The application of the reduced CIT rate is subject to limitations which are strictly related to the activity performed and compliance with the procedures set out in the new Decision.

According to the Decision, the activities falling under software engineering and production will be defined in accordance with the terminology of IEEE 12207-2017 - ISO/IEC/IEEE International Standard, Systems and software engineering - Software life cycle processes. The reduced CIT rate of 5% will be applied only to legal entities performing the following activities in the information technology (IT) sector:

• Software design
• Software systems development and maintenance 
• Software testing 
• Communication systems design and development 
• Information security systems design and development 
• Migration systems development 
• Upgrade of information systems
• Software systems operation, management, support, training, information technology audit and information systems audit

The 5% CIT will be applied only if these activities are included in the registered scope of activity and the legal entity has duly submitted to the Regional Tax Directorate where it is registered a declaration listing the activities for which the reduced rate is to be applied.

Legal entities engaged in other related IT activities (i.e. which do not fall under the categories set out in the Decision such as trading of electronic devices or other) must apply the standard CIT rate of 15% for such activities. On the other hand, if a legal entity performs simultaneously any of the above listed IT activities and other business activities - such as construction, tourism or other, it will be obliged to separate the business activities in order to benefit from the application of the reduced CIT rate only for the IT activities.

Accounting requirements

Based on the accounting legislation, the legal entities operating in the IT sector are obliged to prepare financial statements in accordance with the provisions of Law No.25/2018 on Accounting and Financial Statements. Beside the requirements set out by the accounting standards, the explanatory notes of the Financial Statements are also to provide the following information:

• The income realized from the IT activities or their components for which the reduced CIT rate is applied and clearly distinguish other IT activities subject to the standard CIT rate.
• The expenses incurred for the activities subject to the CIT reduced rate are to include, but are not limited to:
  
  • Labor costs of the employees working for the activities benefiting from the CIT reduced rate. The list of the labor cost is to be notified to the tax authorities and renewed for any change. The tax authorities must be notified within 2 business days from the date the change has occurred. 
• Portion of the operational expenses attributed to the activities benefiting from the reduced CIT rate towards the gross income for the reported year. 
  
• Cost of services, software purchased or other components which are integrated or cannot be divided from the list of services/activities which give the right to apply the reduced CIT rate. 
  

The Decision of the Council of Ministers No. 870 dated 12 December 2018 is published in the Official Gazette 176 and entered into force on 14 December 2018.