Romania payroll and tax overview.

Located on the western shores of the Black Sea, Romania is one of the largest countries in Eastern Europe by size and population. Bordered by Moldova and Ukraine to the north, Hungary and Serbia to the west, and Bulgaria to the south, Romania has long represented a gateway between the East and West. A developing country, Romania emerged from a period of political and financial turmoil in the late 20th century, introducing a series of reforms designed to simplify regulation and tax and attract international investment. In the 21st century, Romania’s economic recovery has continued: in 2019 it reached an estimated GDP of $244 billion with a growth rate of 4.1% - one of the fastest in the EU. Important industries in Romania include electronics, textiles, mining, timber, and food processing and it has also become a hub for mobile technology, information, and security hardware research. The agriculture industry is also historically important to Romania’s financial profile, employing around 26% of the country’s population and contributing around 4.3% of GDP. Romania is a member of the EU and NATO and was ranked 55 on the World Bank’s Ease Of Doing Business Survey 2019.

Why Invest in Romania?

There are plenty of reasons to regard Romania as an investment target, including:

• Economic strength: Romania’s economic growth rate (around 5.2% in 2017) is outpacing many European competitors. Growth has been driven by industrial strength and forecasts predict the trend will continue.
• Government reforms: To transform the economy, Romania’s government introduced a series of reforms in the early 21st century designed to boost business and attract investment. These reforms include a flat 16% corporate tax rate, 0% tax on reinvested income, and a minimal regulatory environment.
• Market potential: Romania’s domestic market holds around 21 million potential consumers. These consumers form part of a young, sophisticated population - which hosts a growing middle class with a rising per capita income.
• Skilled labour: Romania’s labour force is skilled and embodies a cultural dedication to hard work. Enrolment in education has been rising steadily in the 21st century at both the high school and university levels - where the most popular disciplines are business, administration, and law. Many Romanians speak multiple languages.
• Strategic location: Romania’s location, at the crossroads of the East and West, offers numerous lucrative trade connections - including access to the EU’s free trade area and a market of around 500 million consumers. A modern, efficient transport infrastructure of road, rail, air, and sea links serves regional and international locations.

Foreign Direct Investment in Romania

Romania joined the European Union on 1 January 2007 and began the transition from communism in 1989 with a largely obsolete industrial base and a pattern of output unsuited to the country’s needs. The country emerged in 2000 from a punishing three-year recession thanks to strong demand in EU export markets.

Company Registrations and Incorporation of a Legal Entity in Romania

Both foreign individuals and legal entities can establish corporate presence in Romania. Companies need to have their own patrimony, registered capital, management, registered offices, assets, names and bank accounts. All companies must be registered with the National Trade Register Office, organized by the Romanian Chamber of Commerce and Industry. Companies should register with the Trade Registry at the Local level, at one of the 42 territorial offices, depending on the address chosen for the registering its office.

The National Trade Register Office is a public institution, which has the function to maintain statistical information on business activities in Romania. Thus, in Romania, it is required that a company specifies its main activity and is allocated a code number which relates to that particular activity, such as ‘Property Investment’, when using the formation of the company to buy land in Romania.

In Romania you can register a foreign entity for payroll purposes.

Documents and Information

To start incorporating a company in Romania the following are required

• Company name which must be reserved at the Trade Registry;
• The director/s full name, date of birth, PIN (personal identification number), address and nationality;
• The shareholder/s full name, date of birth, PIN, address and nationality;
• Company business objective;
• A registered office;
• Bank at which the share capital/operational capital account will be opened;

Business Banking in Romania

It is mandatory to have an in-country company bank account to make employee salary payments and third-party authority payments.

Banks are generally open Monday to Friday, from 09:00 to 17:00. Some banks are also open on Saturday from 09:30 to 12:30.

What Are the Working Days and Working Hours in Romania?

The Romanian working week is typically Monday to Friday.

The work week for full-time employees is generally limited to no more than five days (eight hours per day) and a maximum number of 40 hours per week, with 2 consecutive days of rest, usually Saturday and Sunday. According to law, the maximum legal length of working time may not exceed 48 hours per week, including the overtime.

