Income tax

Romanians domiciled in Romania are subject to taxation on their worldwide income (except for salaries received from abroad for activities performed abroad).

Romanians not domiciled in Romania and foreign individuals, regardless of their domicile, are subject to Romanian taxation only for income sourced in Romania (as of 2007, foreign individuals are taxed on their worldwide income if specifi criteria are met).

The tax rate is a fl at rate of 16% for most types of income earned by a individual.

The fiscal year is the calendat year.


 

Romanian tax residents

Individuals are generally considered to be Romanian tax residents if they:
- are domiciled in Romania, or
- have their centre of vital interests in Romania, or
- are physically present in Romania for more than 183 days in any 12 consecutive months interval ending in the calendar year concerned*

*Non-domiciled individuals resident (under the second and third criteria above) for three consecutive years are taxable on worldwide income as of their fourth fiscal year of stay (while respecting the provisions of the Double Tax Treaties, where applicable).

Non-residents

Non-residents are only subject to Romanian taxation on their income sourced in Romania. This includes the following types of income:
- Income derived from conducting independent activities through a permanent establishment in Romania.
- Income derived from conducting dependent activities in Romania.
- Some other specified types of income derived in Romania.


 

The following categories of individual income are subject to taxation under the Romanian Fiscal Code:

- Salary income
- Income from independent activities
- Income from granting the use of goods (rent)
- Pension income over RON 1,000 per month
- Income from agricultural activities
- Income from prizes and gambling
- Income from investments
- Income from real estate transactions
- Other income.


 

Salary is defined as income in cash and / or in kind received by individuals based on employment agreements and is taxed at a flat rate of 16%.

Income relating to salaries includes remuneration paid according to non-competition clauses and taxable benefits expressly stipulated by the relevant Romanian legislation. Taxable benefi ts include: meal tickets, gift tickets, nursery tickets, holiday tickets, amounts representing compensatory payments, private use of company cars and telephones. Moreover, administrators’ incentives, fees received by members of the General Meeting of Shareholders, the Management Council, the Board of Directors and the Supervision Council are treated as salaries.

The following individuals are considered taxpayers:

- Employees (and Directors remunerated based on mandate agreements) of Romanian companies, branches and representative offices of foreign companies; employers are liable to calculate, withhold and transfer salary taxes on a monthly basis.

- Foreign individuals performing activities in Romania based only on foreign employment agreements are liable to submit a monthly income statement and pay monthly income tax based on salary sourced in Romania.


 

Income from independent activities is taxed at a flat rate of 16% (mandatory social charges are deductible) and includes, among others:

a. income from freelance activities (authorisation needed); including incomes from liberal professions;

b. income from intellectual property rights.

a. Freelance Activities

Income from freelance activities is assessed on the basis of entries in the single entry bookkeeping ledgers that providers of independent activities are obliged to keep. Net income is calculated as gross income minus deductible expenses.For freelancers, the following are non-deductible: fines, late-payment penalties (other than contractual penalties), donations; private scholarships, sponsorship and protocol expenses in excess of the upper limits set by law; per diem and other expenses exceeding limits provided by current law.

Alternatively, specific categories of freelancers are taxed on the basis of a fixed income annual quota, as communicated yearly by the local tax authorities.

Freelancers earning income from independent activities have to make quarterly advance tax payments for the tax due during the fiscal year.

b. Intellectual Property Rights

Payers of royalties must calculate, withhold and pay 10% advance tax. Receivers include the income in the annual tax return on the basis of which the tax authority sets the amount of the final tax (the final tax rate is 16%). There is also the posibility to opt ( starting with the moment the contract is being signed) for a final 16% withholding tax.

The taxable basis for the income earned from intellectual property rights can be calculated as gross income minus a lump sum equal to 20% of the gross income less any mandatory social charges paid. In case of income from the creation of monumental art, 25% of the gross income is admitted for deductibility purposes.


 

Gross annual income represents the income earned by the owner during the year as stipulated in the rental agreement registered with the Romanian tax authorities.

Net taxable income is determined by deducting a 25% expense allowance from the gross income and is taxed at a flat rate of 16%.

Individuals earning such income have to make quarterly advance tax payments during the fiscal year.

Income earned by tax payers from five or more rental contracts is considered freelance income and taxed accordingly, as described above.


 

Pensions are taxable at a fl at tax rate of 16% for the amount in excess of RON 1,000 per month. The mandatory social contributions (i.e. health fund contribution of 5.5% applicable to pensions higher than RON 740) are deductible for Romanian tax purposes.


 

The following activities are considered agricultural activities:
- farming, in greenhouses and / or in irrigated systems, and selling flowers and vegetables;
- farming and selling shrubs, decorative plants and mushrooms;
- vineyard farming;
- the sale of unprocessed agricultural products to specialist units;

Income from agricultural activities is determined either on a fixed income quota basis, or by single entry accounting, by applying a flat rate of 16% to the taxable income. 

The tax due for income earned by taxpayers from agricultural activities from selling their products to certain designated collection units is calculated and withheld at source and amounts to 2% (flat rate) from the value of the products sold. The tax withheld is final.


 

Tax on income from prizes is withheld at source and determined by levying 16% on the amount exceeding RON 600 paid for each game or contest, per day.


 

a)            Dividends

Dividends are taxed at a 16% flat tax rate.

b)            Interest

Interest income from current accounts and deposits, regardless of the deposit type, received starting with 1 July 2010 is subject to the 16% flat tax rate.

c)            Capital gains

Capital gains in Romania are generally taxed at 16%.

