Significant changes to Emergency Ordinance 114/2018

Significant changes to Emergency Ordinance 114/2018

The end of 2018 came with a series of major legislative changes for some of the most important areas of activity, including banking, energy, telecommunications, construction, and privately managed pension funds.

This is already well-known Emergency Ordinance 114/2018, which introduced, among other things, the new tax initially announced as "the tax on greed".

As a result of countless business warnings regarding the major negative impact of the measures provided by the Government, the Government has reconsidered the provisions included and has debated a draft amendment to this Emergency Ordinance, which responds to some of the concerns expressed by the environment business. The new Emergency Ordinance was approved in the Government meeting on Friday, March 29, 2019, and published in the Official Gazette and brings, among other things, the following modifications to Emergency Ordinance 114/2018.

The most radical changes refer to the tax on the financial assets of credit institutions, which was almost completely redesigned, and the following changes were made:

  •  The fee is due on a half-yearly basis (and not on a quarterly basis, as stipulated by the current GEO), the first payment being August 25, 2019;
  • The tax rate, which could be up to 2% / year under the current GEO, will not be, according to the new provisions, higher than 0.4% / year and 0.2% per year, depending on the market share of the institution of the respective credit;
  • The tax rate may be significantly reduced in several cases, such as increasing lending volume, lowering the interest margin, and raising the interest margin on the benchmark (4% for 2019) to even 0 in certain situations;
  • The tax on financial assets is not due to credit institutions registering losses and, for the others, its amount is limited to the level of accounting profit obtained;
  •  For certain categories of financial assets, no tax is payable, such as cash, loans granted to and securities issued by public administrations, as well as those that consist of the financing of other credit institutions.

Thus, in the new version, the tax is significantly reduced, with less dramatic impact on the banking system and, as a consequence, on the cost of market financing as originally anticipated.

With regard to the energy sector, the following will apply following the adoption of the new GEO:

  • the return on capital employed for the regulatory period 2019 -2024 rises from 5.66% to 6.9%, with expected implications for the increase in the distribution tariff and implicitly on the final price for the consumer;
  • for household customers, the price for the final customer will no longer be defined by the market (demand / offer) but by ANRE, the supply of electricity being made under regulated conditions for the period 1 March 2019 - 28 February 2022;
  • The 2% annual contribution from license holders in the electricity and natural gas field does not apply to commercial exploitation license holders of coal-fired power generation capacities as well as electricity generation and thermal power plants in cogeneration, for which it is established annually by the ANRE President Order;
  • The producers, including their subsidiaries and / or affiliates belonging to the same economic interest group carrying out both extraction activities and sales activities of natural gas extracted from the territory of Romania, have the obligation to sell with the price of 68 lei / MWh the quantities of natural gas resulting from the domestic production activity to suppliers and eligible final customers during May 1, 2019 - February 28, 2022 (compared to April 1, 2019 to February 28, 2022 provided in GEO 114 and to the pre-entry free market situation in force of GEO 114).

In the case of privately managed pension funds, the applicability of the minimum social capital provision, which will have to be constituted by 31 December 2019, was suspended until 31 May 2019. During the period of suspension of the provision, the minimum required share capital is EUR 4 million.

As far as the telecommunications sector is concerned, the 0.1% / day delay of the turnover of the previous year will be charged only for the use of unlicensed radio frequencies, and not for their use after the expiry of the validity period (as was foreseen in the original GEO).

Also, the application of the fine of up to 10% of the turnover applicable to providers of electronic communications networks concluding contracts for installation, maintenance, replacement of electronic communications networks or for access to properties, without the right of access or in the lack of a building permit was suspended until 1 September 2019.

On the other hand, however, there were no changes to the construction related provisions introduced by GEO 114/2018, although the business environment has underlined that the application of the income tax and social contributions facilities only to companies achieving at least 80% of the figure The business of these activities is limited.

The changes made come in response to the warnings and consultation requests from the business environment and the modified provisions thus lead to a lesser negative impact on the affected areas.