The auto industry, one of the cornerstones of the Romanian economy and one of the biggest employers in the country, is facing new challenges. The perceived wave of pessimism coming from Germany, the biggest European economy based on auto production, and the need for new investments in order to adapt to the latest requirements demanded by the latest technologies.
In these conditions, a question arises: should Romania be doing more for its auto industry? Deloitte Romania’s Elena Geageac, Direct Tax Senior Manager, and Corina Simion, Direct Tax Manager, take a look at the fiscal facilities of the auto industry in Romania and the resolutions brought forward this year by authorities to make these facilities more accessible for even more beneficiaries.
Signals aren’t great for the current auto industry. A slow but certain regression is transforming the industry from its core, due to big changes in the production process and customer preferences. The big players in the auto industry are already moving their focus on the new trends of the market, betting on a future dominated by electric cars. Huge investments in research and development are required for a fossil fuel based industry to adopt the new electric direction. Governments around the world are preoccupied with this issue, offering facilities such as grants and tax cuts. In Romania, there’s been talk about the necessity to develop products and services with a high added value. So far progress has been slow despite the widely held belief that this would be the only way to improve both the trade balance and the living standards in Romania, through sustainable high wages.
In terms of fiscal facilities, Romania currently offers three available schemes for companies conducting research and development and their employees. For companies, an additional 50% write-off for the total investment value and a corporate tax exemption for reinvested profits, while for employees an income tax exemption. Sadly though, there’s a lack of clarity on how these facilities are to be applied. Only this year a resolution was released, stating that the mentioned facilities are in fact general measures, not falling under the State aid category, excepting write-offs for the corporate taxes of research-development companies, in which case a State aid framework is required. Also in 2019, a Body of Experts was established to analyze and certify the eligibility of R&D activities. Without this Body of Experts, many companies that would have been eligible for the available facilities were afraid of possible undesirable interpretations by the fiscal authorities.
Taking into consideration the rapid development of similar legislation in other EU countries, if Romania wants to keep its auto industry relevant and competitive, it needs to continue to pass and apply new facilities designed to attract and maintain investments in high added value activities.