-         Quarterly filing and advance tax payment obligation (i.e. by 25th of the month following the end of each quarter: 25 January, 25 April, 25 July, 25 October). Also an annual tax return is required to be filed (by 15 May of the following year).

-         The obligation of calculating and paying the income tax representing advance quarterly payments for the annual income tax on capital gains from the transfer of securities held in listed companies lies with the tax payers;

-         The obligation of calculating, withholding and wiring the income tax in case of gains from the transfer of shares in case of non-listed companies, lies with the buyer, at the moment of acquisition.

-         Any net annual loss resulting from the transfer of securities, other than shares and transferable securities in non-listed companies can be carried forward for up to seven consecutive tax years.

Foreign individuals are generally subject to the same tax treatment as Romanian individuals. However, based on the fiscal residence of the individual, treaty relief may be available. Depending on the details of the transaction, the taxpayer has the obligation to compute, withhold and pay the capital gain tax from sale of shares. To fulfil this requirement, non-residents may appoint a Romanian fiscal representative or a tax agent.


 

Income from the transfer of real estate is taxed as follows:

For real estate owned for less than three years:

- for values up to (and including) RON 200,000, the income tax is 3%;
- for values exceeding RON 200,000, the income tax is RON 6,000 + 2% of the amount exceeding RON 200,000.

For real estate owned for more than three years:

- for values up to RON 200,000, the income tax is 2%;
- for values exceeding RON 200,000, the income tax is RON 4,000 + 1% of the amount exceeding RON 200,000.

No income tax is due for ownership of estates acquired under special laws, for donation deeds between relatives up to the third degree, between spouses and in cases of inheritance, provided the procedure is finalised within two years (an income tax of 1% is levied if the procedure is not completed within those two years).

Income tax due for transfer of ownership is withheld by the public notary and calculated at the value declared by the parties in the transfer documents. If the value declared by the parties is lower than the estimated value established by the expert appraisal conducted by the Chamber of Notaries Public, the income tax is calculated at the reference value. The tax is to be remitted by the twenty-fifth of the month following that when the income was withheld.


 

Tax on income from gambling is determined by levying a 25% tax rate on the net income.

The tax calculated and withheld upon disbursement is final. The net income is the amount exceeding RON 600 paid by the same organiser or payer of prizes during a single day.

Access in the the authorised locations is only allowed upon payment of an admission ticket valid for 24 hours from 8 AM to 8 AM. The access fee is:

-         RON 20 for casino-type gambling;

-         RON 5 for slot-machine type games


 

The following types of taxable income are included in this category (NB. The list is not exhaustive):

-         insurance premiums incurred by a company for the benefit of individuals with whom they have no employment relationship;

-         gains on depreciation drawings, received from insurance companies as a result of
insurance contracts concluded between the parties;

-         income granted to retired former employees, in the form of discounts for goods,
services and other entitlements, according to clauses in employment agreements or under special laws;

-         income derived by individual taxpayers in the form of fees from commercial arbitration.


 

The main categories of tax-exempt income are:

-         Allowance for maternity leave, maternity risk and for child care leave paid from the health fund;

-         Incentives granted as aid to families for child care leave;

-         Salaries obtained by seriously disabled individuals;

-         Salary income obtained from certain employment activities rendered abroad, irrespective of the tax treatment of the income in that foreign country;

-         Stock option plan advantages, at the moment of being granted and exercised;

-         Amounts received for transport and accommodation expenses incurred during delegation / secondment;

-         Salary income related to the design and creation of software (some criteria need to be met, both by the employer and the employee);

-         Sponsorship and donations;

-         Inheritance;

-         Income from the sale of movable assets (with the exception of shares described as “capital gains”), if not received on a regular basis.


 

For the primary job, the following amounts are to be deducted from the gross income when calculating the taxable income from salary:

-          manadatory state social security contributions;

-          personal and family related deductions calculated in accordance with the relevant laws;

-          contributions to facultative pension funds, up to the RON equivalent of EUR 400 annually;

-          trade union membership fees.

For each secondary job, taxable income is assessed as the difference between the gross income and the social security obligations, the personal deduction and family members deduction are not applicable.

Taxpayers may give up to 2% of the annual income tax due to charitable purposes (sponsorship).


 

Income earned by non-resident individuals from activities performed in Romania or from income sources in Romania is generally subject to 16% tax unless the tax is reduced or eliminated under an applicable double tax treaty.

The following types of Romanian source income are generally subject to 16% withholding tax at source in Romania:

-          dividends, interest, royalties and income from commissions received from a resident;

-          interest, royalties or commissions paid by non-residents, if they have permanent establishments in Romania and the interest/royalty/commission is an expense of those permanent establishments;

-          income derived from sports and entertainment activities performed in Romania;

-          income from management and consultancy activities;

-          income and fees representing remuneration received by administrators, founders or members of the Board of Directors, in a Romanian company;

-          income from services rendered in Romania, excluding international transport and related services;

-          income from independent professions performed in Romania;

-          pension income;

-          prize income from contests organised in Romania;

-          gambling income obtained in Romania;

-          income obtained from liquidation of Romanian companies;

-          non-residents’ income attributed to a permanent establishment in Romania;

-          a foreign legal persons’ income derived from real estate situated in Romania or from the sale of shares;

-          income from dependent activities;

-          income from the transfer of shares on the Romanian capital market;

-          income from a a partnership setup in Romania.

Income derived by non-residents from gambling activities in Romania is taxed at a 25% rate.

Income from real estate transactions is taxed at the same specific rates as in the case of residents.

Where foreigners can claim treaty protection, the more favourable rates under the relevant tax treaty can be applied by Romanian disbursers of income, if the beneficiaries have produced the required tax residency certificate.