Romania: Changes to Fiscal Code
Romania
The provisions of the Romanian Government’s Emergency Ordinance no. 58/2010 (hereinafter referred to as ”the Ordinance”) are applicable as from 1 July 2010. Here is highlighted some of the principal provisions below that may impact individuals – including those on international assignment – and their multinational employers.
VAT Standard Rate
Based upon the Ordinance, the VAT standard rate will increase from 19 percent to 24 percent.
Re-characterization of Activities as Dependent Activities
The Ordinance amends the definition of the term “dependent activity” (previously defined as the activity carried out by an individual under an employment relationship). Thus, any activity may be considered as a dependent activity provided that at least one of the conditions specifically included under the law is met. These conditions include the following:
• the recipient of the income is in a subordinate relationship with the payer of the income, and observes the working conditions imposed by the latter;
• for performing the activity, the recipient of the income uses the tools and materials made available by the payer of the income;
• the recipient of the income contributes only his/her physical or intellectual capacity, and not his/her own assets;
• the payer of the income bears the travel costs of the recipient of the income, or the medical leave allowance,
Personal Income Tax
Independent Activities and Notional Income – For income from independent activities subject to personal income tax on the basis of notional income, based upon the taxpayer’s specific election, the annual level of notional income cannot be lower than 12 times the minimum wage.
Intellectual Property Rights Deductions – As from 1 July 2010, the notional deductible expenses available in respect of income from intellectual property rights decrease from 40 percent to 20 percent, and from 50 percent to 25 percent for income derived from the creation of “monumental” art.
Fringe Benefits – For employment income related to July 2010, gift vouchers, holiday vouchers, nursery vouchers, and meal vouchers are treated as taxable employment income. The Ordinance specifically provides that in accordance with the provisions of Government Emergency Ordinance no. 8/2009 regarding holiday vouchers and of Law no. 142/1998 regarding meal vouchers, the exemptions from payment of social contributions, as provided under the above legislation, will still be in force.
Interest Income – As from 1 July 2010, interest income on sight deposits and current accounts, interest on deposits set up in accordance with specific legislation on home savings and lending, as well as interest on fixed-term deposits and other savings instruments are subject to 16-percent tax, irrespective of when the deposit was set up.
Taxation of Capital Gains – Annual capital gains derived by individuals from the sale of securities – other than shares in limited liability companies and securities in closed companies – are subject to the 16-percent personal income tax rate, irrespective of the period for which the securities are held (currently, a preferential 1-percent tax rate is available where securities are held for at least 365 days).
The Ordinance introduces a new procedure for declaring and paying the personal income tax due on such capital gains; thus, the intermediary (e.g., the broker) only has the obligation to inform the taxpayer on a quarterly basis and the tax authorities on an annual basis, with respect to gains/losses derived by each taxpayer.
The taxpayer has the obligation to declare the gain/loss on a quarterly basis, cumulated as from the beginning of the tax year, as well as to make quarterly payments on account, determined as 16 percent of the net capital gain calculated by reference to the end of each quarter, cumulated as from the beginning of the tax year.
Separately, the taxpayer has the obligation to declare the annual gains/losses, by way of an annual tax return.
Gambling –The Ordinance eliminates the preferential 20-percent tax rate currently available to gambling income of up to RON 10,000; meaning that as from 1 July 2010, gambling income is subject to a 25-percent tax rate.
Nonresidents with Dependent Activities –Nonresident individuals carrying out dependent activities in Romania are liable to Romanian personal income tax as from the first day of their presence in Romania, as the current conditions provided under the Fiscal Code have been eliminated. Specifically, these conditions are: the person is present in Romania for more than 183 days during any 12-month period, the remuneration is paid by or on behalf of a Romanian resident employer, or the remuneration is considered as a deductible expense at the level of the Romanian permanent establishment.
KPMG Note
Under the new rules, any nonresident person performing a dependent activity in Romania is liable to Romanian personal income tax as from the first day of the activity. This may impact those who currently do not pay tax in Romania.
In principle, where an individual is resident of a country with which Romania has concluded a tax treaty, the person should be eligible for protection under the relevant tax treaty. Most tax treaties include specific conditions under which individuals become liable to host country tax (i.e., 183-day limit of presence, remuneration paid by a resident of a source country, etc.), meaning that where the international assignees are considered as tax residents in their home countries, and the conditions set out under the tax treaty are met, no Romanian tax liability should occur.
It is not clear whether a specific procedure needs to be fulfilled by these individuals. Under current norms of the Fiscal Code, a procedure is stated for nonresident individuals who meet the conditions for being taxable in Romania, so that they should contact the tax authorities within 15 days from the commencement of their activity for the purposes of assessing their tax status in Romania, and they should file various documents with the tax authorities.
It is not clear whether the procedure described above will be amended in order to cover nonresident individuals spending less than 183 days in Romania, and therefore, it may be necessary to wait until further guidance is issued by the tax authorities in the form of Norms to the Fiscal Code.
Professional Income –Under article IV of the Ordinance, any professional income, other than employment income, is subject to personal income tax. Additionally, such income is subject to the individual’s contributions to social security (pension insurance), health insurance, and unemployment insurance. The taxable basis for such contributions is limited to five times the average gross salary, and the contributions are withheld by the payer of such income.
Withholding Tax
As from 1 July 2010, income derived by nonresident persons from the transfer of derivative instruments is subject to Romanian withholding tax. Separately, the following types of income will be considered taxable income in Romania, subject to Romanian withholding tax:
• income from interest on sight deposits and current accounts, fixed-term deposits and other saving instruments derived by nonresident individuals;
• interest on other securities issued by Romanian entities, irrespective of whether such securities are traded on a regulated market; and
• income derived by nonresidents from Romania, who render consultancy, technical assistance, and other similar services under arrangements financed through loans or other specific financial arrangements concluded between international financial institutions and the Romanian authorities or Romanian entities, including public bodies, which are guaranteed by the Romanian state, as well as under other arrangements financed via loan arrangements concluded between the Romanian state and other financial organizations, where the interest charged on such loans is lower than 3-percent per annum.
Foreign Tax Credit
A foreign tax credit for foreign tax due and effectively paid is granted solely in respect of corporate income tax or personal income tax paid in a country with which Romania has concluded a tax treaty, on condition of presentation of relevant and appropriate documentation.
Source: KPMG
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