Monthly mandatory social security contributions due in other states and paid by taxpayers subject to Romanian taxation are now considered deductible for Romanian income tax purposes.
Romania’s Fiscal Code has been updated such that monthly mandatory social security contributions due in other states and paid by taxpayers subject to Romanian taxation, according to European Union (EU) regulations or bilateral conventions / agreements on the coordination of social security systems, are considered deductible for Romanian income tax purposes (previously this was not specifically set out)1.
These changes could have significant effects on both the tax cost for the individual (where the individual’s contract is based on gross remuneration) and the company’s tax burden (in the case of individuals whose contracts stipulate net remuneration). Careful analysis of the changes should help determine the correct payment obligations and deductibility permissible with respect to affected cross-border workers.
Prior to this change, when calculating the Romanian income tax due by individuals, the Romanian tax authorities did not recognize the deductibility of social security contributions paid to non-Romanian mandatory social security systems.
The KPMG International member firm in Romania filed a complaint with the European Commission, as the practice used by Romanian tax authorities was considered a violation of EU legislation. After several deliberations, the government agreed to update the rules.
As of 1 January 2014, Romania’s Fiscal Code was amended by means of a government ordinance2 that makes monthly mandatory social security contributions due in other states deductible for Romanian income tax purposes in accordance with EU regulations or bilateral agreements on social security.
However, residents of the European Economic Area (EEA)4 member states are entitled to the same deductions as Romanian residents (e.g., social contributions paid in the home member state) only if the EEA member state resident provides supporting documentation and he or she cannot claim a deduction for these contributions in the state of residence.
As a result of these changes, the social security obligations of each inbound expatriate should be reviewed to help ensure proper application of the new rules. This analysis should take into consideration a number of issues, such as the tax residence status of each individual, legal framework applicable, etc.
As the legal deadline for declaring and paying Romanian income tax for January 2014 is 25 February 2014, this analysis should be carried out as soon as possible to help make sure that taxes are correctly calculated and paid and that the payment deadline is met.
1 These provisions apply to individuals who are resident in EU/EEA member states – except Liechtenstein, with which Romania has not concluded a legal instrument for the exchange of information.
2 Government Ordinance no. 102/2013 on amendments to the Fiscal Code and regulations of some fiscal-financial measures (“the Ordinance” or “GO 102/2013”) was published in Monitorul Oficial (Official Journal of Romania) no. 703 of 15 November 2013. For the published laws and other statutory instruments (in Romanian), see the website for Monitorul Oficial at: http://www.monitoruloficial.ro/.
For further information or assistance, please contact your local KPMG IES/People Services professional or:
Madalina Racovitan, IES country leader with the KPMG International member firm in Romania
Tel. +40 372 377 782
The information contained in this newsletter was submitted by the KPMG International member firm in Romania.
© 2018 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.