Romania Personal Income Tax

Individuals domiciled in Romania are considered to be tax residents and are taxed on their worldwide income (with certain exceptions). Under certain circumstances, individuals who are not domiciled in Romania may be subject to tax on their Romanian-source income, regardless of where the income is re­ceived. In the absence of a tax-residency certificate issued by an­other state based on a double tax treaty, a foreign individual or one who carries out independent activities through a permanent estab­lishment in Romania becomes subject to tax on worldwide income beginning on the date on which the tax-residency criteria are met.

Individuals in Romania who are also residents of a country that has entered into a double tax treaty with Romania may benefit from a reduced tax rate or a tax exemption under the terms of the relevant treaty. If a foreign individual spends less than 183 days in Romania and if the salary costs for the individual are not recharged to Romania, he or she may be exempt from Romanian salary tax liabilities, provided that a tax residency certificate is available and the tax exemption procedure is completed within 15 days after the beginning of activities. Individuals in Romania who are tax residents in countries that have not entered into a double tax treaty with Romania are subject to tax in Romania from their first day of presence in the country.

A Romanian tax resident who is domiciled in Romania and who demonstrates a change of residency to a country that does not have a double tax treaty with Romania continues to be subject to tax on any worldwide income for the calendar year in which the change of residency occurs and for the next three calendar years.

Income subject to tax. A flat tax rate of 16% applies to salary income, income from freelance activities, rental income, pension income, investments, prizes, investment income, agricultural, forestry and fisheries income, and other types of income. Special tax rates apply to income from gambling and transfer of property ownership. The taxation of various types of income is summa­rized below.

Employment income. Taxable compensation includes the following:

  • Salaries
  • Benefits in cash or kind (for example, allowances and perquisites)
  • Wage premiums
  • Rewards
  • Temporary disability payments
  • Paid holidays
  • Other income received by an individual based on an employ­ment agreement, document for appointing civil servants, sec­ondment agreement or a special statute in the law
  • Fees and compensation paid to directors and managers of private enterprises and to members of the board of directors, general shareholders meeting, administration council and audit com­mittee

The monthly tax on employment income is determined by deduct­ing mandatory social security charges, personal deductions, trade union contributions, contributions to the voluntary occupational pension scheme and contributions to the voluntary health insur­ance scheme (each of the last two deductions is capped to a maxi­mum of the equivalent in Romanian currency of EUR400 per year per participant) from gross income.

Income from independent activities. Income from independent activities includes income from production activities, income from commerce, income from rendering of services, income from freelance activities and income from intellectual property rights, whether performed individually and/or in a form of asso­ciation, as well as related activities. The net taxable income from freelance activities is computed as gross income less specified deductible expenses. Individuals engaged in freelance activities must make advance tax payments on a quarterly basis by the 25th day of the last month of each quarter.

Income derived by individuals from rental for tourism purposes of rooms located in their own homes, with a capacity for accom­modation of more than five rooms is assessed as income from independent activities and is subject to tax based on income quotas (fixed amounts set by the government) or real system (actual income recorded based on the single-entry system).

Taxable income from intellectual property rights is computed by deducting from gross income expenses representing 40% of gross income and compulsory social security charges. A 10% advance income tax must be withheld at source by payers of income from intellectual property rights by the 25th day of the following month. Taxpayers who earn income from intellectual property rights can opt for a final withholding tax at a rate of 16%.

Rental income. Gross rental income consists of amounts in cash or kind that are stipulated in rental agreements, as well as certain expenses borne by the tenant that are the landlord’s liability according to the law. The rental income is taxable in the tax year to which the rent relates, regardless of when the rent is effec­tively received.

Rental income also includes income derived by owners from the rental of rooms located in their own homes, with a capacity for tourist accommodation ranging from one room to five rooms.

If individuals are earning rental income from more than five rental contracts, such income is reassessed as income from inde­pendent activities beginning with the date on which the change occurs, and it is accordingly subject to the rules applicable to that category.

Taxable rental income is determined by subtracting from gross rental income a deduction equal to 40% of gross income. Tax on rental income is determined by applying a rate of 16% to the tax­able amount. As an exception, taxpayers may opt for the determi­nation of the net rental income based on single-entry accounting.

