Expat salary tax rules in Romania: an useful guide
Has your company assigned employees to Romania and you don’t know how to deal with the expat salary tax reporting? Is this a new situation for you? And you don’t even know how to assess if an assignee is subject to salary taxes in Romania?
In this article we will guide you on how to deal with the monthly salary tax reporting in Romania for expatriates. We will briefly explain how to generally assess the applicable salary tax obligations, and determine which ones apply to your employees.
So, at the end of this article, you will know how to:
- determine if your company’s seconded employees have any salary tax obligations in Romania,
- what are the steps that your company, or the seconded employee, must do to report the salary taxes, and
- how to avoid any penalties from late filing of the tax returns.
How to assess expat salary taxes in Romania
As a matter of principle, every country has the right of taxation over salary income that individuals derive from activities rendered on their territory.
As general rule, according to Romanian tax law any foreign employee rendering employment activities in Romania is subject to tax reporting. This applies irrespective of the period for which the employee is working in Romania (e.g., one month or twelve months). This is the applicable general rule, as per the Romanian domestic tax law.
Nevertheless, since people are moving from country to country very often in our times, bilateral treaties are signed between countries, to agree on specific rules for situations of international mobility.
Thus, where there is an international tax treaty in place between Romania and the home country of the employee, the rules of that treaty must prevail. Generally, most of the tax treaties provide for more favorable taxation rules for the employment income. Such rule generally entails that, when an individual who is tax resident of a certain country moves to carry out his employment activities in Romania, he would become subject to taxation on salary in Romania only if a certain period of presence is reached in that second country, and if other conditions are fulfilled. Let’s detail a bit on the tax treaty conditions.
How do you apply the tax treaty rules for salary?
Generally, the presence threshold is set to 183 days (there may be other, depending on the treaty). If that threshold is exceeded, the individual becomes subject to salary income tax in Romania starting with his/her first day of activity in the country.
In the same time, even if the presence threshold is not exceeded, but the individual’s salary income is borne by a Romanian resident company, then his salary becomes subject to taxation. So, in practice it is either of the following that triggers taxation of the foreign assignee’s salary in Romania:
- thee employee exceeds a presence of 183 days in Romania within 12 consecutive months, or within a calendar year, or
- the salary costs of the employee are born by a Romanian resident company, or by a permanent establishment the foreign employer may have in Romania.
Remember: if only one of the above conditions are fulfilled, then the employee’s salary becomes subject to taxation in Romania. The two conditions do not need to be fulfilled cumulatively.
Practical example:
Now let’s put this assessment into practice with a simple example, to understand it better.
Let’s assume your company will assign a German employee from the German headquarter of the group to work for a temporary period in Romania. Let’s say the assigned employee will work at the Romanian subsidiary of the group for a period of 3 months. His salary costs will be invoiced by the German company to the Romanian company.
The assessment steps we’ll need to take based on the above are:
- We already know that, as per the Romanian tax law, his salary is taxable in Romania as of first day of presence. But, we will have to check if there is any tax treaty in place between Romania and Germany that may impose a more favorable rule. Let's assume we checked and there is a tax treaty in place.
- Second step is to check the treaty and see what it says about the taxation of employment income for an individual working cross-border (this is generally detailed under article 14 or article 15 of the tax treaty).
- We check the treaty and see that it provides for the following wording:
“(1) …wages and other similar remuneration derived by a resident of a Contracting State (in our case Germany) in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State (in our case Romania). If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
(2) Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
- the recipient is present in the other State (in our case Romania) for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and
- the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State (in our case Romania) , and
- the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State (in our case Romania).”
The wording of the tax treaty may seem a little bit complicated at first, but it isn’t. Don’t let yourself overwhelmed by the complex phrases and technical words. In short, what the treaty means for our particular case is the following:
The salary income of a German employee who renders his activities in Romania can remain subject to taxation in Germany, if both of the following conditions are fulfilled:
- his presence in Romania does not exceed 183 days within a period of consecutive 12 months, and
- his salary costs are not borne by an entity resident of Romania (be it a Romanian company or any other type of presence the German company may establish in Romania – e.g. permanent establishment, fixed base, etc.
