Romania tax system - taxation of Romanian companies and individuals: VAT, income tax and capital gains. Tax treaties of Romania.

Romanian tax residents pay tax on their worldwide income, but wages and salaries for work done abroad are not taxed. Non-residents pay tax on income from sources in Romania.

Individuals engaged in research and development, software development, construction or agriculture receive significant benefits and in certain conditions can be exempt from tax.

The standard tax rate is 10%. However, lower rates apply to some kinds of income. Dividends are taxed at an 8% rate (before 1 January 2023, the rate was 5%). Profit from sale of real estate is taxed at a 1% rate if the property was owned more than 3 years or a 3% rate if less than 3 years.

Profit from sale of other property is normally taxed at the standard rate. However, a special tax regime applies to income from capital gains received as a result of transactions made through a Romanian intermediary organization (for example, Romanian resident brokers, foreign brokers with a Romanian permanent establishment, etc.). In such cases, received income from capital gains is taxed at a 3% rate if the assets were managed less than one year, and a 1% rate if more than one year.

There are certain allowances for children and personal deductions for taxpayers who have dependents.

Tax residents of Romania may claim a foreign tax credit in Romania if it is provided by the tax agreement between Romania and the jurisdiction in question and the taxpayer can prove that income tax has been paid in the foreign jurisdiction. A tax credit may not exceed the Romanian tax payable on the income.

Romanian companies pay income tax on their global income, foreign - on income from sources in Romania.

The income tax rate is 16%.

Income in the form of dividends received by a Romanian legal entity from another Romanian legal entity is taxed at an 8% rate. Dividend tax is not charged if shareholding is at least 10% during a continuous period of at least one year.

Dividends received by a Romanian legal entity from a foreign legal entity are normally included in taxable income and taxed at the standard corporate income tax rate. Dividends from a company of an EU country or a country that has a double tax treaty with Romania are exempt from taxation if shareholding is at least 10% during a continuous period of at least one year.

Profit from sale of shares in a Romanian or foreign company of a country that has a double tax treaty with Romania is also exempt from taxation if shareholding is at least 10% during a continuous period of at least one year.

Gains on the sale of assets are included in the tax base and taxed at the standard 16% rate.

1) for companies whose annual turnover in the previous period exceeded EUR 50 000 000 (except for companies of the banking and oil and gas industry), a minimum turnover tax has been introduced that is calculated according to the following formula: 1% x (VT - Vs - I - A) where:

VT – total turnover (proceeds);

Vs – income deducted from total turnover, including:

• non-taxable income provided by the Tax Code;
• income connected with inventory costs;
• income connected with unfinished service costs;
• income from subsidiaries;
• compensations received from insurance companies for damage caused to goods or the company’s own tangible assets;
• income that is excise taxes that simultaneously were shown on expense accounts; and
• income from production of tangible and intangible assets not included in "I" below;

I – cost of work-in-progress that arose as a result of purchase / production of assets that is included in the balance sheet since 1 January 2024.

A – depreciation of assets purchased / produced since 1 January 2024.

The minimum tax applies when the corporate tax calculated using the standard method is smaller than the minimum turnover tax.

2) In addition to profit tax, banks’ turnover tax is introduced, which includes interest income, dividend income, commission income, profit (loss) from different financial assets and other specified income, at a 2% rate in 2024 and 2025 and 1% starting in 2026.

3) In addition to profit tax, a tax is introduced for companies of the oil and gas sector whose annual turnover exceeded EUR 50 000 000 in the last year; it is payable at a rate of 0,5% of the turnover calculated using the formula for the minimum tax from clause 1, 0,5% x (VT - Vs - I - A). Companies engaged in the business of distribution / delivery / transportation of electric power and natural gas regulated / licensed by the National Power Industry Regulation Authority are exempt from the additional tax.

Starting on 1 January 2024, the profit tax rates for micro enterprises (small companies that meet certain criteria and have proceeds of under EUR 500 000) are:

• 1% for micro enterprises with annual proceeds not exceeding EUR 60 000 that do not conduct business in the below fields;
• 3% for micro enterprises that have annual proceeds of over EUR 60 000 or conduct business in the following fields: software development, IT services, hotel and restaurant business, medical and some other services.