Health fund contributions are payable on and deductible from annual rental income received, regardless of the method used for the computation of the net income.

Investment income. Investment income includes the following:

  • Dividend income
  • Interest income
  • Gains from transfers of securities (including stock option plans) and other operations involving financial instruments (including derivatives)
  • Income from the transfer of financial gold
  • Income from the liquidation of a legal entity

The first four of these categories of investment income are dis­cussed below.

Dividends are any grant of benefits in cash or kind by a legal entity to shareholders or associates as a result of holding partici­pation titles (with certain exceptions). The tax rate applicable to dividends distributed to resident individuals is 5%, effective from January 2016. The tax rate is calculated, withheld and paid by the payer of dividend. The tax must be paid by the 25th day of the month following the dividend payment. For dividends declared but not paid until the end of the year, the tax is payable by 25 January of the following year. Amounts received from holding participation titles in closed investment funds are treated simi­larly to dividends. A 5% final withholding tax is imposed on dividends.

Taxable income from interest is considered to be any interest from current account or sight deposits, term deposits, savings instruments and civil contracts or interest paid by the company issuing debt securities during the loan period. A 16% final with­holding tax is imposed on interest income. The tax must be remit­ted by the 25th day of the following month.

Capital gains derived from transfers of securities (including stock option plans) and other operations involving financial instru­ments (including derivatives) are subject to a 16% final with­holding tax. In general, the capital gain equals the positive differ­ence between the sale price and fiscal value of the securities, which includes the related transaction costs. A capital gain on a sale of shares obtained as a result of a stock option plan equals the difference between the sale price and the fiscal value (prefer­ential acquisition price), which includes the related transaction costs. For shares obtained for a nil price, the fiscal value is con­sidered to be zero.

Gains or losses derived from the operations with financial gold equal the positive or negative difference between the sales price and the fiscal value, which includes the costs related to the trans­action.

Under the “net capital gain” concept, the difference between gains and losses registered during one year (that is, the positive or negative differences between the sale and fiscal value, which includes the related transaction costs) is calculated.

Income from the transfer of securities, other operations involving financial instruments and from the transfer of financial gold (financial gold is gold purchased for the purpose of creating a reserve and also for use as an investment instrument) is subject to an annual regularization, which is performed by applying a 16% tax rate to the annual taxable income, less tax losses carried forward (if any). Losses may be carried forward for seven years.

Income whose source is not identified. Any income whose source is not identified is subject to 16% income tax applied to the tax base adjusted according to the procedures and indirect methods for the reconstitution of revenues or expenses. The tax authorities compute the income tax and late payment penalties.

Deductions. Individuals domiciled in Romania and individuals meeting the residence criteria for worldwide income taxation are entitled to personal deductions, which vary according to gross monthly income and number of dependents of the individuals. For gross monthly income up to RON1,500, the monthly deductions vary between RON300 for individuals without dependents and RON800 for individuals with four or more dependents. For gross monthly income between RON1,501 and RON 3,000, an order of the Ministry of Economy and Finance sets the deductions. No deduction is allowed for gross monthly income greater than RON3,000.

Rates. As discussed in Income subject to tax, most types of in­come are subject to tax at a flat rate of 16%.

Other taxes

Inheritance and gift taxes. No taxes are levied on inheritances or gifts, except for revenue subsequently derived from these items.

Property taxes. For property tax purposes, the taxable value of a property is computed based on multiple factors, including but not limited to, the following:

  • Property surface
  • Type of building
  • Location of the property
  • Age of the building
  • Potential construction works
  • Purpose for which the property is used

Each Local Council establishes the applicable rate.

Social security and health care charges

Both employers and employees must contribute to the social security system.

Employees are required to pay the following monthly charges.

Type Amount
Social security contribution 10.5% of monthly gross salary earnings (tax base is capped at 5 times the national average gross salary earnings)*
Health fund contribution 5.5% of gross monthly salary earnings
Unemployment fund contributions 0.5% of gross monthly salary earnings

* Beginning with January 2016, the national average gross salary earnings is RON2,618 a month.

Employers are required to pay the following monthly charges.

