Taxation of residents
Salary is defined as income in cash and/or in kind received by resident or non-resident individuals, based on an individual employment agreement, a job relation, secondment agreement, or a special statute provided by the law, and is taxed at a flat tax rate of 10%.
Salary assimilated income includes remuneration paid according to non-competition clauses and taxable benefits as provided by the Romanian tax legislation. Moreover, administrators’ fees received by members of the General Meeting of Shareholders, the Management Council, the Board of Director, and the Supervision Council are treated as income assimilated to salaries.
From a salary income tax perspective, individuals such as the following, are considered taxpayers:
- Local employees (and Directors remunerated based on mandate agreements) of Romanian companies, branches, and representative offices of foreign companies; their employers are liable to compute, withhold, report and wire to the State Budget the salary taxes on a monthly basis.
- Foreign individuals performing activities in Romania based on foreign employment agreements; these individuals are liable to submit monthly income statemenst and pay monthly income tax for salaries obtained from the employer established abroad for activities rendered in Romania.
The mandatory employee social contributions are deductible for Romanian salary income tax purposes.
Income from pensions
Pensions are taxable at a flat tax rate of 10%, the taxable pension income being set by deducting from the pension income the non-taxable amount of RON 2,000 per month. There are no social contributions due on pension income derived by pensioners.
Income from independent activities
Income from independent activities is taxed at a flat rate of 10% and covers income from the activities of production, trade, supplies of services, and incomes from liberal professions, earned individually and/or in a form of association, including incomes from adjacent activities.
Individuals earning income from independent activities, from one or more sources of income, are also liable to pay pension and health fund contribution (capped) if they estimate for the current year to obtain a cumulated income (together with other categories of income, as provided by the Fiscal Code) of at least the value of 12 national minimum gross salaries. However, individuals whose income does not reach this ceiling can opt to pay social contributions.
In general, the annual net income is being determined on a real system basis. In order to report the estimated income to be obtained from independent activities and to pay the estimated income tax and social contributions due on such income, if the case, the individuals have to submit the Single return by 15 March of the year in which the income is to be obtained and to pay the related taxes by 15 March of the following year. The calculation of the tax obligations and their payment is done through the individual’s self-assessment, made based on the information filled in the Single return. Additionally, a separate Single return has also to be filed by 15 March of the year following the one in which the income was obtained, in order to report the final income obtained in the previous year and to pay any income tax/social security differences arising. In the same Single return the individual also has to estimate the income to be obtained in the current year. Alternatively, specific categories of income from independent activities (except from liberal professions) are taxed on the basis of a fixed income quota (income norms), as communicated yearly by the local tax authorities. The income tax assessed and paid under a fixed income quota is considered final tax.
Income from freelance activities is assessed based on the bookkeeping ledgers that providers of independent activities are compelled to keep. Net income is calculated under the real system as gross income minus deductible expenses.
Certain expenses are non-deductible, as follows: fines, late-payment penalties (other than contractual penalties as per the contractual agreements with the authorities), donations, private scholarships, sponsorship and protocol expenses in excess of the upper limits set by law, 50% of the expenses incurred with company cars that are not used exclusively for business purposes (with certain exceptions), and other expenses exceeding limits provided by current law, as well as the expenses incurred for the personal usage of the taxpayer's family members. The list is not exhaustive.
Income from independent activities obtained based on sport activity contracts
Individuals deriving income from independent activities obtained based on sport contracts are subject to income tax, pension, and health fund contributions (capped) in Romania. The legal entity or other entity that is paying the income and is required to keep accounting records has the obligation to compute, report, withhold, and wire to the tax authorities 10% income tax applied on the gross income, the income tax being final. The same obligation exists also for pension and health fund contributions for those cases when the estimated annual gross income is at least equal to 12 national minimum gross salaries. This obligation exists for income derived from a single income payer or for income derived from multiple income payers, with the condition that at least one of the incomes has to be over the above-mentioned level; the taxpayer designates by contract the income payer required to calculate, withhold, and pay the contributions.
Otherwise, similar to the provisions mentioned above under Income from independent activities, for social security purposes, the Single return has to be filed by the individuals in order to report the income obtained based on sport activities contracts and to assess the pension and health fund contributions due on such income. The paying deadline for the annual final social contributions due is represented, as above, by the same reporting deadline (i.e. 15 March of the following year for the previous year).
Income from intellectual property (IP)
Individuals deriving income from IP rights owe income tax and social contributions on such income. In case the income from IP rights is paid by a legal entity or other entity required to keep accounting records, the tax is calculated by applying the 10% rate to the net income and is withheld at source. In such case, the payer of the income is required to compute, report, withhold and pay to the tax authorities the following:
- Income tax of 10% on a calculation base determined by deducting a flat rate of 40% from the gross income.
