Romanian tax resident individuals are subject to Romanian and income tax on their world-wide salary income. Generally, individuals are deemed to be resident if they are domiciled in Romania or are physically present in Romania for a period exceeding 183 days in any 12 month period. Individuals may be exempt from salary taxation under the regulations of the international conventions for the avoidance of double taxation between Romania and their country of residence.
According to Foreign Investment Law No 35/1991, joint ventures can hire foreign citizens only in management and jobs requiring expertise. At this stage, there are no incentives granted by Romanian law to foreign employees.
GROSS INCOME
Employee Gross Income
Employee gross income includes basic pay, overtime pay, supplemental pay, awards and bonuses, compensations for unused holiday or vacation time, and all other monetary amounts and benefits in kind, as well as other services obtained without payment. Income from each source is defined as the total amount of revenues received during a month, irrespective of the period in which it was generated.
According to Romanian law, there are no concessions for short term residents.
Capital Gains And Investment Income
There is no capital gains tax in Romania. The concept of income globalization is not yet defined in Romanian law.
Certain capital investment income is exempt from tax, such as income from interest on savings deposits and demand accounts (except from bank accounts operated for business purposes), interest on state treasury bonds, and the withdrawal of funds from trust funds.
Dividends from joint stock companies are distributed from the net after tax profit of a company. Dividends and shares in profits, as well as undistributable retained earnings, are not aggregated with income from other sources. The dividends are subject to a 10% withholding tax when paid by the company.
Non-residents are also subject to the following withholding taxes unless a bilateral tax treaty between Romania and the individual's country of residence states otherwise.
- 15% on interest and commissions on commercial transactions;
- 15% on revenues on technical assistance, expertise, training, and other services;
- 20% on royalties obtained through concession of patents, licenses, trademarks, and other intellectual rights.
Tax-Exempt Income
The most important types of income that are tax exempt are specified below.
1. Monetary damages received on the basis of administrative law, civil law and other legal acts. Receipts from property insurance and personal insurance claims.
2. Interest on savings and demand accounts, except for business accounts, and interest on state treasury bonds.
3. Money won in legally registered games of chance and in lotteries.
4. The income of individuals coming into Romania for a temporary period if that income derives from no cost funds established by international financial institutions or from resources allocated by other countries on the basis of agreements concluded with the Romanian government or other governmental organisations.
5. Reimbursement of an employee's costs for relocating to another place of employment if the transfer is in the company's interest.
6. Limited daily allowances due employees for the duration of business trips.
7. The value of accommodation and other additional pay provided by an employer for employees working away from their place of permanent residence for short periods, according to the principles and limits outlined in the rules for state employees. Social security allowances, 'birth allowances" and child allowances.
8. Payments during the period of notice to quit.
9. Canteen free meals and special meals for employees who work under special conditions (toxicity, radioactivity, etc.).
10. Limited payments for employees who use their private cars for company business.
11. Income originating outside Romanian territory if an agreement for the avoidance of double taxation between Romania and the foreign country provides for exemption.
12. Foreign correspondents' 'news agencies" are exempt for income tax purposes.
Income of less than Lei 106,900.
DEDUCTIONS
Business Expenses
Taxpayers are not entitled to standard annual deductions.
Non-Business Expenses
There are no allowable non-business expenses.
Personal Allowances
There are no personal allowances available to Romanian taxpayers.
Tax Credits
OTHER TAXES
Social Security Taxes
Employers must pay social security contributions, calculated on gross salary, as follows:
[LB]
Social security fund 23%;
Medical fund 2%;
Unemployment fund 5%.
[LE]
The employee pays the following:
[LB]
Payroll tax according to income level;
Pension fund3%;
Unemployment fund 1%.
[LE]
Foreign citizens working in Romania on the basis of a work permit and a labour contract registered with the Labour Office are considered Romanian employees (whether or not they are deemed to be resident in Romania) and are generally liable for Romanian social security contributions.
A foreign citizen who is not resident in Romania and is not employed or paid by an employer who has a permanent establishment in Romania has no liability to pay social security contributions and no requirement to prove payment of social security contributions in another territory.
