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, taxpayers include:
- Local employees (and Directors remunerated based on mandate agreements) of Romanian companies, branches, and representative offices of foreign companies. Their employers/income payers 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 personally liable to submit monthly income statements and pay monthly income tax for salaries obtained from the employer established abroad for activities rendered in Romania.
Mandatory employee social contributions are deductible for Romanian salary income tax purposes.
For benefits in kind and/or in cash received from third parties based on an employment contract or a contractual relationship between parties, the obligation to compute and withhold the income tax belongs to:
- resident employers when the benefits in kind and/or in cash are granted by other parties and the payment is made through the employer
- resident income payers when the benefits in kind and/or in cash are granted and paid by third parties that are tax resident, and
- individuals when the benefits in kind and/or in cash are granted by third parties that are non-resident, unless the employer tax resident opts for computing and withholding the income tax.
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 and by deducting, as the case may be, the health contribution due. There is no pension insurance contribution due on pension income derived by pensioners.
Pension income above a monthly cap of RON 4,000 is subject to health contribution due (10%) for the part exceeding the monthly cap.
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 the social insurance and health insurance contributions (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 (new rules will be applicable as of 2023). 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 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 annual income tax and social contributions return (Declaratia unica privind impozitul pe venit si contributiile sociale datorate de persoanele fizice) within 30 days from the start of the activity and to pay the related taxes by 25 May 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 annual income tax and social contributions return. Additionally, a separate annual return also has to be filed by 25 May of the year following the one in which the income was obtained in order to report the actual income obtained. 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.
The threshold of the annual gross income from independent activities for which an individual can apply the fixed quota system shall be reduced as of 2023.
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 insurance, and health insurance 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. Similar obligations apply for pension insurance and health insurance 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 by individuals from multiple income payers, with the condition that from at least one payer the income derived is over the above-mentioned level; in case of multiple income payers, the taxpayer designates by contract the income payer required to calculate, withhold, and pay the contributions.
New thresholds will apply as of 2023.
Otherwise, similar to the provisions mentioned above under Income from independent activities, for social contributions purposes, the annual 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 insurance and health insurance contributions due on such income. The payment deadline for the annual social contributions due is represented, as above, by the same reporting deadline (i.e. 25 May of the following year for the previous year).
Income from intellectual property (IP) rights
Income from IP rights is subject to income tax and social contributions. In case the income from IP rights is paid by a legal entity or other entity required to keep accounting records, the income 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 insurance and health insurance contributions (capped) if the annual net estimated IP rights 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 for at least one payer the income is over the above-mentioned level; the individual designates by contract the income payer required to compute, withhold, and pay the social contributions.
New changes shall apply as of 2023.
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 annual return to be filed by 25 May of the year following the one when the income was derived (similar to the general provisions mentioned above for Income derived from independent activities).
Retired individuals 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:
- Growing vegetal agricultural products as well as the transformation, processing, and sale in natural state.
- Exploitation of vineyards, tree nurseries, and others alike.
- 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 annual return by 25 May of the year in which the income is to be obtained in order to estimate the income tax, pension insurance, and health insurance contributions (capped) due on such income. The final payment deadline for the tax liabilities due is 25 May of the year following the one in which the income is obtained.
New changes shall apply for capital income obtained through Romanian resident intermediaries or permanent establishments (PEs) of non-residents registered and authorised în Romania, as defined as per the specific Romanian legislation.
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 annual return by 25 May 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 annual return, within the same reporting deadline (i.e. 25 May). The health insurance 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.
New changes to be enforced as of 2023.
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.
New rules to apply as of 2023.
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 insurance contribution might be due. For example, individuals receiving, in 2022, 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 30,600 (12 x minimum gross salary for 2022), have to submit the annual return and pay the health insurance contribution (10% applied on the aforementioned threshold).
Tax rate to be increased to 8% for dividends paid after 1 January 2023.
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 insurance 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%. Health insurance contribution (capped) is due if the annual income, alone or together with other categories of personal income, as provided by the Fiscal Code, exceeds the minimum threshold set by the law (e.g. for 2022, the threshold is of at least RON 30,600).
The taxpayer can also choose to determine the taxable income by applying the real system taxation based on actual expenses incurred.
In the case of individuals obtaining rental income from more than five rental contracts at the end of the fiscal year, starting in 2023, such rental income is considered income from independent activities. Consequently, the taxation rules provided for independent activities have to be considered.
Homeowners deriving income from the renting out of up to five rooms for touristic purposes during a tax year owe income tax established based on an annual income quota.
