Romania

Romania

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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 16 percent, applied to each type of income.

Key message

Extended business travelers are likely to be taxed on employment income relating to their Romanian workdays.

Income tax

Liability for income tax

A person’s obligation to pay Romanian income tax is determined by residence status. A person can be either deemed a resident or a non-resident for Romanian tax purposes.

Generally, a resident of Romania is defined as an individual who has his/her domicile in Romania, or has a center of vital interest in Romania, or spends more than 183 days in Romania during any 12-month period ending in the fiscal year concerned. A 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.

An exception to the general rule above is available for non-Romanian nationals who meet the Romanian tax residence criteria (i.e have their centre of vital interests in Romania and/or spend more than 183 days in Romania during any 12-month period ending in the fiscal year concerned). In the first year during which the two residence conditions mentioned above are met, non-Romanian nationals are liable to Romanian income tax only on Romanian-sourced income.

A full tax liability on the worldwide income may occur in the second consecutive year of meeting the two tax residence conditions mentioned above.

However, even in the second year, the non-Romanian individual may remain liable to Romanian income tax only on the Romanian-sourced income, provided he/she is deemed as a tax resident in a country with which Romania has concluded a tax treaty , and if he/she can obtain a valid tax residency certificate issued by that country within the meaning of the relevant Tax Treaty for the fiscal year concerned.

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 noncash employment income are deemed to be employment income and are taxed similarly.

Tax rates

Net taxable income (a deduction is generally available for compulsory employee social security contributions) is taxed at a flat rate of 16 percent. Non-residents are also subject to a flat tax rate of 16 percent.

Social security

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, 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.

Compliance obligations

Employee compliance obligations

Generally, annual tax returns are due by 25 May following the tax year-end, which is 31 December. 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 tax year (whether they are Romanian tax residents or non-residents) are required to file a similar form.

Employer reporting and withholding requirements

Where an individual 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.

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.

Immigration

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 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 with 1st of 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 staying must not exceed the validity of their visa, provided that the Schengen visa is issued with 2 entries. This category of foreigners can enter in Romania as long as they still have the right to re-enter in Schengen area (i.e. they did not use the entries conferred by visa).

Other Issues

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 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.

Indirect taxes

Value-added tax (VAT) is applicable at 24 percent (standard VAT rate) on taxable supplies. VAT registration may be required in some circumstances.

Transfer pricing

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.

Exchange control

Romania does not restrict the flow of Romanian or foreign currency into or out of the country. 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

Non-deductible costs for assignees include contributions to private medical insurance or pension funds above certain caps.

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