Thinking Beyond Borders for Romania
Thinking Beyond Borders for Romania
A person’s obligation to pay Romanian income tax is determined by residence status for taxation purposes and by the source of income derived by the individual. Income tax is levied at a flat tax rate of 10 percent (as of 1 January 2018), applied to each type of income, with the exception of dividends for which the applicable tax rate is 5 percent.
Liability for income tax
Generally, a tax resident of Romania is defined as an individual who has their domicile in Romania, or has their center of vital interest in Romania, or spends more than 183 days in Romania during any 12-month period ending in the calendar year concerned. A tax non-resident is generally someone who doesn’t meet any of the three tax residence conditions mentioned above.
As a general rule, Romanian tax residents are liable to Romanian tax on their worldwide income, whereas Romanian tax non-residents are liable to Romanian tax only on Romanian-sourced income.
However, the non-Romanian individual who qualifies as a Romanian tax resident according to Romanian tax legislation may remain liable to Romanian income tax only on the Romanian-sourced income, provided they are deemed as a tax resident in a country/jurisdiction with which Romania has concluded a tax treaty, and if they can obtain a valid tax residence certificate issued by that country/jurisdiction within the meaning of the relevant Tax Treaty.
Employment income is generally treated as Romanian-sourced compensation to the extent that the individual performs services while physically located in Romania.
Tax trigger points
Technically, there is no minimum threshold/number of days that exempts the employee from the requirements to file and pay tax in Romania. Under Romanian domestic legislation, non-resident individuals deriving dependent activities in Romania are liable for Romanian personal income tax from the first day of activity in Romania. However, to the extent that the individual qualifies for relief in terms of the dependent personal services article of an applicable double tax treaty, there will be no tax liability. The treaty exemption will not apply if a Romanian entity is the economic employer.
Types of taxable income
For extended business travelers, the types of income that are generally taxed are Romanian-sourced employment income, as well as other Romanian-sourced income and gains from taxable Romanian assets (such as real estate). Fringe benefits and broadly non-cash employment income are deemed to be employment income and are taxed similarly.
Net taxable income (a deduction is generally available for compulsory employee social security contributions) is taxed at a flat rate of 10 percent. In principle, non-residents are also subject to a flat tax rate of 10 percent.
Liability for social security
Exemption from Romanian social security contributions may be available where a totalization agreement has been concluded between Romania and the individual’s home country/jurisdiction, or where EC Regulation 883/04 is applicable. Residents of an EEA member state are entitled to the same deductions for calculating the taxable income as Romanian residents (e.g. social contributions paid in the home member state), only if: the resident of an EEA member state provides supporting documents with respect to the social contributions paid and the individual cannot claim deductions of these contributions in the state of residence.
Employee compliance obligations
Employment income must be declared, and income tax must be paid on a monthly basis by the 25th of the month for the previous month. No extension to the deadline is available.
All individuals who spend more than 183 days in Romania must submit a questionnaire for determining the tax residence of the individual upon arrival in Romania. Also, upon leaving Romania, all individuals who spend at least 183 days abroad within a period of 12 consecutive months are required to file a similar form.
Employer reporting and withholding requirements
Where an individual performing activity in Romania is employed by a non-Romanian employer, that employer has no personal tax withholding or reporting obligations in terms of Romanian income tax due. It is generally the employee’s obligation to declare and pay Romanian personal tax on a monthly basis.
In terms of social security, should social security contributions be due in Romania, it is the employer’s obligation to calculate, withhold and pay the Romanian social contributions in Romania. In this respect, the non-Romanian employer must register in Romania for social security purposes.
Alternatively, the individual may take over the responsibility of declaring and paying Romanian social security contributions, based on an agreement concluded with the employer in this respect.
As of 2016, where the employer is resident of a country/jurisdiction which is not covered by the EC Regulation 883/04 or with which Romania has no bilateral agreement on social security coordination, it is the individual’s responsibility to declare and pay the full social security contributions (including the work insurance contribution which is due by the employer).
The Romanian entity where the individual carries out activity has certain reporting obligations towards the local tax authorities at the commencement and at the end of the business trip.
Work permit/visa requirements
A visa and/or a work permit must be applied for before the individual enters Romania, depending on the nationality of the individual. The type of visa required will depend on the purpose of the individual’s date of entry into Romania. There are various exceptions to the rule. European Union (EU) nationals are not required to obtain visas or work permits in order to live and/or work in Romania.
Starting 1 February 2014, the holders of a valid Schengen visa can enter in Romania and stay up to 90 days within 6-month period however the stay must not exceed the validity of the visa, provided that the Schengen visa is issued for at least 2 entries. This category of foreigners can enter in Romania as long as they have the right to re-enter in Schengen area (i.e. they did not use all entries conferred by visa).
Double taxation treaties
In addition to Romania’s domestic arrangements that provide relief from international double taxation, Romania has entered into double taxation treaties with more than 80 countries/jurisdictions in order to prevent double taxation and allow cooperation between Romania and overseas tax authorities in enforcing their respective tax laws.
Permanent establishment implications
There is the potential risk that a permanent establishment could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has.
As of January 2017, the value-added tax (VAT) applicable is 19 percent (standard VAT rate) on taxable supplies. VAT registration may be required in some circumstances.
Romania has a transfer pricing regime, and thus, related-party transactions must observe the arm’s length principle.
Local data privacy requirements
Romania has data privacy laws.
Romania does not restrict the flow of Romanian or foreign currency into or out of the country/jurisdiction. Certain reporting obligations, however, are imposed to control tax evasion and money laundering. Domestic legislation requires financial institutions and other cash dealers to give notification of cash transactions over 15,000 Euros (EUR), suspicious cash transactions, and certain international telegraphic or other electronic funds transfers (there is no minimum amount). All currency transfers (in Romanian or foreign currencies) made by any person into or out of Romania amounting to EUR15,000 or more in value must be reported.
Non-deductible costs for assignees
Deductible costs for assignees include social security contributions covered by the EC Regulation or the applicable social security agreement, personal deductions (only for gross salaries under 3600 Romanian leu (RON)), contributions to private medical insurance, medical subscriptions or contributions to pension funds above certain caps. Any other costs may not be considered deductible for the assignee.
All information contained in this publication is summarized by KPMG Tax SRL, the Romanian member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Romanian Fiscal Code (Law 227/2015 and subsequent amendments), Order 1099/2016 on the regulation of aspects regarding the fiscal residence of individuals in Romania, the Web site of the general inspectorate of immigration, the Web site of the Romanian fiscal authorities, Law 129/2019 for the prevention and tackling of money laundry, as well as for amending and supplementing some legislative, acts.
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