Taxation in Romania for companies and individuals

Over the last years, the Romanian business environment has been facing the challenge caused by the frequent changes in the tax regulations and an increasingly complex taxation system. MAZARS Romania presents the key information about the local tax frame applicable for companies and individuals.

It became more and more difficult to keep direction against a quite unpredictable and sometimes not very clear legal frame. This is particularly challenging for the foreign investors who are interested to start investment projects here, but are not familiarized with the specific context.


VAT - standard and reduced rates
In Romania, the regular TVA rate that applies to almost all transactions in goods and services is 24%. There are also two reduced VAT rates:
?9% for books and newspapers, medical products and medicines, tourist accommodation services and access to monuments and other tourist attractions;
?5% for social housing and land allocated for this purpose and in particular, those for single people or families with no more than 120 sqm and a market value that does not exceed RON 380,000 (approximately EUR 85,000).


Legal persons with an annual turnover above RON 220,000 are obliged to register for VAT. Companies that are not based in Romania may have to register for VAT purposes according to the rules of ‘distance selling’. The threshold applied in Romania is of RON 118,000.


The VAT cash accounting system became optional from 2014. Taxpayers whose yearly turnover did not exceed RON 2,250,000 may continue to apply this system.


Microenterprise Income Tax

Legal persons that cumulatively meet the following conditions at the end of the previous year (December 31) are required to apply the income tax for microenterprises:
?Annual income of less than EUR 65,000;
?Revenues earned from other activities than banking, insurance and reinsurance, financial and capital markets, gambling;
?Revenues from consultancy and management do not exceed 20% of total revenues;
?Capital owned by entities other than the state and local authorities.


In this case, tax rate is 3% applied on turnover.


Revenues from the differences in the exchange rate are not included in the computed tax base for microenterprises. At the end of the fourth quarter, the positive / favorable difference from the exchange rate will be considered subject to tax and take into account for the tax base.


The newly formed legal entities are subject to income tax for microenterprises if the share capital is less than EUR 25,000 (RON equivalent).


Corporate Tax
In Romania, the standard corporate tax is 16%. For nightclubs and gambling activities, the corporate tax rate for gambling and night club activities cannot be lower than 5% of revenue obtained from these activities. All the companies operating under the Romanian law are generally subject to the same tax regime including the payment of income tax, regardless of their activity or legal form.


The following entities are subject to corporate income tax:
?Romanian legal entities and foreign companies operating in Romania through a permanent establishment;
?Foreign legal entities with a permanent establishment in Romania, for the earnings registered by this establishment;
?Non-resident foreign companies and natural persons carrying out their activity in Romania as part of a joint venture (with or without separate legal personality);
?Foreign legal entities which derive income from or in connection with real estate transactions in Romania or transactions with shares held in Romanian legal entities;

?Resident individuals that operate in Romania and abroad, as part of a partnership with Romanian legal persons (without separate legal personality), for the share of earnings attributable to them.


Expenses are deductible if and only if they are related to obtaining the taxable income. The Fiscal Code also includes a list of non-deductible or partially deductible expenses.


The following categories of income are nontaxable:
?Income from dividends received by a Romanian company from another Romanian company or a company resident in a third country (non- EU) with which Romania has concluded a tax treaty to avoid double taxation, if the Romanian company owns at least 10 % of the share capital of the other company for a continuous period of at least one year ending on the date when the dividend is registered. The exemption also applies to dividends from companies established in the European Union, provided that certain conditions are met (including the holding of 10 % for a 1-year interval);

?The income earned by a Romanian company from sale/cession of shares held in another Romanian company or in a resident company from a country with which Romania has concluded a tax treaty to avoid double taxation if, at the date of sale / transfer of shares, the Romanian company owns at least 10% of the share capital of the other entity for a continuous period of at least one year.


The depreciation scheme for fixed assets that are subject to depreciation is as follows:
?Constructions: straight-line method;
?Technological equipment (machines, tools, equipment, computers and related peripheral equipment): option of choosing between the straight-line, digressive and accelerated methods;

?Any other fixed assets that are subject to depreciation: only the straight-line or the digressive method can be used.


The deficits from 2009 can be carried over the next seven years.


Legal entities may choose a different fiscal year than the calendar year. Companies have the option of paying the income tax quarterly on the basis of fixed deposits, without the need for quarterly calculations. Only the year-end calculation is compulsory. Tax quarterly payments during the fiscal year shall be adjusted against the tax amount determined at the end-of year calculation.



Special Construction Tax

Legal entities must pay tax on various types of special construction. The tax is calculated by applying the rate of 1.5% to the established value of the construction, as recorded in the accounts at the end of the previous year (December 31).


Buildings that are subject to annual tax on buildings are not subject to this special tax.


Transfer Pricing
Transactions between related parties are subject to the regulation of transfer pricing and must be documented in the file transfer pricing.