- Pension and health fund contributions (capped) if the annual net estimated income is at least equal to 12 national minimum gross salaries. This obligation exists for income derived from a single income payer or for income derived from multiple income payers, with the condition that at least one of the incomes to be over the above-mentioned level; the individual designates by contract the income payer required to compute, withhold, and pay the social contributions.
Individuals who derive IP rights income from payers other than those mentioned above (none of the income, from a certain source reaches the level mentioned above) and individuals who chose to determine their net income in the real system have to calculate, declare, and pay the income tax and the social contributions through the Single return to be filed by 15 March (similar to the general provisions mentioned above for Income derived from independent activities).
Retired people and individuals who derive salary income or income treated as such are exempt from paying social contributions on income obtained from IP rights.
Income from agricultural activities, forestry, and fishery
The following activities are considered agricultural activities:
- Exploitation of vineyards, tree nurseries, and similar one.
- Growth and exploitation of livestock, including the selling of unprocessed products.
Within certain thresholds specifically set by the Romanian legislation, the income from agricultural activities is tax exempt.
Income from agricultural activities is determined either on a fixed income quota basis (income norms) or as income from independent activities, while income from forestry and fishery is determined as per the rules applicable to Income from independent activities above.
The fixed income quota (income norms) may be reduced if natural calamities are affecting more than 30% of production surfaces.
In case of agricultural income determined on a fixed income quota basis (income norms), the individuals have the obligation to submit the Single return by 15 March of the year in which the income is to be obtained in order to estimate the income tax, pension, and health fund contributions (capped) due on such income. The final payment deadline for the tax liabilities due is 15 March of the year following the one in which the income is obtained.
The net capital gain is subject to income tax at the flat rate of 10%. The taxable amount is calculated based on the difference between the sale price and the acquisition price of the shares. In general, broker/transaction fees in connection with the acquisition or sale are tax deductible.
The individual has to report any sale of shares (i.e. capital gain/loss) through the Single return by 15 March of the year following the one in which the sale was performed and pay the related taxes, based on a self-assessment made considering the information reflected in the Single return, within the same reporting deadline (i.e. 15 March). The health fund contribution (10%, capped) is also due in case the capital gain, alone or together with other categories of income derived by the individual, as provided by the Fiscal Code, reaches the annual threshold of 12 minimum gross salaries.
Income from real estate transactions
Income from the transfer of real estate is taxed at a 3% income tax rate applicable on the taxable income determined by deducting the non-taxable amount of RON 450,000 from the transaction value, irrespective of the period for which the property was owned/held.
No income tax is due for ownership of real estate acquired under special laws, for donation deeds between relatives or in-laws up to the third degree inclusively and between spouses, and in cases of inheritance, provided the procedure is finalised within two years as of the date of death of the author of the inheritance (an income tax of 1% of the value of the corpus is levied if the procedure is not completed within those two years).
Income tax due for transfer of real estate ownership is withheld by the notary public and calculated based on the value declared by the parties within the transaction documents. If the value declared by the parties is lower than the estimated minimum value established by the expert appraisal conducted by the Chamber of Public Notaries, the notary public notifies the Romanian tax authorities on this transaction. The tax is to be remitted by the 25th day of the month following that when the income tax was withheld.
Dividend income is subject to a 5% income tax rate. This income is considered for assessing the annual minimum cap based on which the health fund contribution might be due. For example, individuals receiving, in 2020, income from dividends, which, alone or together with other categories of personal income, as provided by the Fiscal Code, are in a value of at least RON 26,760 (12 x minimum gross salary for 2020), have to submit the Single return and pay the health fund contribution (10% applied on the aforementioned threshold).
Interest income is subject to the 10% flat tax rate, withheld by the payer of the income, the tax being final. Similar to income from dividends, health fund contribution (capped) is due if the annual income, alone or together with other categories of personal income, as provided by the Fiscal Code, is of at least the value mentioned above.
Gross annual rental income, other than lease of land, represents the income earned by the owner for a certain year, as stipulated in the rental agreement concluded between the parties.
Net taxable rental income is determined by deducting a 40% expense allowance (no supporting documentation is required) from the gross rental income and is taxed at a flat rate of 10%. The taxpayer can also choose to determine the taxable income by applying the real system taxation.
Home owners deriving income from the renting out of up to five rooms for touristic purposes owe income tax established based on an annual income quota.
