Tax & Legal Guide

Romania
Individual Taxation

Last update: October 2010

Contents

3 Income tax

6 Social, health and unemployment contributions

7 How we can help

Income tax Income tax rate

The standard income tax rate is 16%.

General provisions

Fiscal year
Taxpayers

The fiscal year is the calendar year.

Subject to income tax are the following individuals:
• Resident individuals;
Income from freelancing activities
• Non-resident individuals performing freelancing
activities through a permanent establishment in
Income from freelancing activities is considered income
Romania;
from performing activities, such as:
• Non-resident individuals performing dependent
• Professional services performed by lawyers,
activities in Romania;
tax consultants, architects, physicians, notary,
• Non-resident individuals obtaining other
brokers, accountants;
Romanian source income.
• Income from intellectual property rights;
• Income from commercial activities.
Taxable income

Professional services and commercial activities

The following categories of income are subject to
taxation:
The taxable income is calculated as gross income less
• Income from freelancing activities;
deductible expenses.
• Salary income;
• Rental income;
Among non-deductible expenses:
• Income from investments;
• Donations;
• Pension income over RON 1,000 per month;
• Fines, interest and penalties for late payments;
• Income from agricultural activities;
• Income tax paid in Romania and abroad;
• Income from prizes and gambling;
• Expenses made for obtaining non-taxable income.
• Income from real estate transactions;
• Other income.
Limited deductibility is granted for certain expenses such
as sponsorship, protocol or meal tickets.
Tax-exempt income

Individuals obtaining such income have to keep one

The Romanian Fiscal Code provides that certain types of
single entry bookkeeping ledgers and have to make
income are exempt, such as:
equal quarterly provisional tax payments during the
• Allowance for maternity leave, maternity risk and
fiscal year.
for child care leave (up to two years);
• Income received from insurance of any kind as
compensations or damages;
• Salaries obtained by seriously disabled individuals
(from their basic activity)
• Sponsorship, donations and inheritance.

