovation incentive available in Romania.

Are there specific industries that qualify or are there reliefs that require a particular industry focus?

Romanian legislation in terms of R&D tax incentives can be applied irrespective of the industry in which a company operates. There is no focus on a specific sector or economic area, but on the substantive nature of R&D.

 Do you have to apply for incentives prior to conducting the research or claiming the benefit?

The tax incentives are applicable on a self-assessment basis, with no prior approval required.

 Are there specific documentation or reporting requirements for claiming incentives?

In some instances, a certification report issued by an independent expert is required to ascertain the R&D nature of the activity for which the tax incentives are applied.

 Additionally, it is necessary to prepare documentation for each project being applied for. This should include:

• a defined objective
• timeframe
• field of research and development
• sources of funding
• expected results
• innovative character of the project
• budget and resources allocated

According to the Romanian Fiscal Code, at company level a 50% uplift of tax-deductible eligible expenses for R&D activities is granted for corporate income tax purposes.

For corporate entities:

Amount of taxable income (1) = USD 1,000,000

Amount of general deductible expenses (2) = USD 500,000*

Uplift of general deductible expenses (3) = 50% x (2) = USD 250,000

Profit tax payable without claiming R&D tax incentive [(1) – (2)] x 16% = USD 80,000

Profit tax payable claiming R&D tax incentive [(1) – (2) – (3)] x 16% = USD 40,000

* Assumption that all expenses are incurred with respect to the R&D activity carried out by the entity

The uplift for the tax-deductible expenses should be applied in the same fiscal year through the corporate income tax return in which the costs are recorded.

Retroactive application is possible through rectifying tax returns and the offset or refund of overpaid corporate income tax.

The R&D tax incentive is only available to corporate entities. It is also possible to apply for a corresponding tax benefit in respect of the salaries of employees involved in the R&D activities, which allows for full exemption from personal income tax. 

There are no company size and/or investment requirements.

What are the criteria that define activities that qualify as R&D, and who determines the criteria?

In general, activities which fall under the definition mandated by specific government regulations in the categories of applied research and technological development activities.

Do the R&D activities have to be performed within the country to qualify? If not, is there a distinction made between the country where the claimant company is resident, EU countries, and non-EU countries?

Qualifying R&D activities can be undertaken both in Romania and in countries from the European Economic Area.

Does the intellectual property need to reside in the country granting the incentives or in the company claiming the incentives?

There is no specific requirement in this respect. In practice, the IP can be registered inside or outside Romania, as long as the Romania company has the right to exploit the R&D activities to generate future income.

Does the tax authority have to review the resultant developments to allow a deduction or credit?

No prior approval is required, but the tax incentives may be subject to a subsequent tax audit by the tax authorities. 

Examples include:

• Depreciation
• Maintenance
• Wages
• Consumables
• expenditure with subcontractors / externally provided workers
• operating expenditure (e.g., raw materials, parts, modules, components, processes, or services used for the R&D activities, etc.)
• overheads (e.g., water, sewage, sanitation, electricity and heating
• gas
• postal and courier services
• telecommunications / fax / internet
• transport
• warehousing

Are the incentives temporary or permanent?

Permanent.

How is the benefit obtained?

Via reduction in corporation tax.

Are the incentives incremental in nature or volume-based?

Incremental.

Are there general rules for estimating the value of the incentives?

No.

Determine what activities performed are eligible for R&D consideration.

1. Complete the documentation for each qualifying project.
2. Prepare a detailed budget with determination of qualifying expenditure.

Completing and submitting the documentation with the annual tax return

Is there a cap on the maximum level of benefit that can be received per year, per company, or for all the qualifying taxpayers together?

No.

Are tax credits refundable?

No.

Can surplus incentives be carried back or forward and used in years other than the origination years?

Surplus incentives can be carried forward – i.e., if the taxpayer records a loss in the current fiscal year, the loss can be recovered in the next seven years.

Are there any other types of limitations?

No.

Are the R&D costs deductible when deriving taxable income?

Yes, the costs are deductible when deriving taxable income. Capitalization of costs is performed based on the accounting regulations applicable, with impact also on capitalization for tax purposes.

Large taxpayers are obliged to obtain a certification report from an independent expert to confirm that the R&D activity is eligible for the tax incentive regime.