Starting on 1 January 2024, micro enterprises are enterprises that meet the following criteria:

• have at least 1 staff member;
• have turnover of < EUR 500 000;
• have shareholders that hold over 25% of the total share capital or voting rights, and the company is the only micro enterprise established by these shareholders (earlier shareholders could own 3 micro enterprises at most);
• have other sources of income, besides management and consulting, that make up over 80% of the total income.

A foreign company is considered to be a controlled company if it has in its capital, voting rights or rights to profits is directly or directly or indirectly, alone or jointly with related parties, is more than 50% and the company pays income tax at the rate less than half of the income tax income tax that would be paid by a similar Romanian company. Undistributed profits of the CFC in the relevant proportion of the passive income is taxed at the controlling person in Romania. Passive income for these purposes, among others include, inter alia, interest, royalties, dividends, income from the sale of shares, leasing, trading and service income from transactions with related parties with insignificant economic contribution to the activity (income from "invoicing").

Tax is withheld at a rate of 8% on dividends paid (before 1 January 2023 – 5%). Payments of royalties and interest are taxed at source of payment at a rate of 16%. Payments for legal and consulting services provided to a Romanian company, irrespective of where the services are provided, are also subject to a 16% withholding tax.

In Romania, there is a number of special conditions and exceptions:

• When paying income to countries that do not exchange information with Romania, the tax rate may, in the case of an artificial structure, amount to 50%.
• Romania has introduced the Interest and Royalty Directive. Payments of interest and royalties made by a Romanian company to a company resident in another EU member state are exempt from withholding tax if the non-resident company during a continuous period of at least two years held at least 25% of the authorized capital of the Romanian company before the payment.
• Since Romania is an EU member state, provisions of the Parent-Subsidiary Directive apply. Dividends paid by Romanian companies to companies resident in one of the EU member states are exempt from profit tax if the receiver of the dividend at the time of payment had held at least 10% of shares of the Romanian company during a continuous period of at least one year.

Tax rates are reduced in accordance with the provisions of agreements on avoidance of double taxation and EU directives.

The standard rate of VAT is 19%. Reduced rates of VAT are applied to certain goods and services. Reduced rates of 9% and 5% are applied to certain goods and services.

The obligation to register for VAT purposes does not arise until sales in the country during 12 months are under the registration threshold, which is RON 300 000 per year. This threshold only applies to taxpayers registered in Romania.

Foreign persons who must pay tax and conduct their business activity outside Romania must register for VAT purposes in Romania in the following cases:

• if such an organization makes at least one taxable transaction within the country;
• when selling at a distance in certain conditions;
• export.

Starting on 1 July 2024 all resident companies and non-resident companies registered for VAT purposes in Romania must bill other companies and state institutions using the national electronic billing system (RO e-Factura).

Tax calculation method and rate vary depending on the purpose of the property.Residential buildings are taxed at rates ranging from 0,08% to 0,2% (the base is different for individuals and companies) and for non-residential buildings from 0,2% to 1,3%, in some cases - 5%. Local authorities can increase the tax by 50%.

Land owners pay the tax at the rates, which is a fixed amount per square meter depending on the purpose and location plot of land.

On 1 January 2024, a new special 0,3% tax on expensive immovable and movable property was introduced for:

• individuals' residential buildings the taxable value of which exceeds RON 2 500 000 (~ EUR 500 000), on the tax base equal to the amount in excess of RON 2 500 000;
• individuals and legal entities’ cars with the purchase value exceeding RON 375 000 (~ EUR 75 000), on the tax base equal to the amount in excess of RON 375 000.

Employees pay social security (pension) contributions at a rate of 25% of the remuneration and a medical insurance contribution at the rate of 10%, which are deducted for the purpose of calculation of income tax.