Tax & Legal Guide - Romania Individual Taxation 3

Income from intellectual property
The taxable income is calculated as the gross income
minus deductible expenses which represent a lump sum
equal to 20% of the gross income and any mandatory
social charges paid.
Payers of the income from intellectual property (i.e.
royalties) must calculate, withhold and pay 10%
advance tax. The beneficiaries should fill in the income
in the annual tax return. Based on this tax return, the tax
authority decides the amount of the final tax to be paid,
considering that the final tax rate is 16%.
Normally, freelancers also have the obligation to pay
individual social security contributions in Romania;
contributions accepted as deduction for income tax
purposes. Depending on the freelancer activity and
personal circumstances, the individual may be exempted
from this obligation.
Salary Income
The taxable base is determined as the difference
between the gross income and the mandatory social
contributions, union charges and contributions for
private pension (up to EUR 400/year).
Salary income represents all income, either in cash or in
kind, obtained by employees for the activities performed
under a labour contract.
Salary assimilated income includes:
• Usage for personal purposes of any good or
vehicle belonging to the business patrimony, with
the exception of usage for transport purposes
from home to work and back;
• Non-reimbursable loans;
• Employee’s debts write off;
• Phone costs incurred for personal use;
• Public transportation for personal use.
4
Certain deductions are allowed only to Romanian
employees with income less than RON 3,000
(approximately EUR 700): a personal deduction and
supplementary deductions, based on the number of
dependants.
The salary tax is paid to the State Budget via payroll
withholding no later than the 25th of the month
following the one for which the relevant salary is paid.
This tax is also paid by foreign individuals seconded to
Romania. In this case the individual has the liability to
declare and pay such tax.
Rental income
The rental contract has to be registered with the tax
authorities. The yearly amount stipulated in the contract
is considered to represent the gross annual income.
The taxable income would be considered the gross
income less a 25% expense allowance from the gross
income. The tax rate applicable is 16%.
Individuals earning such income have to make quarterly
advance tax payments during the fiscal year.
In case individuals have more than five rental contracts,
the income obtained is considered income from
freelance activities and taxed accordingly. For further
details, please see the applicable tax treatment as
described above.
Income from investments
Income from investments is considered:
• Dividends
• Interest
• Capital gains
• Income from futures transactions on foreign
currencies.
• Income from liquidation of a legal entity
Dividends
Dividends are taxed at a 16% flat tax rate. The tax is
withheld by the company distributing such dividends
and should be paid to the Romanian state budget by the
25th day of the month following the one the payment
was made.
Interest
Interest income is taxed with 16%. Interest income
earned until June 2010 from deposits in Romanian
banks or other savings instruments are tax exempt.
Starting July 2010, interest income is taxed with 16%,
tax withheld at source.
Capital gains
Income obtained from transfer of shares held in unlisted
companies and limited liability companies is subject to
a tax of 16%. The tax is final and should be calculated,
withheld and paid by the buyer after
each transaction. Losses incurred from transactions with
such shares/participation titles may not be offset or
carried forward.
Income obtained from transfer of shares (securities)
held in a listed company is subject to a tax rate of 16%,
irrespective of the period in which the shares/securities
are owned and we have a quarterly obligation to declare
and pay the tax.
Income from futures transactions in foreign
currencies
Income obtained further to performing such
transactions is subject to an anticipated tax of 1%. The
final tax to be applied is 16%.
Starting July 2010, the anticipated tax is 16%.
Income from liquidation
For such income the shareholders are taxed at a rate of
16%. The tax would be calculated, withheld and paid to
the Romanian state budget by the legal representative
of the company.
Pension income
Pensions over RON 1,000 are subject to tax. The
applicable tax rate is 16%. This tax is final.
Income from agricultural activities
Income from agricultural activities is income obtained
further to performing the following agricultural
activities:
• farming and selling flowers and vegetables;
• farming and selling shrubs, decorative plants and
mushrooms
• farming vineyard and fruit trees;
• selling of unprocessed agricultural products to
specialist units.
Individuals obtaining such income should keep one
entry bookkeeping or should determine their income on
quota basis. The applicable tax rate is 16%.
Income from prizes and gambling
Tax on income from prizes is withheld at source, by
applying a tax of 16%.
Tax on income from gambling is withheld at source, by
applying a tax of 25%.
Income from prizes and from gambling exceeding RON
600 paid for each game or contest, per day, is subject
to this tax.
Tax & Legal Guide - Romania Individual Taxation 5
Taxation of non-residents
Non-resident individuals carrying out dependent
activities in Romania are liable to Romanian personal
income tax from the first day of their presence in
Romania.
The income subject to tax is only the Romanian source
income. Foreign individuals become taxable on their
worldwide income after spending 3 consecutive years in
Romania.
In general, income obtained by non-residents from
Romania is subject to withholding tax. The applicable
withholding tax rate is 16%. Such income may include:
Social, health and
unemployment
contributions
Romanian employers and employees are required to
contribute to the social security system. Employees’
contributions are to be computed, withheld and paid
to the State Budget by employers by 25th of the
month following the reporting month. Where foreign
individuals are employed by a Romanian entity, both
salary tax and social contributions are applicable
except for the case when a certificate for social security
coverage is available.

• Dividends paid by a Romanian legal entity; Other income beneficiaries are also liable to pay certain
• Royalties paid by a Romanian resident; social contributions.
• Commissions paid by a Romanian resident;
• Income for services performed in Romania; The contributions due are as follows:
• Income from pensions exceeding RON 1,000;
• Income obtained from independent services, such
Employees’ contributions Employers contributions
as lawyers, physicians, engineers and which are
(% of the gross salary) (% of the gross salary)
not obtained through a permanent establishment;
• Income from liquidation of a Romanian legal Social security Fund 10.5%1 Social security Fund 20.8% / 25.8% /
entity. 30.8%
Health fund 5.5% Health fund 5.2%
Avoidance of double taxation Unemployment fund 0.5% Unemployment fund 0.5%
Contribution for medical 0.85%
Where conventions for the avoidance of double taxation leaves
provide for a different withholding tax rates than the Insurance for work 0.15%-0.85%2
domestic legislation, the most favorable rates shall apply. accidents
Romania has signed over 70 Conventions. For further
Labour Chamber 0.25%-0.75%
details, please see Annex 1.
Commission
Guarantee fund for salary 0.25%
debts
Disabled person 4%*Average no. of
contribution3 employees*MSE x
50%
Total 16.5% Total Approx. 28%

