Romanian taxation of capital gains – FAQ
We’re providing below answers to the most frequently asked questions regarding the Romanian taxation of capital gains from stock market investments done by individuals. The answers are provided by the best tax consultants, specialized in taxation of investment type of income.
Romanian taxation of capital gains
More and more people are turning to investments in the stock market, forex and mutual investment funds. Stock markets have been on continuous growth for years, and investors are always thinking of generating as much profit as possible. When generating significant gains from stock transactions or receiving dividend payments as result of owning shares, investors automatically worry about the applicable tax treatment for such shares, as well as the tax reporting liabilities they have towards the authorities.
I generated income from sale of Romanian shares. How do I declare capital gains tax to Romanian authorities?
Individuals who obtain capital gains from Romanian investment funds or from the sale of shares issued by Romanian companies have the obligation to declare such income to tax authorities through the annual tax return (in Romanian: “declarația unică”).
It should be noted that, if you sell the shares through a Romanian broker, the brokerage firm has the legal obligation to provide you, at the end of each tax year, a portfolio report for the ended year. That record includes information about the total gains or losses you registered during the previous year from all sale transactions.
Regardless of whether you have made a gain or loss for the entire year, the respective amount must be declared to Romanian tax authorities (ANAF) via the annual tax return. If you are in a gain position, then you will have to pay tax. If you are in a loss position, then you will not owe any taxes, and the declared loss will be carried forward to the next year. Specifically, if you declare it to ANAF, the loss registered during a year will be taken into account when determining the final gain for the next tax year.
The deadline for submitting the annual tax form is 25 May of the following year. The reporting deadline can be extended by the tax authorities, only in special circumstances.
How do I declare the Romanian capital gains tax due on the sale of foreign shares?
Capital gains from transactions with securities issued by non-resident companies (shares of foreign companies) must be declared through the annual tax return, as explained below. The difference stays only in taxation. More precisely, in the application of the avoidance of double taxation for the situation in which the income is taxed in the source country as well. Specifically, when completing the tax return you must specify the method for avoidance of double taxation and the amount of income tax due in the source country, if any.
The method for avoiding the double taxation is established by the tax treaty signed between Romania and the other country. It can be either the exemption method, in which case the income will be exempt from taxation in the country of tax residence (if taxed in the other country), or the tax credit method. If the tax credit method applies, and at the same time the tax rate in Romania is higher than in the source country, then you will only have to pay the difference between the Romanian income tax and the tax due in the other state.
If the tax rate applicable in Romania (10% at present) is lower than in the source country, then in Romania no tax will be due. Thus, the tax credit recognized through the tax return cannot be higher than the tax that would have been due in Romania, under normal conditions (10%).
I also receive dividends for the shares I own. How are the dividends taxed?
In the case of dividends, the income tax due is 8% (starting with 2023 income). If the dividends are paid by a Romanian company, the tax due must be withheld and declared at source by the paying company. Otherwise, if these are paid to you by a foreign company, you will have to declare them through the same annual tax return.
In addition to income tax, under certain conditions, you can also be liable to pay health insurance contribution (CASS), representing 10% calculated at 6, 12, or 24 minimum gross wages per economy, depending on the level of the annual personal income derived. If your dividend income is also subject to CASS, then you will have the obligation to declare it through the annual tax return.
For more details on the taxation of dividend income and the fulfillment of the tax reporting obligation for such income, please check the article: Romanian taxes on dividends in 2023 – explained in details.
How can I submit the annual tax return?
The annual tax return in Romania can be submitted as follows:
- Online, via the Virtual Private Space (in Romanian: Spațiul Privat Virtual), on the ANAF’s website – for this method you need to register a personal tax account in the Virtual Private Space;
- Online, via the e-guvernare.ro website, by signing the tax form electronically, based on a qualified digital certificate; for this method it is necessary to purchase a qualified digital certificate in advance;
- In hard copy, directly at any ANAF agency within the jurisdiction where you reside in Romania, or by post, through the acknowledgment of receipt method.
How can I pay the income tax due for the capital gain derived?
The amount of Romanian income tax due to the state as per the tax return can be paid as follows:
The treasury account specific to annual tax payments due by individuals is the one with the termination 5504. It is important to note that the beginning part of the account differs depending on the county or district in which you reside.
How should I fill in the annual tax return?
The form of the annual tax return is a document in smart pdf format that must be completed by chapters, both by source of the income (income with source in Romania or abroad), and by categories of income, derived during the previous year or estimated to be derived during the current year by the taxpayer. Thus, the form must be completed on two separate chapters, the first chapter is for income or incomes generated during the previous year, while the second chapter is for income or incomes estimated to be realized from Romania for the current year (if the case).
However, with regard to capital gains, only the income derived in the previous year must be declared in the tax return. An estimate for the current year is obviously impossible for this type of income.
Furthermore, if you obtain income both from Romania and from abroad, you have the obligation to complete a separate section under each chapter. In each section you will have to tick the type of income you derived (e.g. dividend income, rental income, capital gains, etc.), where you will fill in the details for each type of income.
Following the submission of the tax return, will the Romanian tax authorities issue a tax decision to me?
It is important to know that, starting with 2018, no tax decisions will be issued by the tax authorities (ANAF) following the submission of the annual declaration. Therefore, starting with the income related to year 2018, the tax reporting system for individuals has changed and the taxable income is calculated and declared through the tax return on one’s own responsibility, without the calculation being performed by the ANAF tax inspectors.
The amounts of tax due are automatically calculated by the tax form, based on the amounts of taxable income you input in the form.
So, it is your responsibility to declare the taxable income and pay the due tax correctly. Therefore, the tax amounts as per the information declared in the tax form are also the payment amounts due to ANAF, calculated through self-assessment.
Can I recover the losses I have during a year from the sale of shares? If so, how can I do that?
For tax purposes, the losses from sale of shares that you may incur during a tax year can be carried forward to the next year, for a period of maximum 7 consecutive years. Specifically, the loss can be deducted from earnings over the next seven consecutive tax years. So, if you incurred any losses from sale of shares during previous 7 years, these can be used to reduce your taxable capital gain in the current year. Nevertheless, to be able to use the losses, you must have declared them to the tax authorities in the year when they were incurred.
There are certain loss carryover rules that must be followed. These are:
- The carryover is done chronologically, depending on the length of the loss, to the next seven consecutive years;
- The right to carryover is strictly personal and non-transferable;
- The loss carried forward and which has not been offset after the expiry period of seven consecutive years will be considered a definitive loss;
- The annual loss can only be used to offset gains from transfer of securities. The loss cannot be used to offset other types of taxable income.
Is the Romanian taxation of capital gains differently applicable for Romanian tax resident individuals compared to non-residents?
Romanian tax law applies the same tax treatment to non-resident individuals who derive taxable capital gains from Romania (if tax is applicable as per the tax treaty) that also applies to the same income obtained by Romanian residents.
As general rule applicable according to the Romanian Tax Code, non-residents are subject to taxation in Romania only for income obtained from Romania. In addition, for the purpose of taxation on such income, the provisions of the double tax treaty between Romania and the individual’s country of residence (if one is in place) will apply, as per the case.
For the purpose of applying the tax treaty, non-residents must be able to prove tax residence in the other country (usually by a certificate of tax residence issued by the tax authorities of that country).
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