Employers pay social security contributions at the rate of 4% or 8% in certain labor conditions (no contributions shall be made in normal labor conditions), they also pay an unemployment insurance contribution of At the rate of 2,25%.

Social security contributions can be paid not only on employment Social security contributions can be paid not only on labor remuneration, but also on certain other benefits, including royalties, investment income, etc., in accordance with special social security regulations. income, etc. according to special rules.

In 2024, the minimum salary is RON 3 300 lei per month (gross salary).

Income from independent activities (freelancer PFA, II sole proprietorship, etc.) is taxed at a flat 10% rate and includes income from production, trade, provision of services as well as income from free professions received individually and / or in the form of association, including income from related activities.

Currently, in Romania there are two methods of determining the tax base for a freelancer:

• Taxation based on actual registered income and expenses (in Romanian «sistem real»);
• Taxation of fixed (lump sum) income («norme de venit»).

Payment of income tax according to "sistem real" implies payment of a fixed tax of 10% of the net taxable income, i.e. income less expenses accepted for taxation purposes.

Selection of taxation of a freelancer’s income according to the fixed / lump sum income system also implies payment of a fixed 10% income tax. But when using this method, the net taxable income is a fixed amount predetermined by the tax authority for each tax year.

In Romanian tax terms this amount is known as «normă de venit». Its main difference from the first taxation system is that it does not take into account actual income and expenses registered by the freelancer during the tax year. Tax authorities annually set a one-time taxable income for each kind of business activity that the freelancer can conduct (individual CAEN code according to the law).

Individuals who receive income from independent activities from one or more sources must also pay social (pension) insurance and medical insurance contributions as follows:

If the annual income is between 0 and 12 minimum gross salaries, pension contributions are not required.

If the annual income is between 12 and 24 minimum gross salaries, the due pension contributions are calculated based on 12 minimum gross salaries. Calculation for 2024: minimum gross salary of RON 3 300 x 12 months x 25% tax = RON 9 900 per year.

If the annual income exceeds 24 minimum gross salaries, pension contributions will be calculated based on 24 minimum gross salaries. Calculation for 2024: minimum gross salary of RON 3 300 x 24 months x 25% tax = RON 19 800 per year.

II. Health care contributions (the rate is 10%):

If the annual income is up to 6 minimum gross salaries, health care contributions are calculated based on 6 minimum gross salaries and equal 19 800 x 10% tax = RON 1 980 per year.

If the annual income is between 6 and 60 minimum gross salaries (up to RON 198 000), health care contributions are calculated based on the actual income.

If the annual income exceeds 60 minimum gross salaries (is over RON 198 000), health care contributions are 198 000 x 10% tax = RON 19 800 per year.

Gross rental income is taxed at a flat 10% rate. A medical insurance contribution is charged if the annual income separately or jointly with other categories of personal income, as provided by the Tax Code, exceeds the minimum threshold set by the law (for instance, in 2024 the threshold is not less than RON 19 800).

If individuals receive rental income under more than five lease contracts at the end of the financial year, starting next financial year such rental income qualifies as independent activity income and is subject to relevant tax rules.

Lease contracts and any changes thereto must be registered with the tax authority ANAF within 30 days after updating/entering into the lease contract.

Romania has concluded 88 Double Tax Treaties (DTC) and 3 Tax Information Exchange Agreements (TIEA) with the following jurisdictions:

88 DTCS: Australia, Austria, Albania, Algeria, Armenia, Azerbaijan, Bangladesh, Belgium, Belarus, Bulgaria, Bosnia and Herzegovina, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Israel, Iran, Ireland, Italy, Japan, Jordan, Kazakhstan, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova, Montenegro, Morocco, Namibia, Netherlands, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Qatar, Republic of Korea, Russian Federation, San Marino, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkey, Turkmenistan, UAE, Ukraine, United Kingdom, Uruguay, USA, Uzbekistan, Vietnam, Zambia.

3 TIEA: Guernsey, Isle of Man, Jersey.

In addition, Romania has signed but not yet ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).

In general, foreign exchange transactions are carried out without restrictions.