In this article we explain the conditions under which a Romanian company can apply for its employees the salary tax exemption for IT sector. This is a specific salary tax exemption applicable to employees specialized in software development.
This tax incentive can be implemented by Romanian companies operating in the IT field, and which develop and sell software as part of their business. If applied, the tax exemption can generate significant salary cost saving.
More exactly, according to the Romanian legislation that is currently in place (i.e., Order no. 1168/2017 regarding the tax exemption criteria applicable to the activities of software development), the employees of Romanian companies whose business activities include the creation of computer programs can benefit from salary income tax exemption (10%), if both the company and the eligible employees cumulatively meet certain conditions established in the law.
The conditions that apply to the employer for benefiting from this tax exemption for its employees are not many, but of course are important to be fulfilled if the company wants to apply this tax incentive.
We describe below these conditions and provide short explanations to each of them.
The following conditions must be fulfilled by a Romanian company to be able to apply the salary tax exemption for its employees:
To also sustain the possibility for startups of qualifying for applying this tax incentive, the authorities provided for certain important exceptions from the condition of generating a minimum annual revenue of EUR 10,000 (equivalent in RON) per each employee. Thus, in the applicable law the following exception’s were introduced:
Therefore, based on the above mentioned exceptions, a startup will be able to implement the tax incentive from its first year of existence.
The following conditions must be fulfilled by an employee for benefitting of the salary tax exemption for software development activities:
Any foreign employee (of EU or non-EU citizenship) can benefit of the salary tax exemption for software development activities, if the person has a graduate diploma equivalent or recognized through the specialized structures of the Romanian Ministry of Education, and fulfills all conditions described above.
The even better part of this tax incentive is that the company doesn’t have to apply for it and obtain any sort of approval from any authority. This means that, as a Romanian company that qualifies for this incentive, if fulfilling all conditions in the applicable law, it can directly start applying the salary tax exemption for the eligible employees.
As per the provisions of the applicable law (Order 1168/2017), the only aspect one must take care of is to ensure they keep a ready-for-review file at the company’s premises, which can be verified by a tax inspector anytime.
The file must include at least the following documents:
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