Type Amount
Social security contribution 15.8% (for normal work conditions) of the total gross salary earnings (tax base is capped at 5 times the national average gross earnings multiplied by the number of employees) (a)
Health fund contribution 5.2% of the total gross salary earnings
Unemployment fund contributions 0.5% of the total gross salary earnings
Contribution to insurance fund against work accidents and professional diseases 0.15% to 0.85% of the total gross salary earnings
Medical leave and health indemnities contribution 0.85% of total salary fund (tax base is capped at 12 times the national minimum gross salary earnings multiplied by the number of insured persons) (b)
Contribution to the Fund for Guarantee of Salary Payment Liabilities 0.25% of the total gross salary earnings

 

a) Beginning with January 2016, the national average gross salary earnings is RON2,681 a month.

b) From January 2016 through April 2016, the national minimum gross salary earnings is RON1,050 a month. Beginning with May 2016, the national mini­mum gross salary earnings is RON1,250 a month.

Citizens of European Union (EU) countries and Switzerland benefit from the coverage of medical expenses incurred in Romania and may be exempted from social security charges if relevant European certificates are obtained. However, if an indi­vidual is not subject to social security charges in his or her home country, he or she falls under the Romanian social security sys­tem and is liable to pay social security charges in accordance with Romanian regulations (the home-country employer or the employee must follow a certain procedure to register for social security purposes).

Totalization agreements. Romania has entered into totalization agreements with the following jurisdictions.

Albania (a)                  Korea (South) (b)             Peru (a)

Algeria (a)                  Libya (a)                           Turkey (c)

Canada (b)                  Macedonia (a)                   USSR (d)

Israel (b)

a) No administrative procedures have been put in place. Consequently, the agree­ment is not applicable.

b) The agreement covers pension contributions only. It provides exceptions from paying contributions in case of assignment.

c) The agreement covers pensions, health indemnity, medical leave indemnities and work accidents. It provides exceptions from paying contributions in case of assignment.

d) The 1961 agreement with the USSR applies to the former USSR republics of Armenia, Belarus, Moldova, the Russian Federation and Ukraine. It covers pension and medical leave indemnities. It does not contain any assignment provisions or exceptions from paying contributions.

A totalization agreement is under negotiation with Quebec.

Tax filing and payment

Foreign nationals assigned to work in Romania and who do not meet the tax exemption conditions must register for tax purposes within 30 days after beginning their assignment. Subsequently, they must file monthly tax returns, and pay income tax and social secu­rity charges (if applicable) by the 25th day of the following month.

If the individual is on a local payroll, the local employer must compute, withhold, declare and pay the income tax and social security charges (if applicable).

Double tax relief and tax treaties

Romania has entered into double tax treaties with the following jurisdictions.

Albania                       Indonesia                          Qatar

Algeria                        Iran                                   Russian

Armenia                      Ireland                              Federation

Australia                     Israel                                 San Marino

Austria                        Italy                                  Saudi Arabia

Azerbaijan                  Japan                                Serbia

Bangladesh                 Jordan                               Singapore

Belarus                       Kazakhstan                       Slovak Republic

Belgium                      Korea (North)                   Slovenia

Bosnia and                  Korea (South)                   South Africa

Herzegovina               Kuwait                              Spain

Bulgaria                      Latvia                                Sri Lanka

Canada                        Lebanon                            Sudan

China                          Lithuania                           Sweden

Croatia                        Luxembourg                     Switzerland

Cyprus                        Macedonia                        Syria

Czech                          Malaysia                           Tajikistan

Republic                     Malta                                Thailand

Denmark                     Mexico                             Tunisia

Ecuador                      Moldova                           Turkey

Egypt                          Montenegro                      Turkmenistan

Estonia                        Morocco                           Ukraine

Ethiopia                        Namibia                           United Arab

Finland                         Netherlands                     Emirates

France                          Nigeria                            United Kingdom

Georgia                        Norway                           United States

Germany                      Pakistan                           Uruguay

Greece                          Philippines                      Uzbekistan

Hungary                       Poland                             Vietnam

Iceland                         Portugal                           Zambia

India

Entry visas

Citizens of EU and European Economic Area (EEA) member states may enter Romania without any visa requirements and stay for a period not exceeding 90 consecutive days in a single visit. Citizens of the following jurisdictions may also enter Romania without a visa and stay there for 90 days in any 180-day period.

