Simplified Procedure and Extended Term for Sponsorships. What Companies Interested Should Know?

The procedure through which companies can allocate 20% of their corporate tax to non-profit organizations (NGOs) has been simplified, making it easier to apply starting from the financial results obtained in 2022. Previously, interested companies were required to transfer the funds to the accounts of the associations and NGOs they wanted to sponsor by the end of the calendar year. However, as a result of an order published last year, companies can now opt for sponsoring selected entities even after submitting their financial statements, through the National Agency for Fiscal Administration (ANAF), by submitting Declaration 117. Furthermore, ANAF is obliged to transfer the funds within 45 days of submitting the declaration.

by Daniel Grigore, Senior Manager, Taxe Directe, Deloitte România

Profit taxpayers or income taxpayers (micro-enterprises) can provide sponsorships to non-profit organizations based on the current legislation, namely the Fiscal Code and the Sponsorship Law (32/1994). While the respective expense is not deductible when calculating the profit tax, it represents a tax credit (deducted from the tax owed to the state). The tax credit is limited to 0.75% of the turnover or 20% of the profit tax calculated for the reference period (whichever is lower) for taxpayers subject to profit tax, or 20% of the income tax owed for the reference period (the quarter in which the sponsorship expense was incurred).

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What Does the New Procedure Involve?

Companies interested in sponsoring non-profit organizations also have the option to redirect a portion of their profit tax, up to the mentioned limit, provided there is a sponsorship contract and the specific Form 177 is completed and submitted. The request can be sent to the tax authority within the next six months from the legal deadline for submitting the declarations regarding the profit tax/income related to the fourth quarter (for the year 2022, the deadline is December 26, 2023).

Here’s an example calculation for a company that, in 2022, recorded a turnover of 30 million lei, owes a profit tax of 500,000 lei, and granted sponsorships amounting to 70,000 lei during the year. Additionally, they have a right to a credit from previous periods in the amount of 5,000 lei (as sponsorships exceeded the limit one year ago). Considering that 0.75% of the turnover represents 225,000 lei, and 20% of the profit tax is 100,000 lei, it follows that the company is entitled to provide sponsorships within the limit of 100,000 lei (for 2022). However, since they have already applied a tax credit of 75,000 lei during the year, they can still enter into contracts with eligible beneficiaries for redirection up to 25,000 lei. The contracts should be concluded before submitting Form 177.

In the event that, following a rectification, the company owes a lower tax amount, the difference from the amount redirected by the authorities based on the approved Form 177 must be paid by the taxpayer to the state budget. However, the advantage of redirection is that the sponsorship is made from the profit tax owed, rather than being an operational expense of the taxpayer.

In conclusion, companies that were unable to fully allocate the amounts related to this facility in 2022 still have six more months starting from June 26, 2023, to decide which NGOs to direct the funds to and to complete the necessary steps for this purpose.