On 8th November 2017 the Romanian government published the fiscal legislative framework for 2018. The ordinance details far-reaching tax changes which will come into force on 1st January 2018.
These are mainly related to income tax and social security contributions, micro-company tax and corporate tax. Major changes are briefly presented below.
1. Income tax
Income tax will be reduced, as from 1st January 2018, from 16% to 10% for the following types of income:
- Income from independent activities
- Salaries and similar income
- Rental income, investment income (except dividends, taxation remains at 5%)
- Income from agricultural and forestry activities and fish farming
- Premiums and other income
Furthermore, the exemption limit for personal deductions for employees will be increased from 3,000 to 3,600 RON.
2. Social security contribution
The transfer of social security contributions to the employee, as well as changes to payroll deductions, have been put into place.
At the moment, contributions to pension and health insurance are paid jointly by the employer (ER) and the employee (EE). As of 1st January 2018, almost all contributions have to be paid by the EE. The ER will have to pay a small work insurance contribution and, if applicable, small pension insurance contributions for special (4%) or difficult (8%) working conditions.
For normal working conditions there are now three (instead of seven) types of contributions; the ER has to deduct them from EE’s gross salary.
In practice, the transfer of social security contributions from the ER to the EE requires an increase of the gross salary: otherwise the increased social contributions for the EE would result in a significantly lower net salary.
Because of the decrease of income tax to 10%, keeping net salary unchanged by raising the gross salary does not affect the ER’s total costs. The EE gains no advantage if the net salary is unchanged, which raises the question of the reason for this measure.
3. Micro-companies tax
The scope of the micro-company tax (3% of turnover (not profit), if the company has no employees, otherwise 1% of turnover) has been significantly expanded by the EO. Starting on 1st January 2018, all companies that have a revenue less than €1,000,000 as of 31st December 2017 are obliged to pay the micro-company tax (until now the limit was €500,000). The current exemptions (companies that get more than 20% of their revenue from consulting services, banks, insurance companies, gambling businesses, oil and gas distributors) have been abrogated, i.e. these sectors are liable to pay microbusiness tax when they fall below the turnover limit.
The chance to opt for corporate income tax (16% of taxable profit) if the share capital of a company is 45,000 RON or higher has been abrogated.
The EO also states that all companies that have either:
- been excluded from the micro-enterprise tax so far, or
- that have opted to pay corporate income tax because of their share capital
must, from 1st January 2018, pay micro-enterprise tax.
As of 1st January 2018, the only criterion used to decide whether a company pays micro-company tax or corporation tax is the company’s turnover.
4. Corporate tax
The changes are primarily based on EU-directive 2016/1164 which includes among other things, rules on interest limitation. The so-called exceeding borrowing cost are, in general, tax deductible up to a limit of €200,000; amounts above this threshold have a limited deductibility (up to 10% of a result figure defined in the EO).
Furthermore, an exit taxation is now in place: if a person taxable in Romania relocates assets, its business activities (e.g. related to a permanent establishment) or its fiscal residence to a foreign country – and Romania therefore loses the right to tax – the difference between the market value and the tax value of these relocated assets is taxed as a capital gain at 16%. Under certain conditions a deferral of payment is possible.
The already existing anti-abuse-rules have been confirmed (article 11 of the Romanian Tax Code enables tax authorities to disregard issues without economic background and only aiming at tax avoidance).