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Taxes in Romania

Taxes in Romania

Updated on Thursday 04th March 2021

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taxes_on_salaries_in_romania.jpgFor most entrepreneurs, the bookkeeping, the management, employment services and paying taxes in Romania represent an unpleasant obligation and a waste of time. For our experienced team this is the field in which they can excel in supporting partners to develop without care regarding bureaucracy, statements and fines. We offer customized services and advice for the main taxes which must be paid in Romania. Our Romanian accountants are at your disposal for tax compliance for your company and information about the taxes in Romania. They can also help you with audits in Romania, so feel free to address your inquiries to our team.
 

Taxes for companies in Romania

 
There are several taxes and contributions payable by each company incorporated in Romania. Branches or subsidiaries of foreign companies that operate on Romanian territory will also have to comply with the tax laws and the requirements for accounting and auditing. The most important taxes for companies in Romania include:
 
  •  the profit tax: 16% applicable on the Romanian-source profits; a minimum 5% rate can apply for certain business activities;
  •  the withholding tax on dividends is set at 5% rate, while for interests and royalties, this is set at 10% rate;
  •  the micro-enterprise income tax (for registered incomes of EUR 1 million);
  •  the Value Added Tax: with a newly reduced rate of 9% for all foodstuffs and a standard rate of 19% in 2021;
  •  the real estate property tax: between 0.25%-1.5% of the entry value of the building - a tax levied at a local level for owned buildings and land.

 

Is there a stamp duty tax imposed?

 
There is no stamp duty tax and there are no transfer taxes. Employers in Romania must also pay social security: 15.8% of the gross salary for normal working conditions, a health fund contribution of 10%, an unemployment contribution of 0.5% and other contributions. 
 

What are other taxes imposed on companies in Romania?

 
Depending on the business field in which they operate, investors may have to pay additional taxes to run their business (like energy taxes or some for the pharmaceutical industry).
 

How are deductions made for companies in Romania?

 
The expenses linked to business activities of a company in Romania are considered deductible costs. It is good to know that there are cases stipulated by the law where the expenses are non-deductible. Please talk to our specialists about the taxes in Romania.
 

New tax rules in Romania

 
In 2021, there is no tax imposed on the income derived from the allocated dividends of a company. Also, there are no taxes for the reinvested profits in a company in Romania, particularly for the technological equipment. Please feel free to get in touch with our team of accountants in Romania if you want to know more about the taxes in Romania or if you need audits in Romania. We are at your disposal with complete accounting services, regardless of the chosen business form.
 

Requirements for taxpayers in Romania

 
The tax year is generally the same as the calendar year. However, companies are allowed to opt for a different fiscal year if it corresponds to their financial accounting year. The corporate income tax is payable on a quarterly basis and payments must be made until the 25th day of the month following the month when the quarter ends. Advanced payments on a quarterly basis are also possible. Failure to comply with the filing requirements results in penalties: late payment is taxed at 0.03% for each day of delay.
 

Did Romania sign double tax treaties?

 
In order to avoid double taxation, Romania has signed an important number of double tax avoidance treaties with other countries worldwide.
 

What is the VAT tax rate in Romania?

 
in 2021, the VAT in Romania is charged to taxable bodies registered for VAT purposes according to art.153 from the Tax Code. The standard VAT rate is 19%. The 9% reduced VAT rate is provided by the Tax Code for certain services and/or supplies of goods, including all kinds of bread and bakery products and different varieties of wheat. The reduced rate of 5% applies to the tax base for the delivery of housing as part of social policy, including the land on which they are built. VAT exemptions are provided in the Fiscal Code.
 

What is the income tax rate in Romania?

 
The Income tax is payable by Romanian legal entities and permanent establishments in amount of 16%. The same percent of the income tax is also applied to foreign legal entities that run their business in Romania. Interested in information about the taxes in Romania? Please talk to our specialists.
 

What is the dividend tax rate  in Romania?

 
The tax on dividends distributed by Romanian legal persons is set at 5% rate, applied on gross dividend. It is important to know that the distribution of dividends can be made in kind or cash to the owners of the company, on a quarterly basis, once the temporary financial statements are prepared and approved at the general meeting of company stockholders. There are also tax exemptions when it comes to dividends. For example, the distribution of bonuses in the amount to the share of each contributor is not subject to the dividend tax. The same thing is available for the distribution of dividends made in cash or kind in the case of share capital reduction, as established by the company owners and contributors. If you would like to know more about the dividend tax in Romania and the ways it applies, do not hesitate to talk to one of our Romanian accountants. You can decide on the service of our accounting firm in Romania if you would like to externalize such services for your firm.
 

Other taxes in Romania

 
When you need assistance in paying the taxes on salaries in Romania, count on our accountants' abilities in order to obtain the best results, with no delays in payments or any other issue that may incur when the taxes on salaries are not deposited in accordance to the Romanian rules and regulations. Our accountants in Romania will provide the best payroll services and, implicitly, full advice and representation regarding the taxes on salaries.
 

