The Romanian tax system consists of different types of taxes. Find out more about these in this article.
Whether you are going to work or retiring in Romania, you will probably have queries regarding tax. The Romanian tax system consists of four types of taxes, namely income tax, tax on profits, tax on social contributions and value added tax (VAT). These different types of taxes apply at variable rates under certain conditions. So before moving, it is best to inquire on the local tax system first as, in any case, you will not escape taxes.
Tax on profits
Tax on profits applies at a rate of 16%. In the case of bars, nightclubs, casinos and sports betting, these companies will pay tax at a rate of not less than 5%. As regards the representative offices of foreign companies, they will pay, in lei, taxes equal to the fixed sum for the tax year in euros. In general, the current exchange rate is communicated by the National Bank of Romania and is valid on the tax payment date.
The following companies have to pay tax on profits:
- Romanian companies
- foreign companies having offices in Romania
- foreign companies receiving revenue from real estate transactions or from shares of a Romanian company
- physical residents associated to Romanian legal persons when income is received in Romania as well as from abroad in associations without legal personalities
- legal persons having an office in Romania in accordance with European laws.
The following are exempt from tax on profits:
- State institutions involved in a particular activity
- religious organizations
- teaching institutions and professionals
- owners associations
- guarantee funds in bank deposits, for economic activities limited to € 15,000 per year or 10% of total exempt income.
Tax on dividends
Tax on dividends is levied at source at a rate of 16% on dividends paid by a Romanian company to another. For an accomplished two years period, till the dividends' payment date, tax does not apply to dividends paid by a legal person to another if the beneficiary has at least 10% of the other legal person's equity securities.
On the other hand, dividends received by a Romanian company from a resident commercial company in another European Union country are exempt from tax if the Romanian company has at least 10% of the foreign company's shares for a continuous period of at least two years which will end on the dividends payment date.
Finally, dividends are exempt from tax if these are invested in the same company or on the social capital of another legal person in Romania with the aim of creating and preserving jobs for the development of the beneficiary Romanian company's activities.
Non-residents in Romania are required to pay income tax in Romania on receiving revenue from local sources. The same applies to foreign companies having a representative or permanent office in Romania, and where these are concerned by tax levy at source when receiving revenue from local sources. Therefore, income tax is levied at a rate of 16% for the following:
- license fees
- income received from the provision of management or consulting services in any field, outside Romania
- income received from services in and outside Romania
- income received from compensation paid to non-resident directors, founders or members of the Board of a Romanian legal person
- income received from independent professions in Romania
- income received from the clearance of a Romanian legal person
- income from the transfer of the fiduciary asset to the fiduciary mass non-resident beneficiary for a trust operation.
Non-resident physical persons, for their part, have to pay tax based on their global revenue as from the 1st of January of the calendar year, following the year during which they filled in the criteria related to tax residency in Romania.
Exemptions for non-residents
Tax is not levied at source for non-residents in the following categories:
- obligations issued or guaranteed by the Romanian government
- income from international transport and auxiliary services
- prices or rewards received from a non-resident physical person paid by public funds
- income received from foreign legal persons exercising advisory activities under free funding agreements in Romania.
On the other hand, non-double taxation agreements define tax exemptions to which non-residents are entitled according to their home or resident country. The tax rate that applies to the taxable income received in Romania is then that which is the most favorable provided by domestic law, that is Community law or convention. Note that the non-double taxation convention applies only when the non-resident beneficiary submits his tax residency certificate upon its issue (in original version, along with a translation and an authenticated copy.
Income tax for physical persons
Income tax for most types of income received by physical persons in Romania is levied at a general rate of 16%. It applies to the global income of physical residents in Romania. Therefore, income tax applies to the following:
- independent activities
- rent and real estate transactions
- monthly retirement pensions amounting to more than 1,000 lei
- agricultural activities
- other sources.
Income tax does not apply to the following:
- aids, compensations and other types of support provided by the State for social insurances, etc
- exploitation of movable property such as waste to be destroyed in collection centers in the context of a national program which is finances by the State as well as other public funds
- insurance compensations for material damages and moral prejudice
- expropriations for public interest purposes
- social pensions
- transfer of ownership on movable and immovable property of personal assets
- benefits in cash and in kind received by conscripts, short-term soldiers, students of national security, defense and public order educational institutions, civilians, high ranking officers and concentrated or mobilized soldiers
- income received by persons having a diplomatic status in Romania
- income received by foreign nationals for their development management activities in Romania
- income received by foreign press reporters (provided their status is confirmed by local authorities)
- prizes received by rewarded athletes in championships or Olympic Games
- prizes and other rights (accommodation, meals, transport, etc.) received by students having taken part in internal and international competitions and by secondees
- sums received by physical persons for dependent activities developed in a foreign State, regardless of its tax policy
- advantages of purchasing option plans of shares at the time of granting and utilization
- income received for the conception and creation of software
- sponsorship and donations
- other non-taxable income mentioned in each revenue category.
Tax for micro-enterprises
Micro-enterprises receive income from other sources than banks in the fields of insurance, capital markets, games, counseling and management. Its turnover is less than the equivalent of 65,000 euros in lei and its share capital is not held by State or local authorities.
Tax is then levied at a rate of 3%. The income tax base for micro-enterprises is represented by all types of revenue from different sources. Therefore, deductions are made from the following:
- costs of stock products
- costs of services being provided
- production of tangible and intangible assets
- operating grants
- provisions and adjustments for depreciation or impairment
- repayment or cancellation of interest and/or penalty fees which accounted for non-deductible expenses in calculating taxable profit
- compensation from insurers for damage to property or own tangible assets.
Tax identification number
All taxpayers have to register at the Romanian Tax Administration and, thus, obtain a tax identification number (TIN). This number is displayed on European Union permanent residents' identity card and on their family members' permanent resident cards, and finally on non-European temporary residents' identity card. It is also displayed on the Romanian passport and driver's license.
Payment of income tax
All legal or physical taxpayers in Romania have to submit a tax return and pay tax at the nearest tax office to their place of residence or to their company's address at the latest on the 25th of the month following the closing of the tax year (note that the tax year is superimposed on the calendar year). The tax return form is available on the National Agency of Tax Administration website.
Non-profit organizations and agricultural companies, for their part, are required to submit their tax return and pay tax on their annual profit at the latest on the 25th of February of the following year.
Finally, since 2013, companies can choose to submit their tax return and pay tax on the combined annual profit to advance payments made each quarter. The choice is then valid and compulsory for at least two consecutive tax years.
Value added tax (VAT) applies at a standard rate of 24% in Romania. It is reduced to 9% for some good and services and to 5% on the sale of buildings under certain conditions.