For PIT purposes, it is necessary to differentiate between two main contractual relationships that may exist between a company and a person: labour and professional fee-based relationships.
A labour relationship exists where a person provides personal and legitimate services to a company under the provisions of the Labour Code. The employee is then under a labour contract, and the individual is included in the company's payroll, thus receiving a fixed monthly remuneration.
A professional fee-based relationship exists when an individual provides professional services to a company on a freelance basis or under a civil contract. This individual is not included in the company's payroll and is not subject to regulations established in the Labour Code. Usually this contractual relationship is used for independent contractors. Their remuneration will always be denominated as ‘fees’.
Residents (national or foreign) are taxed on their total labour compensation, net of social security contributions. Total compensation includes any payments in cash, kind, or services made by the employer. Allowances such as car, vacation travel, housing, and utilities (profit-shares) are considered taxable.
Individuals under labour relationship must exclude the Christmas Bonus (13th salary), as well as Educational Bonus (14th salary), from the taxable income (exclusions must be considered by the employer).
In cases where the employer pays PIT and social security contributions on account of an employee (net salaries), the income tax liability on the net salary is added only once to the total income to get the taxable base, and the social security deduction is not allowed.
Independent professional gross income
Residents (national or foreign) are taxed on the total fees invoiced. Independent professionals are required to pay social security contributions.
Capital gains (defined as those obtained in the sale of real estate and stock transactions) are levied with income tax. The financial yield on long-term investments (over one year) negotiated through the stock market is tax exempt.
Dividends received from local corporations are taxable.
Interest on savings accounts is tax exempt.