Conclusion:
So, under the reverse interpretation, if any of the above conditions provided by the treaty is not fulfilled (e.g. salary costs are finally borne by a Romanian resident entity), then Romania has taxation right over the expat’s salary.
Now, as last step, we have to draw the conclusion on our particular case: while the first condition in the treaty is fulfilled (the employee is present in Romania for 3 months, which is less than 183 days), the second condition (salary costs born by a Romanian entity) is not fulfilled. Remember that in our example the salary costs are invoiced by the German company to the Romanian subsidiary. So, this means that the Romanian company will finally born the costs.
What if there is no treaty signed between the individual’s country of tax residence and Romania?
If there is no treaty signed between the countries, then the individual will be subject to income tax as of the first day of his/her presence in Romania. Since there is no treaty that can be applied, the Romanian domestic tax legislation will be applicable directly. As per the Romanian tax legislation, any foreign national carrying out employment activities in Romania is subject to income tax on his/her salary as of the first day of presence in the country.
Are there other expat salary taxes in Romania applicable, apart from income tax?
Yes, there are other salary taxes in Romania applicable – these are the social security mandatory contributions.
Nevertheless, please keep in mind that mandatory social contributions are not due in all situations! For example, in the case of an employee’s secondment from an EU member country (our example as well), according to the EU Regulation on social security the individual can remain subject to home country’s social security system. In such case, his/her salary will be exempt from mandatory social contributions in Romania, according to the EU Regulation. So, only income tax will be paid in Romania.
How do you declare salary taxes in Romania for seconded employees?
When an internationally assigned/seconded employee must pay salary taxes in Romania, this is done via monthly salary tax reporting.
The monthly salary tax returns must be filed by any expat working in Romania based on a foreign employment contract (temporarily seconded to Romania from his home country). It doesn’t matter if the individual is an EU citizen or non-EU citizen.
To ensure the expat’s salary tax reporting and payment (as well as of social contributions, if the case) in Romania, a specific tax registration must be undertaken. Depending on the specific case (i.e., if both income tax and social contributions must be reported), the filing of the tax return can be done online, via electronic means, or physically, to the local tax office.
In short, in practice there can be two alternatives for reporting the salary taxes:
- The assignee is subject to both income tax and social security contributions in Romania - in this case the salary reporting must be done via the tax form 112.
- The assignee is subject only to income tax, and is exempt from paying social contributions – as mentioned above, this is generally applicable under the EU Regulation on social security (EC Regulation 883/2004). In this case the salary reporting must be done via the tax form 224.
Reporting deadline
The deadline for both reporting and paying the salary income tax and social contributions is 25th of the month following the one for which these liabilities are due. For example, for the salary received in the month of May, the reporting deadline is 25th of June.
Other important aspects regarding expat salary tax reporting:
If an expat didn’t declare his salary taxes in Romania yet, can he do this now for the past period?
Yes, the salary taxes can also be declared retroactively. The reporting method is the same – i.e., through monthly tax declarations. But please note that tax authorities may choose to apply late filing and late payment penalties and interest. If you need more information on the potential late filing penalties or interest that authorities may impose in your case, or if you need our team to assist with your salary tax reporting, please feel free to contact us.
How can I check if there is a double tax treaty signed between an assignee’s home country and Romania?
There are several sources where you can get such information, especially via internet. As trustworthy source, we use the Romanian Tax Office (ANAF) online repository, which you can find here: Conventions for the avoidance of double taxation concluded by Romania with other states. Unfortunately the page and the treaties are only in Romanian language for the moment, but hopefully there will be an English version pretty soon.
Another option is to check on the tax authorities’ website in your home country, as they may have a similar database online. Or, if you are resident of an EU member country, you may also check the list of tax treaties concluded by all EU member countries on the European Union’s website, here.
Please note that the article above provides information of general nature, which may not be applicable to all possible situations. Therefore, it should be relied upon only for general information or similar cases. TAX IQ cannot be held reliable for any misinterpretations that may occur in practice.
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Founded in 2008 as TAX IQ, our company has gained extensive expertise over the years, allowing us to effectively utilize our experience to benefit our clients’ best interests. Over time, we have succeeded to build a solid reputation as trusted tax advisor for the entire community of Romanian expats.