Types of taxable individual income
Romanian tax rates for individual income
Generally, foreign individuals staying in Romania are subject to Romanian income tax only for income sourced to activities rendered in Romania.
The tax rate is a flat rate of 16% for most types of income derived by an individual.
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 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 complies with the second or the third condition mentioned in the Residence section above for a period of three consecutive years, he/she becomes subject to taxation on worldwide income starting from the fourth year.
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 respective treaties. 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 taxable individual income
The following categories of individual income are subject to taxation under the Romanian tax legislation:
• salary income
• income from freelance activities
• income from rent
• income from real estate transactions
• 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 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:
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 1,000 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
- capital gain derived from transfer of shares of unlisted companies and limited liability companies is subject to a tax rate of 16%.
If you have any inquiries regarding taxation in Romania or need our tax advice or assistance, you can contact us by email at: contact@expatcenter.ro