We have been addressed this question by our subscribers very often lately: “I receive a pension from abroad. Should I declare it in Romania? Should I expect taxation of my foreign pension in Romania?”
Therefore, we have decided to explain in this article the conditions under which income from foreign pension (i.e., received from abroad) is subject to taxation in Romania and, at the same time, the taxes that are due, if applicable, for this type of income.
According to the provisions of the Romanian Tax Code currently in force (art. 130, paragraph (1)), pension income obtained from abroad is subject to taxation in Romania for the following categories of persons:
As a basic rule established by the Romanian tax legislation, an individual who is resident for tax purposes in Romania has the obligation to declare in Romania all his/her personal income, regardless of the nature of the income (e.g., pensions, dividends, capital gains, rental income, income from freelancing activities, etc.), or of its source (i.e. , if generated from Romania or from abroad), including pension income received from any foreign country.
The fact that an individual tax resident of Romania has the obligation to report an income for tax purposes does not automatically mean that the income will be double taxed (in the source country and also in Romania). This is where the provisions of the double tax treaties (or conventions for avoiding double taxation), signed by Romania with other countries, come into place.
Thus, in what regards taxation of pensions, most of the tax treaties signed by Romania with other countries provide that pension income received from abroad by an individual tax resident of Romania may be:
Therefore, depending on the provisions of the applicable tax treaty (signed between Romania and the source country of the pension income), there are significant chances that taxation of a foreign pension in Romania would not occur. Or, it could eventually be only subject to an amount of tax exceeding the value of income tax already paid in the source country (if the tax due in the source country is lower than that due in Romania).
IMPORTANT: If the provisions of the applicable tax treaty allow for exemption from tax of the foreign pension in Romania, this doesn’t mean that the individual who generates the foreign pension is exempt from the obligation to declare the income in Romania. The obligation to declare the income to the Romanian tax authorities still applies, but the individual has the right to select in the annual tax return form the method of avoiding double taxation as being the exemption method.
According to the provisions of the Romanian Tax Code (i.e., Law no. 227/2015), pension income represents “amounts received as pensions from funds established from mandatory social contributions made to a social insurance system, which include those from voluntary pension funds, as well as those financed from state budget”.
According to the provisions of Articles 100 and 101 of the Romanian Tax Code, pensions are subject to income tax as per the following rules:
Therefore, for a pension derived from abroad amounting to 4,500 lei per month, the income tax must be applied at the rate of 10% on the taxable amount that exceeds the threshold of 2,000 lei, i.e., 10% x 2,500 lei. In this case, an income tax amount of 250 lei per month will be due, i.e., a total of 3,000 lei per year.
However, if the same pension income is taxed in the source country, then one of the double taxation methods, as per the applicable tax treaty, will have to be applied as already described above.
Let’s hypothetically assume that in the source country the tax due on pensions is in the amount of 15%. This results in a monthly tax of 675 lei paid in the other state, meaning 8,100 lei per year. If the double tax treaty signed with the other state provides as method of avoiding double taxation the tax credit, then the taxpayer will have the right to reduce the value of the annual tax due in Romania with the amount of tax due in the source state.
Because in this case the value of the tax due in that state exceeds the value of the tax due in Romania, then the final tax due in Romania will decrease to zero.
In addition to income tax, starting with 2022, pensions are also subject to the health insurance contribution (CASS).
More precisely, according to new provisions entered into force starting with January 1, 2022 (art. 154, paragraph (1) letter h) of the Tax Code), only pension income up to 4,000 lei per month will continue to be exempt from the payment of health insurance contribution.
Thus, starting with 2022, pensions are subject to Romanian health insurance contribution (CASS) according to the following rules:
Individuals who earn pension income from other countries, and who have the obligation to declare it in Romania for tax purposes, must fulfill this obligation by submitting the annual tax return. The deadline for completing and submitting the annual tax return is May 25 of the year following the one in which the pension income was generated.
For example, for pension derived during 2023, the deadline for filing the annual tax return is May 25, 2024.
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.
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.