Taxation

Last Update: May, 2010

by PricewaterhouseCoopers

Taxation of individuals

• Most types of income earned by individuals are taxed at a flat rate of 16%
• Romanians domiciled in Romania are subject to taxation on their worldwide income (except for salaries received from abroad for activities performed abroad).
• Foreign individuals (including Romanians with a domicile outside Romania) are generally subject to Romanian taxation only for income sourced in Romania. However, as of 2007 foreign individuals are taxed on their worldwide income if certain specific criteria are met.
• Individuals employed abroad and performing employment activities in Romania who meet Romanian tax residency criteria may be required each month to calculate, declare and pay individual income taxes as well as contributions to the Romanian Social Security system (observing specific criteria), for income received for employment activities performed in Romania.
• Salary tax exemption may be applied for employees working on software creation if certain conditions are fulfilled.
• Dividend income, income from prizes and income from other sources are generally subject to a final 16% withholding tax.
• Capital gains from transfers of securities are taxed at 16%, except for listed securities held for more than 365 days, which are taxed at 1 %; capital gains from transfer of listed shares were tax free in 2009.
• Interest income earned from deposits in Romanian banks or other savings instruments is tax free as of January 2009.
• Starting February 2009, employer related social security contributions amount to a maximum of 28 - 39.2% of gross payroll costs.

Taxation of corporations

• Standard corporate income tax rate is 16%. Tax payers may have to pay an annual minimum tax if their normally calculated profit tax liability is lower than the annual minimum tax, which is calculated using the turnover up to December 31 of the previous year.
• Tax payers have the obligation to make quarterly advance profit tax payments equal to a quarter of the previous year's profit tax, increased by the inflation rate.
• Dividend tax rate is 10% on dividends paid to Romanian companies. A standard withholding tax of 16% is applicable for dividends distributions to non-resident companies but this can be reduced by the double tax treaties to the lower of the treaty rate and the rate applied to domestic companies (10%). Dividend tax is reduced to nil if the beneficiary is a company resident in an EU (including Romania) or EFTA member state that holds, for at least two years, at least 10% of the shares of the company distributing the dividends.
• Standard withholding tax on interest and royalties paid to non-residents is 16%, which can be reduced under more favourable treaties. Until 2010, a 10% rate applies to payments made to an EU resident company holding at least 25% of the shares of the payer for at least two years. From 2011, such payments are to be exempt from withholding tax.

Value Added Tax

• Standard rate of VAT is 19% and the reduced VAT rates are 9% and 5%
• From 2010, rules determining the place of supply for goods and services (and hence the place for VAT taxation) have been fully harmonised with EU Directive 112/2006 and EU Directive 8 / 2008 regarding VAT.
• Specific VAT treatment for EU business transactions.
• No VAT is applicable for the transfer of going concerns.
• VAT applies to factoring and debt collection activities.
• Invoicing deadline is the fifteenth day of the month following that in which the supply was performed.

Customs and International Trade

• As an EU member, Romania applies the EU Common Customs Tariff & EU customs regulations.
• Romania applies all EU free trade agreements concluded with third countries.
• Import licences are required for commodities such as oil, certain chemical products and weapons.
• No customs formalities are applied for goods with community status (goods produced in the EU or goods released for free circulation in the EU).
• Compensatory interest is due for Inward Processing & Temporary Admission regime goods released for free circulation in the EU.
• Security required for suspensive customs regimes, with a few exceptions.

Excise duties

• EU harmonised excisable products and “non-harmonised” excisable products.
• Tax warehouse for production and storage purposes.
• Registered and non-registered traders.
• Excisable products can be produced, transformed, transported and stored under suspensive arrangements.

Environmental Fund Contributions

• Contributions for packaging, tyres, air-pollutant emissions from fixed sources, sale of ferrous and non-ferrous waste, standing wood, etc.
• Some contributions depend on compliance with waste management obligations
• Registration  of  producers  /  importers  /  exporters  of  EEE   (electrical   and   electronic equipment).
• Registration obligation for producers / importers of chemical substances and preparations