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Romania – Taxation

The Taxation System in Romania

The taxation system in Romania is regulated by the Romanian Tax Code, which defines the types of taxes that must be paid by individuals and businesses. The system is divided into two categories: direct taxes and indirect taxes. Direct taxes are paid on income and wealth, while indirect taxes are paid on the sale of goods and services.

Individuals who are employed in Romania are subject to personal income tax (PIT), which is calculated based on their income. PIT rates range from 10% to 45%, with higher rates applied to higher incomes. In addition to PIT, employees also pay social security contributions, which are deducted from their gross salary. The social security contributions are used to fund the Romanian social security system, which provides benefits such as health insurance, disability benefits, and retirement pensions.

Companies operating in Romania are subject to corporate income tax (CIT), which is also calculated based on their income. The current CIT rate is 16%, which is lower than the average rate in the European Union. In addition to CIT, companies also pay social security contributions for their employees.

Double Taxation Agreements in Romania

Romania has signed double taxation agreements with more than 80 countries around the world. These agreements are designed to prevent individuals and companies from being taxed twice on the same income. They also provide rules for determining which country has the right to tax specific types of income.

For example, if a Romanian resident is working in another country and earning income there, the double taxation agreement will determine whether the income should be taxed in Romania, in the country where the work is being performed, or both. In general, the agreement will provide a credit for taxes paid in the other country to avoid double taxation.

Main Taxes Expats Need to Be Aware Of

As an expat working in Romania, there are several taxes that you need to be aware of. The main ones are:

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  • Personal Income Tax (PIT): As mentioned earlier, PIT is calculated based on your income and ranges from 10% to 45%. If you are employed in Romania, your employer will deduct PIT from your salary and pay it on your behalf.

  • Social Security Contributions: As an employee, you will also be required to pay social security contributions, which are used to fund the Romanian social security system. The current rate is 25% of your gross salary.

  • Value Added Tax (VAT): If you are running a business in Romania, you will need to register for VAT and charge it on your goods and services. The current VAT rate is 19%.

  • Corporate Income Tax (CIT): If you are running a company in Romania, you will be subject to CIT on your income. The current rate is 16%.

There are also several tax breaks that could apply to expats, depending on their specific situation. For example, if you are a foreign investor in Romania, you may be eligible for a special tax regime that offers a reduced tax rate of 1% on certain types of income.

Filing a Tax Return in Romania

As an expat working in Romania, you may be required to file a tax return each year. If you are an employee, your employer will deduct taxes from your salary and pay them on your behalf. However, if you have additional income or deductions, you may need to file a tax return to report them.

The deadline for filing a tax return in Romania is typically May 25th of the following year. If you are filing a tax return for the first time, you will need to register with the tax authorities and obtain a tax identification number.

Tax Exit Procedures for Leaving Romania

If you are planning to leave Romania and move abroad, there are certain tax exit procedures that you need to follow. The first step is to notify the tax authorities of your departure and settle any outstanding taxes or fees. You may be required to obtain a tax clearance certificate to prove that you have settled all taxes and fees.

If you are a business owner, you may be required to submit a final tax return and settle any outstanding tax liabilities before leaving Romania.

It is important to note that if you own any property in Romania, you will still be subject to property taxes even if you are no longer a resident. You will also need to continue to file tax returns in Romania if you have any income from Romanian sources.

The taxation system in Romania is similar to other European countries, with personal and corporate income taxes, social security contributions, and value-added tax. Expats working in Romania should be aware of their tax obligations and potential tax breaks. When leaving Romania, it is important to follow the tax exit procedures to avoid any potential tax liabilities.

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