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Tax on Salaries and Other Income Obtained by Individuals
In order to balance the state budget in the current economic climate, the Romanian Government approved, on 30 June 2010, Emergency Government Ordinance No. 58/2010 regarding the taxation of several income / revenue sources. These provisions entered into force on 1 July 2010 and include amendments to the Romanian Fiscal Code aimed at taxing several types of income that were previously exempt. For example, reconsidering the nature of income obtained from certain activities to which a higher tax burden applies, and increasing the tax rate for certain income categories. Taxand Romania assesses the changes and impact on multinationals.
The Ordinance introduced new criteria related to the requalification of freelancers as dependent workers (i.e. employees of the income payer) if any of the following criteria is met:
- the income beneficiary is in a subordinated relationship to the income payer
- the income beneficiary uses the assets of the income payer in the course of his/her activity
- the income beneficiary does not contribute with its own capital, but only intellectual or physical work
- the travel expenses of the beneficiary are borne by the income payer
- the income payer bears vacation or temporary disability allowance for the income beneficiary
- other elements which reflect the dependent nature of the activity
If an activity is considered as dependent, the payer and the income beneficiary are jointly liable for all taxes and social contributions normally due on salaries. Income from independent activities is, in general, not subject to social security contributions.
Also, the Ordinance introduced the obligation to pay, on any income of a professional nature, the individual social security contributions within a limit of maximum five gross national average salaries (as provided in the Social Security Budget Law). The employer's mandatory social security contributions are not levied.
The definition of "copyrights and related rights" concept was introduced: by the observance of the definition, that some of the income previously paid by companies as remuneration for copyrights and related rights to individuals, may qualify as salaries and be taxed accordingly (with both salary income and social security contributions). Income obtained by individuals, from copyrights and other related rights, are subject to 16% income tax on the taxable income computed after deducting an amount representing 20% or 25% for copyrights from works of monumental art respectively, while social security contributions apply only under certain conditions.
Meal vouchers and gift vouchers are now subject to income tax at 16% (previously they were exempt from all taxes and social contributions). Based on the wording of the law, it appears that they will not be subject to social contributions. Also, vacation and nursery vouchers are subject to income tax at 16%.
Employees obtaining income from dependent activities performed in Romania, (eg seconded personnel), are obliged to pay salary tax at 16%, starting on their first day of activity in Romania. More favourable treatment can be applied only under the double tax treaty concluded by the country of tax residency of a person and Romania.
Capital gains are realised by individuals when trading in securities and are subject to 16% capital gains tax, irrespective of the holding period, (higher or lower than 365 days) and whether the securities are tradable on the capital market. Also, interest income realised by individuals is subject to 16% tax, irrespective of the source (eg current accounts, term deposits, civil contracts).
All the above mentioned additional salary taxes could lead to increased salary costs and a further strain on cash flows for companies.
Multinationals with a presence in Romania should carefully investigate, on a case by case basis, the tax risks arising from these changes relative to remuneration packages, (eg meal vouchers, stock option plans), granted to their employees and subcontractors, and their related contractual terms (eg in the case of tax advisors, lawyers and other freelancers contracted by the entity).
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T. +40 21 316 06 45
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