Tax on Consumption
Certain product categories (beer, wine, spirits, other alcoholic beverages, cigarettes, tobacco, gasoline, diesel, fuel oil, liquefied petroleum gas, natural gas, kerosene, coal, electricity) are subject to tax on consumption (harmonized excise duties). The amount of excise duty is established by an annex to the Fiscal Code. Such products are subject to excise duty on manufacture within the European Union or imports into the European Union. Payment is due the day of their placement on the market.


Manufacturers and importers of certain tobacco products must communicate to the public authorities the list of their products delivered the market.


Income Tax for Individuals
The tax on revenue system for individuals is governed by the principle of taxation on each category of income earned by such person during the fiscal year. Unless a special regime is in place, personal income is subject to income tax at a single rate of 16%.


The tax applies to income obtained by the following categories of taxpayers:
? Resident individuals domiciled in Romania for their global revenues;
? Individuals not domiciled in Romania but considered as Romanian tax residents (with their center of main of interests in Romania and present in the country for more than 183 days during a period of 12 months) for their global revenues obtained from the 1st of January following the year in which they became Romanian tax residents;
? Individuals who are not resident for tax purposes but maintain an independent activity in Romania through a permanent establishment, for the net income generated by the respective entity;
? Individuals who are not resident for tax purposes but having signed a contract with a Romanian employer, for the net income earned under the contract;
? Non-resident individuals who earn other types of income, for the income calculated on each activity.


Individuals are subject to tax on income from the following sources:
? Independent activities;
? Salaries;
? Rental of property;
? Investments: income earned by capital investment (such as interest, dividends, transfer of shares and other securities) are subject to special arrangements and special tax rates;
?Pension income;
?Agricultural activities;

? Income from prizes and gambling, which are subject to a special tax regime;

? Income from real estate transactions (subject to a tax rate that varies depending on the period during which the taxpayer has retained the right on the property and the value of the property);
? Other sources.



The Tax Withheld at Source

Income earned by non-residents in Romania are generally subject to a 16% tax rate withheld at source.


The tax rate may be reduced if a tax treaty to avoid double taxation is available. Romania has more than 80 such tax treaties signed with other countries.


Types of income that are subject to tax withheld at source:
? Dividend payments;
? Interest payments and royalties - the rate of tax withheld at source is reduced to zero for payments of interest / royalties to the shareholder of a Romanian company who is resident of the European Union and holds minimum 25% of the shares of the domestic legal entity for an uninterrupted two-year period at the date of the payment;
? Income for services - management and consulting services, technical assistance, marketing and advertising are subject to tax withheld at source, regardless of where the services are rendered.


The tax rate may be reduced to 0% under a tax treaty for avoiding double taxation.


Social, Health and Employment Conditions
In Romania, the legal minimum salary is of RON 850 (EUR 190) / month, which equals RON 5 / hour (EUR 1.12 / hour). The national average salary is of RON 2298 (EUR 516 / month).


The work day is of 8 hours, which counts to 40 hours per week. The maximum duration is 48 hours per week, including overtime.


There is the possibility to exceed this limit, for an interval of four months, provided that working hours per week do not exceed an average of 48 hours. For people who are less than 18 years, the working time is of 6 hours per day and 30 hours per week.


Retirement: age to be increased gradually and reach 65 years for men until 2015 and 63 years for women until 2030.


Types of employment contracts: open- ended contract CDI (general), fixed-term contract CDD (the exception, subject to certain conditions).


There are different probationary periods applied in the following situations:
? For CDI: up to 90 calendar days for the execution jobs and maximum 120 calendar days for the management jobs;
? For CDD: Depending on the duration of the contract;
? For the disabled people: maximum 30 calendar days.


The employment contract may stop during or at the end of the probationary period by a notification issued by any of the two parties.


In Romania, the paid leave is of at least 20 days per year. Holidays (12 days per year, of which 2 are always on Sunday) and the free days stipulated in the applicable collective agreements are not included. People working in difficult conditions are under 18 or have disabilities receive additional 3 days of paid leave.


Employees can benefit from vocational training leave of 10 working days, to be paid by the employer if it has not fulfilled its legal obligation to ensure on its account the employee’s participation in vocational courses.


Maternity leave has 126 calendar days (some of which may be taken before childbirth), with a monthly allowance of 85% of the earned income.


The duration and conditions for parental leave:
? Up to one year, with a monthly allowance of 75% of the net monthly income, but not less than RON 600 (EUR 133) or more than RON 3,400 (EUR 756);
? Up to two years, with a monthly allowance of Thedurationandconditionsforparental leave:


Paternity leave has five days plus an additional 10 days if the father attended infant care courses.


The sick leave has a maximum period of 183 calendar days per year (longer duration in case of certain serious diseases). The statutory compensation is 75% of the monthly income of the employee (100% for certain serious diseases). The first 5 days of illness are covered by the employer and the following days by the National Health Care Insurance Fund.