Romanian tax principles

Residency

Taxpayers

Types of taxable individual income

Romanian tax rates for individual income

Romanian tax principles

Generally, foreign individuals staying in Romania are subject to Romanian income tax only for income sourced to activities rendered in Romania during the first year of their presence in the country. Starting with the second year of presence, foreign individuals could become taxable in Romania on their worldwide income if they are considered Romanian tax residents during the previous year.

The tax rate is a flat rate of 16% for most types of income derived by an individual. The fiscal year is the calendar year.

Residency

An individual is considered to be a Romanian tax resident if he/she fulfils at least one of the following conditions:

•        individual is domiciled in Romania;

•         individual’s centre of vital interest is located in Romania;

•         individual is present in Romania for a period or periods exceeding 183 days during any 12-month period ending in the respective calendar year

Taxpayers

Taxpayers of individual income tax can be:

•         Romanian individuals domiciled in Romania, for income obtained from any source (both from Romania and abroad);

•         Residents other than Romanian individuals domiciled in Romania – only for Romanian sourced income;

•         Non-residents, who either:

o       carry out independent activities through a permanent establishment in Romania, for the net income attributable to the permanent establishment; or

o        carry out dependent activities in Romania, for the net income from such dependent activities.

If a non-resident individual fulfills the second or the third condition mentioned in the Residency section above for a period of three consecutive years, he/she becomes subject to taxation on worldwide income starting with the fourth year of stay in Romania.

Individuals who are tax residents in countries that have signed Double Tax Treaties with Romania may benefit from a reduced tax rate or a tax exemption under the terms of the applicable treaty. Individuals who are tax residents in countries that have not entered into a double tax treaty with Romania are subject to Romanian taxation from the first day of presence in Romania.

Types of income subject to individual taxation

The following categories of individual income are subject to taxation under the Romanian tax legislation:

•        salary income or dependent activities income

•         income from independent activities

•        income from rent

•         income from real estate transactions (sale of both buildings and land)

•        pensions over RON 1,000 per month

•         income from prizes

•        income from agricultural activities

•         income from gambling

Romanian tax rates for individual income

Salary – includes all benefits received in cash or/and in kind by individuals, based on employment contracts.

Salary is taxed at a flat rate of 16%. 

Salary income also includes: wage premiums, rewards, temporary disability payments, paid holidays, meal tickets and any other income received by an individual based on an employment agreement. Taxable compensation also includes compensation received by daily or temporary workers, fees and compensation paid to directors and managers of private commercial companies.

•         Independent activities – include activities like:

• freelance activities (Rom. "persoana fizica autorizata" - PFA)
• intellectual property rights
• commercial activities, commercial mandates, commercial agreements

Independent activities are generally taxed at a flat rate of 16%.

Freelancers are taxed on their net income which is calculated as gross income minus deductible expenses.  

Specific categories of freelancers are taxed on the basis of an income quota which is communicated annually by the Romanian Ministry of Finance.

Intellectual property rights

The payers of the intellectual property rights have the obligation to calculate withhold and pay 10% advance tax. Receivers have the obligation to declare the income in their annual tax return, on the basis of which the Romanian tax authority assesses the final amount of the tax due, calculated at a tax rate of 16%.

For commercial activities a withholding tax of 10% also applies as advance tax payment. Receivers have the obligation to declare the income on their annual tax return, on the basis of which the Romanian tax authority decides the final amount of tax due, calculated at a rate of 16%.

•         Income from rent 

Any rental agreement should be registered with the Romanian tax authorities.

The total annual income earned by the owner as stipulated in the rental agreement can be deducted with an expense quota of 25% and should be taxed afterwards with a flat rate of 16%.

Individuals receiving such income have the obligation to make quarterly tax payments during the fiscal year.

•        Income from real estate transactions

This type of income is taxed as follows:

- for buildings and their related land, as well as land without constructions, owned for up to 3 years: for values less or equal to RON 200,000, the income tax is 3%; for values exceeding RON 200,000 the income tax is RON 6,000 + 2% of the amount exceeding 200,000.

- for buildings and their related land, as well as land without constructions, owned for more than 3 years: for values up to RON 200,000 the income tax is 2%; for values exceeding RON 200,000 the income tax is RON 4,000 + 1% of the amount exceeding RON 200,000.

      Income from pensions

Pensions are subject to 16% flat tax rate in Romania only for the amount in excess of RON 740 per month. Health fund contribution of 5.5% is also due on the same amount, being deductible for Romanian tax calculation purposes.

      Income from agricultural activities

Such income includes the following:

- farming, hosted in greenhouses and/or in irrigated systems, and selling of flowers and vegetables

- farming and selling of shrubs, decorative plants and mushrooms

- vineyard farming

- the sale of unprocessed agricultural products to specialized units

Income from agricultural activities is taxed in Romania either on an income quota basis, or based on the single-entry accounting at a flat rate of 16%.

        Income from investments

• Dividends - are taxed at 16% flat tax rate

• Interest - is taxed at a 16% flat tax rate

• Capital gain - is taxed at a 16% flat tax rate
  
  

If you have any inquiries regarding taxation in Romania or need our tax advice or full tax compliance assistance services, you can contact us by email at: contact@expatcenter.ro