Information about the salary in Romania

 
In order to get more information about the taxes on salaries in Romania, we provide you below a brief description about the payment system, the percents withheld and the obligations imputed to both employer and employee in Romania. The salary income in Romania is defined as all the income in cash and/or in-kind made to a natural person carrying out an activity under an individual contract or a statute specifically provided by law, regardless of the period covered, the name of revenue or the form in which they are granted, including allowances for temporary disability. The salary income is included in the entire amount of income made to a natural person. In this sense, the Law no. 571/2003 on Fiscal Code provides that any Romanian or foreign person that stands in Romania more than 183 days in a calendar year must pay income tax on income derived from activities performed in Romania or of commercial operations concluded with residents. In 2021 the income of individuals is levied with a flat tax of 10% rate. The income tax must be paid by:
 
  •  resident individuals domiciled in Romania for incomes from any source;
  •  resident individuals without domicile in Romania, only for revenues from Romania, which are taxed at the level of each source of income.

 

What are the social contributions in Romania?

 

In Romania, every employee and employer must contribute to the social fund, health fund, unemployment fund and to the state budget through payroll taxes. The monthly payroll tax is a final tax payable by employees, but the law obliges the employer to perform computing operations, retention and payment for the taxes on salaries. In Romania, the income tax is set at a 10% rate, as provided by the Tax Code. The social contribution rates and the amount of other taxes are set each year by the Romanian State Social Insurance Budget Law and the Romanian State Budget Law. In Romania, the mandatory social contribution rates for 2021 are:
 
For social insurance contribution:
 
  •  31.3% for normal working conditions, of which 10.5 % for individual contribution and 20.8% for the contribution payable by the employer;
  •  36.3 % for difficult working conditions, of which 10.5 % for individual contribution and 25.8 % for the contribution payable by the employer;
  •  41.3 % for special working conditions, of which 10.5 % for individual contribution and 30.8% for the contribution payable by the employer.
For health insurance:
 
  •  5.5% for individual contribution;
  •  5.2% for the contribution payable by the employer;
  •  0.85 % for the contribution on holidays and health insurance benefits.
 
Starting with January 2018, the health contribution is set at a flat rate of 10% paid entirely by the employee. Until 2017, the contribution to the unemployment insurance budget both parties were taxed as follows:

 

  •  0.5 % for individual contribution;
  •  0.5 % for the contribution payable by the employer;
  •  from 0.15 %  to 0.85 % for the contribution of insurance for work accidents and occupational diseases, differentiated by risk class, under the law, due to the employer;
  •  0.25 % for the contribution to the Guarantee Fund for salary payment, paid by the employer.
 
Starting with 2018, instead of contributions for unemployment, sick leave, professional risk, and receivables wage currently paid by employers, insurers' contribution will only pay for work at the rate of 2.25%, which falls on the employer. In Romania, the following amounts are not included in salary incomes and are not taxable for income tax purposes: funeral aid, aid for losses in own households as a result of natural disasters, serious and incurable diseases aid, aid for birth, income representing gifts for the employee’s minor children, gifts offered to employees, value transportation to and from the place of employment, cost of benefits for treatment and rest granted by the employer, as provided in the employment contract. The gifts offered by the employers for the benefit of their employee’s minor children are not taxable for sums that do not exceed 300 lei. Information about taxes in Romania can be offered by our experts.

 

Deduction for personal allowances

In Romania, individuals have the right to deduct from their net monthly salary an amount in the form of personal allowances, paid for each month of the reporting period. The personal allowance may be deducted only for the salary income made at the place of the basic function:

  1. for taxpayers who have no dependents - 510 lei;
  2. for taxpayers who have one dependent- 670 lei;
  3. for taxpayers with two dependents - 830 lei;
  4. for taxpayers with three dependents - 990 lei;
  5. for taxpayers who have four or more dependents - 1.310 lei.
 
For taxpayers who derive monthly income gross from salary between 1.951 lei and 3.600 lei, the personal deductions are descending, as determined by the Romanian Minister of Public Finance. For taxpayers who derive monthly income gross from a salary which exceeds the sum of 3.600 lei, the personal deduction is not granted. Even though the employee is charged with taxes, the entire amount is withheld and paid by the employer.
 
The only exception is for Romanian citizens or foreigners living in Romania whose salary is paid by a diplomatic mission or from abroad. The employees in this situation must submit until the 25th of each month, the Declaration on incomes from salaries derived by foreign individuals operating in Romania and by Romanian natural persons employed by diplomatic missions and consular posts accredited in Romania - the Form no. 224.
 