Albania (c)                   El Salvador                      New Zealand

Andorra                       Guatemala                       Nicaragua

Antigua and                 Honduras                        Panama

Barbuda                       Hong Kong SAR (a) Paraguay

Argentina                     Israel                               St. Kitts and

Australia                      Japan                               Nevis

Bahamas                      Korea (South)                  San Marino

Barbados                      Macau SAR (b)               Serbia (c)(d)

Bosnia and                   Macedonia (c)                 Seychelles

Herzegovina (c)           Malaysia                          Singapore

Brazil                           Mauritius                         Taiwan (e)

Brunei                          Mexico                            United States

Darussalam                  Moldova (c)                    Uruguay

Canada                         Monaco                           Vatican City

Chile                            Montenegro (c)               Venezuela

Costa Rica

(a) The exemption from the visa obligation applies only to passport holders of the Hong Kong Special Administrative Region (SAR) of China.

b) The exemption from the visa obligation applies only to passport holders of the Macau SAR of China.

c) The exemption from the visa requirement applies only to holders of biometric passports.

d) The exemption does not apply to holders of Serbian passports issued by the Department of Serbian Coordination (Koordinaciona Uprava).

e) The exception from the visa obligation applies only to holders of passports issued in Taiwan that contain the identification card number.

In addition, the exemption from the visa requirement applies to British nationals of a territory subordinated to the British government.

Citizens of other countries can obtain short-term or long-term visas, which may be single- or multiple-entry visas. Special conditions apply to foreign nationals planning to set up businesses in Romania. Foreign citizens can obtain special short-term, multiple-entry visas for frequent business trips.

Work authorizations

EU and EEA nationals can be seconded to Romania without ob­taining a work authorization. The seconded individuals must apply directly for a registration certificate.

In addition, companies based in Switzerland or EU or EEA mem­ber states can second non-EU/EEA nationals to Romania without obtaining a work authorization. The seconded individuals must apply directly for a residence permit and are required to present to the Romanian authorities the valid residence permit obtained from Switzerland or an EU/EEA member state.

The secondment of non-EU nationals is limited to one year within a five-year period. An extension may be granted if a work authorization for local employment purposes is obtained. For­eigners assigned as heads of foreign company branches and for­eign citizens named administrators of Romanian companies only need to apply for a residence permit.

Residence permits

Both short-term and long-term visas allow foreign nationals to stay for 90 days within a 180-day period from the date of entry to their date of exit from Romania. Although the short-term visa cannot be extended, the long-term visa can be extended through an application for a residence permit. The following documents are required for a visa extension:

  • Work authorization for the categories of individuals who are required to obtain a work authorization for performing activi­ties in Romania
  • Medical insurance for the visa period
  • Proof of accommodation and means of support in Romania
  • Other documents, depending on the purpose of the stay

Similar residence permits can be issued to immediate family members (that is, spouse, children, parents and parents-in-law, if these family members cannot support themselves and do not benefit from family support in the home country) accompanying an individual during his or her assignment in Romania.

For foreign nationals who are family members of Romanian, EU or EEA individuals, the Romanian Immigration office issues registration certificates with a validity of five years.

Family and personal considerations

Family members. The spouse of a foreign national holding a local work authorization must apply for a separate work authorization if the spouse wishes to work in Romania. The spouse must also obtain the appropriate visa to stay in the country.

Customs regulations for individuals. Special duty treatment is pro­vided for the personal belongings of individuals establishing domi­cile or residence in Romania, goods introduced into Romania on marriage, inherited goods and household goods used for furnishing a residence in Romania and personal effects shipped through par­cel and postal services. For certain goods, such as tobacco products and alcoholic beverages, duty exemption is granted within pre­scribed quantities.

Driver’s permits. Driver’s licenses issued in another EU member state are recognized in Romania if the license remains valid in the issuing country. Romania also recognizes national or interna­tional driver’s permits issued by the relevant authorities in coun­tries that have signed the International Convention of Traffic (Vienna 1968).