On defining the activities that are included in the area of software production and development

The General Directorate of Taxes would like to inform all taxpayers that exercise the activity of software production/development that the Council of Ministers approved decision no. 730, dated 12/12/2018, “On defining the activities that are included in the area of software production and development, as well as the procedures on the application of Income Tax to legal persons that operate in this area”. This decision has been published in the Official Journal no. 176, dated 13 December 2018.

The activities exercised by legal persons in the area of software production/development, which the tax rate of 5% income tax is applied to, are as follows:

• Software design
• Development and maintenance of software systems
• Software testing
• Design and development of communication systems
• Design and development of security systems
• Development of migration systems
• Upgrade/enhancement of electronic systems
• Operation, management, support in using software systems and technical/electronic auditing for these systems.

The legal persons must define these activities in the Articles of Association of the Company as object of activity in order to apply the 5% rate of Income Tax. Apart from these, the other activities that the company may exercise must be in the area of information technology. In case of other activities that fall out of this area, if any, they must use a different NUIS, in order to apply the 5% rate of Income Tax. Also, the legal person must submit at the Regional Directorate of Taxes a declaration stating the activity/activities of his object of activity on which such a tax rate is applied.

Please keep in mind that for economic activities in the area of information technology, exercised by the legal person, the standard tax rate of 15% of Income Tax will be applied.

For the purposes of applying the reduced rate, the entities must clearly reflect in the explanatory notes of the financial statement the income generated by the activity/activities with regards to which the tax rate of 5% is applied, as well as the expenses incurred.