One should note that with an increase of 50 lei of the gross salary, the personal deduction decreases by 15 lei for each category. Therefore, an employee paid with the minimum wage in Romania, established at the moment at 2.230 lei, he/she will benefit from one of the following deductions:

 

  1. to employees without dependents - 420 lei
  2. to employees with a dependent - 580 lei
  3. to employees with 2 dependents - 740 lei
  4. to employees with 3 dependents -900 lei
  5. to employees with at least 4 dependents - 1,220 lei

 

Unemployment facts in Romania

 
According to the applicable legislation in Romania, one should know that the part-time employees with less than four hours per day cannot benefit from unemployment assistance, although the companies are contributing to the unemployment fund. In particular, one must know that the grant of the allowance is unviable because of the length of the contribution period executed by the authorities, which can never be attained by individuals working on a single employment contract of less than 4 hours per day. At the moment, the Romanian government and particularly the Ministry of Labor is trying to figure out an appropriate legislative solution.
 
We remind that the unemployment benefit is ruled by Law no. 76/2002 on the unemployment insurance structure and the encouragement of employment. Giving this significant normative act, in the situation of part-time employees in Romania, the length of the contribution to the unemployment fund is defined by the actual working time which may in some cases lead to the impossibility of gaining the unemployment benefit. 
 

A brief look at the taxes on salary for 2021

 
The table below explains the taxes paid by employees and employers for the gross income of 2.300 lei established for 2021, plus the sum collected by the authorities:
 
Gross Income 2.300 lei
Net salary 1.386 lei
The employee pays:
 
25% CAS (pensions): 575 lei
10% CASS (health contribution): 230 lei
Personal deduction: 405 lei
10% income tax: 109 lei
914 lei
The employer pays:
 
Work insurance contribution: 52 lei
52 lei
Total employer expenses  2.352 lei
The authorities collect  966 lei
 

Taxation of branches in Romania

 
Branches in Romania can set up only the activities of the parent company, meaning that these must operate in the same field. The corporate tax imposed on the profits of a branch is set at 16%. More about the taxation of branches in Romania can be discussed with our Romanian accountants.
 

Taxation of representative offices in Romania

 
Any foreign company or legal person can set up a representative office in Romania, respecting the rules of the Romanian Company Act, and the Tax Code. In this sense, an annual tax of 18,000 lei needs to be paid, no later than the last day of February. In the case the representative office closes, the amount of tax that needs to be paid will be calculated for the operational months of that representative office. The tax legislation in Romania needs to be fully understood before starting a business, so one of our accountants in Romania can offer assistance in this matter. Talk with us about the taxes in Romania.
 

Fiscal Code amendments for 2021

 
The Fiscal Code for Romania in 2021 comes with new amendments among which, the following are quite important and must be considered by entrepreneurs with activities in this country:
 
  • The VAT deduction is accorded to the beneficiary if the contractor issues the correction invoices on his/her own or after a tax inspection report, even if the limitation period expired. Consequently, the right of VAT deduction can be applied within a maximum of one year from the date of the correction invoice made by the authorities.
  • The VAT-related legislation has been recently adjusted and aligned with the European laws. Therefore, there is no possibility to modify the tax base in the case of uncollected receivables from individual debtors. The new amendment specifies that if the total or partial value of the products or services provided was not collected from the recipients within one year from the deadline payment set by the parties involved, from the issue invoice date, the taxable VAT base can be regulated. 
  • The cash accounting VAT scheme has been modified in terms of a turnover threshold, from RON 2,250,000 to RON 4,500,000.
  • An authorized tax representative in charge of VAT can be designated to persons importing products transported from a third territory. 
More about the VAT changes and Fiscal Code adjustments can be offered by our team of accountants in Romania.
 

Making investments in Romania

 
Investing in Romania represents a strategic choice because there are many promising business opportunities for local and international entrepreneurs looking to thrive in the Eastern part of Europe. Romania is connected to prosperous markets worldwide and collaborates with international players in terms of foreign direct investments. Nowadays, business and trade in Romania are sustained by the developed technology, fewer bureaucracies, and the possibility of starting a company right away, without complications. The labor force plays a major role in Romania, as many international companies decide on local staff with experience in a wide range of fields. Romania is a successful and thriving business destination due to a wide range of investment opportunities already detected by many foreign entrepreneurs. Plus, the tax regime is one of the most favorable around the European countries, with a corporate tax set at only 16%. The ease of company registration in Romania is a big advantage in front of international entrepreneurs looking to prosper in a European country with lots of possibilities. The following facts and figures highlight the business and economy direction in Romania:
 
  1. In matters of total FDI stock, Romania registered nearly USD 97 billion in 2019.
  2. The 2020 Doing Business report ranked Romania 55th out of 190 economies in the world.
  3. Cyprus, Germany, the Netherlands, Italy, and Austria are among the main investors in Romania.
  4. Most of the FDIs are absorbed by sectors like manufacturing, real estate, construction, financial services, and insurance.
 
We invite you to talk to our team of accountants in Romania and find out information about the taxes for salaries in Romania. Please contact us at any time.