Individuals obtaining, during the tax year, income from renting out more than five rooms for touristic purposes, starting the following tax year, 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 annual return to be filed by 25 May.
New rules to be enforced as of 2023.
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.
For income derived from gambling activities specific to casinos, poker clubs, slot-machines, and lottery tickets exceeding RON 66,750, the taxation method in the first paragraph of this section applies, out of which the amount of RON 667.50 is deducted.
New rules enforced as of 2023.
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.
- Income derived occasionally, by individuals who are not registered as freelancers, from production, commerce, services, liberal professions, and IP rights, 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. The gains are determined as the positive difference between the sale price and the purchase price, including the direct costs of the transaction. Gain below RON 200 per transaction is not taxable if the total gains in a fiscal year do not exceed RON 600.
Generally, the income tax due for income from other sources is calculated, withheld, and paid by the income payer. In certain cases (such as for income from virtual currency transfers), the individuals have to file the annual return by 25 May of the year following the one in which the income was obtained and pay the related taxes, based on a self-assessment made considering the information reflected in the annual return, within the same reporting deadline (i.e. 25 May). The health insurance contribution (10%, capped) is also due in case the income from other sources, 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.
New rules shall apply as of 2023.
Other taxable income
Income found by the Romanian tax authorities, in accordance with the Fiscal Procedural Code, for which the source is not identified is taxable with 16% tax rate applied to the taxable basis, as set by the Romanian tax authorities.
In the categories of non-taxable income, among others, the following types of income are included:
- Allowances for maternity leave, maternity risk, childcare, and sick childcare leave paid in accordance with the applicable legal provisions.
- Salary income obtained from a foreign employer for employment activities rendered abroad, irrespective of the tax treatment applicable to the income in the respective foreign country.
- Amounts granted by employers for covering transport and accommodation expenses incurred during delegation/secondment of employees.
- Sponsorship and donations, under certain conditions.
- Amounts granted by employers for early education of employee’s children (suspended from 1 April 2021 until 31 December 2022) and for epidemiological testing and vaccination to prevent the spread of diseases that endanger the health of employees and the public health.
- Amounts granted by employers for covering the utilities expenses of employees who are teleworking, up to a monthly threshold of RON 400 corresponding to the number of days the employee is teleworking.
- Special allowances received for the care of patients with oncological conditions.
The following income is exempt from income tax:
- Income from independent activities, IP rights, salaries, pensions, and income from agricultural, forestry, and fishery activities derived by severely 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 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 (certain social contributions exemptions also apply).
- Income derived by individuals, other than those organised as freelancers, from the sale of electricity to the electricity suppliers with which the respective individuals have concluded electricity supply contracts if the power plants producing electricity from renewable sources they own have the electricity power installed by maximum 27 kW per place of consumption.
- Salary and salary assimilated income for the period 1 June 2022 through 31 December 2028 paid by the employers in the food and agriculture sector, under certain conditions (certain social contributions exemptions also apply).
Taxation of non-resident individuals
Income derived by non-resident individuals from activities performed in Romania and income sourced in Romania is generally subject to subject to 10% tax for individuals who are residents of an EU country or a country that has a DTT in place with Romania, 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 of the individual).
Withholding tax (WHT) of 10% flat rate for non-resident individuals 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 (other than the ones conducted through a fix base in Romania or during a period or periods not exceeding in total 183 days during any 12-month period ending in the fiscal year concerned).
- Income from prizes from contests organised in Romania.
- Income obtained by non-residents from liquidation of Romanian companies.
- Income obtained from the transfer of the fiduciary patrimonial amount from the fiduciary to the non-resident beneficiary within the fiduciary operation.
For the below-mentioned types of income sourced in Romania, taxation is made based on the same rules as for Romanian tax residents:
- Income derived from conducting independent activities through a fix base in Romania.
- Income from dependent activities carried out in Romania.
- Income received by individuals for their capacity of administrator, founder, or member of the board of directors of a resident.
- Pension income exceeding RON 2,000.
- Rental income from an immovable property situated in Romania.
- Income from real estate transactions for properties situated in Romania.
- Capital gains from the transfer of participation titles held by a resident and from the transfer of securities issued by Romanian residents.
Also, as an exception to the above-mentioned flat tax rate of 10%,:
- dividend income obtained from a resident is taxed with a 5% (increased to 8% as of 2023) flat rate and
- income obtained by individuals that are not EU tax residents nor tax residents of a country that has a DTT in place with Romania is taxed at 16% flat rate.
On capital gains from Romania, non-resident individuals are subject to the same tax treatment as resident individuals. To fulfil tax obligations arising in Romania, where the case 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.