Individuals obtaining income from renting out more than five rooms for touristic purposes will treat the income obtained as income from independent activities and the taxation rules provided for independent activities have to be considered. The individuals have to report such income and pay the related tax obligations through the Single return to be filed by 15 March (please see the comments under Income from independent activities above).
Income from prizes
Tax on income from prizes is withheld at source and determined by levying 10% on the amount exceeding RON 600 paid for each prize, the tax withheld as such being considered final.
Income from gambling
Income from gambling activities is taxed at source at 1% for each gross income up to RON 66,750, inclusively, received by a participant from an organiser of gambling activities. If the income exceeds RON 66,750, up to RON 445,000 inclusively, the income is taxed at a fixed amount of RON 667.50 plus 16% on the amount exceeding RON 66,750. If the income is above RON 445,000, the income is taxed at a fixed amount of RON 61,187.50 plus 25% on the amount exceeding RON 445,000.
The tax calculated and withheld upon disbursement is final.
For gambling income derived from remote or online gambling, the income tax due, as per the above, is determined and withheld at source with the occasion of each transfer realised from the gambling platform into the individual’s bank account or similar.
Income derived from gambling activities specific to casinos, poker clubs, slot-machines, and lottery tickets, up to RON 66,750 (inclusively), for each gross income amount received by an individual, represents non-taxable income.
Other income subject to the 10% flat tax rate
The following types of taxable income are included in this category (the list is not exhaustive):
- Insurance premiums borne by freelancers or any other entities for the benefit of individuals with whom no employment relationship is in place.
- Income derived from debt assignment by assignors and assignees, respectively.
- Gift tickets granted outside an employment relationship, in certain conditions.
- Income derived occasionally, by individuals who are not registered as freelancers, from production, commerce, services, liberal professions, IPR, as well as agriculture, forestry, and fishing activities.
- Income granted to retired persons, former employees, in the form of differences on price for certain 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.
- Income from virtual currency transfers.
In the categories of non-taxable income, among others, the following types of income are included:
- Allowances for maternity leave, maternity risk, child care, and sick child care leave paid in accordance with the law’s provisions.
- Salary income obtained from a foreign employer from employment activities rendered abroad, irrespective of the tax treatment of the income in that foreign country.
- Amounts granted by employers for covering transport and accommodation expenses incurred during delegation/secondment of employees.
- Sponsorship and donations, under certain conditions.
The following income is exempt:
- Income from independent activities, IPR, salaries, and pensions and income from agricultural, forestry, and fishery activities derived by seriously disabled individuals.
- Salary income and salary assimilated income related to the design and creation of software (specific conditions to be met by the employer and the employee).
- Salary income and salary assimilated income related to research and development (R&D) activities (specific conditions to be met by the employer and employee).
- Salary income and salary assimilated income derived based on employment contracts concluded for 12 months with Romanian employers carrying out seasonal activities in areas such as hotels, restaurants, and catering for events, as provided by the specific legislation in force.
- Salary income and salary assimilated income for the period 1 January 2019 through 31 December 2028 paid by the employers in the construction sector, under certain conditions.
Taxation of non-resident individuals
Income derived by non-resident individuals from activities performed in Romania or from income sourced in Romania is generally subject to 16% tax, with certain exceptions (exceptions may also apply if the tax rate is reduced or eliminated under an applicable DTT concluded by Romania with the country of residence).
Income sourced in Romania includes, among others, the following:
- Income derived from conducting independent activities through a permanent establishment (PE) in Romania.
- Income from dependent activities carried out in Romania.
- Other specified types of income derived in Romania.
Withholding tax (WHT) (16% flat tax rate) is currently levied on income such as the following types of income sourced in Romania, assuming such income, as provided by the law, is not derived under transactions that are qualified as having an artificial nature (do not have an economic substance):
- Interest, royalties, and commissions received from a Romanian resident.
- Interest, royalties, or commissions paid by non-residents, if they have PEs in Romania and the interest/royalty/commission is an expense of that PE.
- Income derived from sports and entertainment activities performed in Romania.
- Income from the provision of management or consultancy services in any field if such income is obtained from a Romanian resident or if it is an expense of a Romanian PE.
- Income from independent professions performed in Romania.
- Income from prizes from contests organised in Romania.
- Income obtained by non-residents from liquidation of Romanian companies.
On capital gains, non-resident individuals are subject to the same tax treatment as resident individuals. To fulfil this requirement, non-residents may appoint a Romanian fiscal representative or a tax agent.
Income from real estate transactions is taxed at the same specific rates as in the case of residents.
Where non-resident individuals can claim treaty protection, the more favourable rates/provisions under the relevant tax treaty can be applied by Romanian payers of income if the beneficiaries have provided the required tax residency certificate.