Stamp Tax
The following stamp tax rates' on apply to the selling value of land and buildings: come into force with effect from 17 November 1995.
Over Not over Rate% Lei Lei Lei 0 1,000,000 4 1,000,001 5,000,000 3 5,000,001 10,000,000 2 10,000,001 15,000,000 1,5 plus ROL 260,000 15,000,001 1 plus ROL 335,000
Local Taxes On Income
There are no local taxes on income.
TAX ADMINISTRATION
Returns
The income tax is deducted from an employees salary and paid by the employer through a bank payment disposition at the time monthly salaries are paid." There is no requirement for individuals to submit tax returns. Semi-annually returns are filed by the employer with the local tax office 'after each semester "as a statement of calculated and paid tax.
Husbands and wives are treated as individual taxpayers, and the legal concept of income splitting does not exist in the Romanian legal system.
Payment of Tax
Individuals whose income derives from an employment contract, a commission contract, or a retirement or disability pension will have tax withheld from sums due to them. The standard procedure for an employment contract is to withhold the full amount of tax due (at the levels shown below) from the employee's monthly income.
In the case of a foreign employee who is paid in hard currency, the calculation of tax due is made by translating the monthly gross income into Lei at the official exchange rate of the last day of said month, and the taxes will be calculated and paid from this amount. Net payment is received as the calculated difference, in hard currency at the above stated exchange rate.
Excess withholdings will be given back to the employee within 30 days after the reconciliation.
TAX RATES
Tax rates on taxable income at 1 January 1997 are as follows:
- the individual tax rates in Romania are very high;
- the maximum marginal rate of 60% is applied to monthly income in excess of ROL 1,233,000 (approximately USD 300).
Monthly income
Over Not over Tax on Percentage
on excess
Lei Lei Lei %
0 11,200 5
11,201 12,300 560 8
12,301 16,500 648 14
16,501 28,200 1,236 17
28,201 45,900 3,225 18
45,901 68,600 6,411 19
68,601 115,900 10,724 20
115,901 161,700 20,184 21
161,701 229,800 29,802 22
229,801 344,600 44,748 25
344,601 460,600 73,484 28
460,601 575,000 105,964 32
575,001 658,400 142,572 36
658,401 1,223,000 172,596 40
1,223,001 398,436 60
Note:
Both the rates and the taxable levels are subject to change due to the relatively high inflation rate.
INDIVIDUAL TAX CALCULATION
Assumptions
The taxpayer' is non-resident and arrived in Romania for a temporary stay (over 183 days in a given tax year) in order to take employment as an expert in a company with foreign participation.
TAX COMPUTATION
Monthly basis ROL
Monthly salary (USD 6,000 approx) 27,000,000
Benefit in kind/Accommodation 2,000,000
Monthly gross income 29,000,000
Tax on salary:
On first (1,233,000) (398,436)
On remaining 27,767,000 at 60% 16,660,200)
equals (17,058,636)
Net monthly income 11,941,364
Annual basis
Romanian law provides monthly rates and computation. However, the above tax computation example is presented below on an annual basis in order to have an international term of comparison.
ROL
Annual salary 324,000,000
Interest on savings 6,000,000
Benefit in kind (Accommodation) 24,000,000
Annual gross income 354,000,000
Less Tax exempt income:
Interest on savings 6,000,000
ROL
Annual taxable income 348,000,000
LessTax on salary withheld 204,703,632
during the year
Annual income 143,296,368
Note:
Official exchange rate at 29 December 1996: USD 1 = ROL 4,035. The market exchange rate at that date was approximately USD 1 = ROL 5,000.
DISCLAIMER
The above information represents a brief summary of the legislation mentioned therein and is not intended to be advice on any particular matter. Price Waterhouse expressly disclaims any liability towards any person in respect of any action or omission in reliance of the contents of this publication.
For additional information on taxation in Romania, contact the following Price Waterhouse Senior Tax Manager:
Ron Barden
Price Waterhouse Romania
Union International Center
11 Ion Campineanu Street
Sector 1 Bucharest
Romania
Telephone: (40) (1) 311 24 55
Fax: (40) (1) 312 33 34
or
enter a text search 'Price Waterhouse' and 'Business Monitor'.