1
2.5% will be redistributed to private pension plans

2
Depending on the classification of the activities from the national economy

3
Payable by companies with more than 50 employees that do not hire disabled
persons. Alternatively, the contribution equivalent can be used by companies to
purchase goods from institutions where disabled people work.
6
How we can help:

Dealings with the tax authorities

We would act in as many proceedings as may be
required to defend your company’s interests in dealings
with the authorities, by any of their agencies at any
stage of proceedings. These proceedings could consist
of:

• Drafting and filing any administrative appeals;

• Drafting and filing claims of any kind with the
authorities;
• Drawing up any special applications required in
order to be granted the rights provided for in
specific legislation;
• Assistance during tax inspections that may be
conducted at your company’s premises;
• Registration of permanent establishments of
non-residents;
• Registration of a fiscal representative in case a
non-resident legal entity obtains capital gains from
Romania;
• Assistance in the reimbursement process for
withholding taxes paid in excess;
• Formulating defenses to an on-going tax audit.

Tax Litigation
Our staff can assist you in planning and management
of examinations by financial bodies, in drafting and/or
review of appeals, and in direct representation before
the fiscal authorities.

Requests for rulings from the tax authorities

We would assist you in drafting, filing and follow-up of
any request and application for binding and non-binding
rulings or authorizations that must be submitted to the
Tax Authorities.

Tax & Legal Guide - Romania Individual Taxation 7

Contacts

Alexandru Reff Dan Badin Pieter Wessel

Tax & Legal Partner-in-Charge Tax Partner Tax Partner
Tel: +40 21 207 52 48 Tel: +40 21 207 53 92 Tel: +40 21 207 52 42
E-mail: areff@deloittece.com E-mail: dbadin@deloittece.com E-mail: pwessel@deloittece.com

8
Deloitte service lines contacts

Maksim Caslli Tax & Legal

OMP Alexandru Reff
+40 21 222 16 61 Tax & Legal Partner-in-Charge
mcaslli@deloittece.com + 40 21 207 52 48
areff@deloittece.com
George Mucibabici
Chairman Dan Badin
+ 40 21 207 52 55 Tax Partner
gmucibabici@deloittece.com +40 21 207 53 92
dbadin@deloittece.com
Audit
Ahmed Hassan Pieter Wessel
Partner-in-Charge Tax Partner
+ 40 21 207 52 60 +40 21 207 52 42
ahhassan@deloittece.com pwessel@deloittece.com

Madeline Alexander Andrei Burz-Pinzaru

Partner Legal Services Partner
+40 21 207 52 51 + 40 21 207 52 05
madelinealexander@deloittece.com aburzpinzaru@deloittece.com

Farrukh Khan Consulting

Partner Doina Patrubani-Voicu
+40 21 207 52 13 Director
farrukhan@deloittece.com + 40 21 207 98 35
dopatrubani@deloittece.com
Leonardo Alcala
Partner Financial advisory
+ 40 21 207 98 83 Hein van Dam
leoalcala@deloittece.com Partner-in-Charge
+ 40 21 207 52 30
Enterprise risk services hvandam@deloittece.com
Andrei Ionescu
Director
+ 40 21 207 54 85
aionescu@deloittece.com

Tax & Legal Guide - Romania Individual Taxation 9

Tax services:

• Indirect taxes
• Corporate tax
• Transfer pricing
• Global employer services
• Business process outsourcing

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