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Romania amends fiscal code provisions for security contributions and tax benefits

Executive summary

From 1 February 2017, Romania has introduced a number of changes to its tax and social security laws, including the following:

  • The ceiling for pension and health insurance charges for salaries will be removed both at employee and employer levels.
  • The ceiling for the health insurance charges will be removed for investment income and income from other sources.
  • A new category of revenue earned seasonally will be exempt from income tax.
  • Subscriptions for medical services will become tax deductible.

Key changes

The maximum base for computing social charges was previously capped at 5 times the gross average salaries (5 x RON 2,681). The cap for the pension contribution had been applied previously, but the cap for the health insurance contribution was to be applied only from 1 January 2017.

Starting February 2017, this cap will no longer be applicable.

The health insurance contribution for investment income and/or income from other sources will be computed for the total amount of income earned, due to the removal of the ceiling from 1 February 2017.

However, as an exception, health insurance contributions for the above income items are not due for individuals who are already paying health insurance contributions on other forms of income during the tax year such as: salaries or income assimilated to salaries, pension income, income from independent activities, income from the disposal of goods, income from association with legal entities (such as Director’s fees) or income from agricultural, forestry and fishing activities.

For individuals under a labor contract concluded with Romanian legal entities for a determined period of twelve months performing seasonal activities (such as hotels, restaurants, tourism), earnings from salary and salary assimilated elements will be exempt from income tax.

Medical services subscriptions paid by employees will be deductible in identifying taxable income. The maximum deductible amount will be limited to the RON equivalent of EUR 400 per person per year.

Next steps

Employers and individuals should consider the impact of these changes. Specifically, employers should ensure their payrolls are adjusted and should expect an increase in costs following the removal of the ceiling for pension and health insurance charges in relation to employees or secondees registered in Romania for social security purposes (such as for inbound employees who do not have an A1 certificate from another EU member State or outbound secondees who do have a Romanian issued A1 certificate).

EYG no. 00411-173Gbl

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