What tax compliance obligations have foreign individuals assigned to work in Romania based on a foreign employment contract?
Please note that under Romanian laws, the secondment of a foreign individual to a Romanian company is recognized only if:
- the assignment is made by the shareholder /associate of the Romanian company;
- the assignment is made on the basis of a services contract with a foreign company.
The expatriates’ compliance obligations are:
- to file monthly individual income tax declarations with the Romanian Tax Authorities (RTA) reporting the income received and the corresponding individual income tax due. The deadline is 25 of the following month;
- to pay the monthly individual income tax due. The flat tax rate is of 16% on any income. The deadline is the 25th of the month following that in which the income was earned;
- a 5,2% health fund contribution is payable once a residency permit is obtained as the foreigner is considered to have his residency in Romania. This is to be calculated on the basis of taxable income generated in Romania.
Also, the Romanian company, beneficiary of the expatriate’s services, must file a notification letter with the tax authorities, informing them of the date when the individual commenced working in Romania. The deadline for submission is 15 days from the beginning of the expatriate’s work in Romania.
What social security obligations have EU resident individuals seconded for work in Romania by an employer based in a EU country?
Since Romania joined EU (i.e. 1 January 2007), the EU legislation on social security applies. Thus, an individual seconded to Romania by an employer based in an EU country (e.g. Spain), is exempted from paying social security contributions in Romania during his secondment here, provided he continues to contribute to his home country's mandatory Social Security System. This exemption is granted based on a coverage certificate (E101 certificate) issued by the home country authorities, proving that the individual continues to pay mandatory social security contributions there. The E101 certificate ensures the exemption from paying social security contributions in Romania.
Note that secondees who do not have an E101 certificate available should be subject to Romanian social security legislation and pay all contributions (employee and employer). However, as there is currently no mechanism available in Romania for collecting all the social contributions mentioned above, the individual would be liable to pay only health fund contribution (5.5% - individual’s portion) until further clarifications are provided by our relevant authorities.
From a benefit perspective, it is advisable for the expatriate to also obtain an European insurance card or E106 (together with the E101 which is only for contribution purposes) that ensures right to benefit from medical services. Depending on the expatriate's remuneration package, certain items could be treated as non-taxable at employee's level, based on his status of secondee (in Romanian "detasat"). Such an approach is not 100% risk free, due to lack of specific legal provisions covering secondment rights for expatriates on foreign contracts. However, there are arguments to sustain such an approach.
