Romania adopted a new tax exemption for the grant of equity compensation awards that allows award recipients to avoid paying income taxes and social security contributions on the taxable income realized from the award and eliminates any income tax and social security contribution withholding obligations on the part of the local employer in Romania.

In conjunction with various questions raised about the treatment of equity awards which do not qualify for the exemption, our colleagues in Romania confirmed that in the case of non-exempt awards where the local employer in Romania does not bear the cost of such awards (via a reimbursement arrangement), the employee personally is responsible for reporting the taxable income realized from the equity award and paying the income tax and social security contributions (including the employer portion of social security contributions).

To mitigate the burden of having the employee pay the employer portion of the social security contributions, the local employer can agree to pay such amount on the employee's behalf but the employer's payment will trigger additional taxable income to the employee (which in turn will trigger income tax and social security contributions). As such, the only way the local employer in Romania could pay the employer portion of the social security contribution on behalf of the employee on a tax-neutral basis is via a tax gross-up.