Basic Facts about Romania

General Information

The territory, which became known as Romania, was founded in 1859, as a union of the two principalities of Moldavia and Wallachia. Ruled by a variety of successive European powers, the country eventually gained independence from the Ottoman Empire and began to be recognised by a variety of international political powers. With a rich cultural heritage and home to areas of natural beauty, Romania is a popular tourist destination: forests and rivers are scattered across the country while the spectacular Carpathian Mountains tower over its central region. Temperate and continental, Romania experiences warm, hot summers, and mild, cold winters. Its proximity to the Black Sea also plays a part in Romania’s international appeal as a tourist destination.

Full Name: Romania

Population: 19.53 million (World Bank, 2018)

Capital: Bucharest

Primary Language: Romanian

Monetary Unit: Romanian Leu (RON), divided into 100 bani

Main Exports: Electric machinery and equipment, textiles and footwear

GDP Growth: 1.30% (second quarter of 2019)

Internet Domain: .ro

International Dialing Code: +40

Annual tax (financial statements: balance sheet, P/L sheet, trial balance) returns are due by 25th May of each year for the previous year in Romania, but in certain cases, such as for employment income derived from non-Romanian employers, tax returns are due on a monthly basis by the 25th day of each month for the previous month.

The tax year usually ends on 31st of December.

Where foreign individuals are employed by a Romanian entity, both salary tax and social contributions are applicable, except for the case when a certificate for social security coverage is available, such as the A1 form used for assigned European citizens.

Income Tax in Romania

Both Romanian nationals and Romanian companies must pay tax on any income within Romania and any income from outside of Romania. Non-residents that are declared Romanian fiscal residents are required to pay tax on their total income, the income obtained in Romania and the income obtained abroad.

For tax purposes, an individual who resides in Romania for more than 183 days within a 12-month period, should submit to the local tax authority the “questionnaire to establish the fiscal residence of an individual upon arrival in Romania”. Following the submission and the review of the file, the tax authority will issue a notification regarding the fiscal residence of the individual (the individual will be declared fiscal resident in Romania, or he/she will remain tax resident in the country of origin/residence).

An individual does not have to be present in Romania for 183 consecutive days, but the total number of days must not exceed 183 in any 12 consecutive months.

The “questionnaire to establish the fiscal residence of an individual upon departure from Romania” has to be submitted by the individual with at least 30 days prior to his/her departure from Romania. The tax authority will issue a notification regarding the fiscal residence of the individual (the individual will be kept fiscal resident in Romania or not).

Romania has double taxation agreements in place with most countries.

Employers are required to deduct tax payments on behalf of their employees through the payroll.

The tax system in Romania is a great incentive for expats wishing to relocate to Romania with flat tax-rates of 10% on individual income and 16% on corporate income. Some smaller companies, i.e. microenterprises, pay smaller taxes. A tax rate of 1% is paid if the company has just one full-time employee, with a contract agreement for unlimited period or for at least 12 months. If the company has no employees, the tax rate is 3% of the annual turnover.

New categories of non-taxable salary income have been introduced:

• The employee can pay contributions to voluntary pension funds and private health insurance authorized by the Romanian Financial Supervisory Authority, up to the equivalent of €400 per year each.
• Food rights granted by employers to employees, where specific legislation prohibits employees from bringing their own food to the premises.
• Personal deductions are available for an income of up to RON 3600 per month, if the taxpayer has dependents the amount will increase.

Social Security in Romania

All employed and self-employed persons must pay social security contributions (pension and health insurance), with contributions paid by each employee and employer, as required by fiscal legislation.

The employees’ contributions are computed, withheld and paid to the State Budget by the employer. This must be completed by the 25th of the month following the reporting month. Social security contributions are paid by employers for employees.

As of 1 January 2018, when the social security shifted from the employer to the employees, the contributions are the following:

• The pension contribution - 25% due by employees as well as other individuals required by law to pay the pension contribution;
• The health insurance contribution - 10% due by employees or by individuals required by law to pay the health insurance contribution;
• The work insurance contribution applied to employment and employment assimilated income - 2.25% due by employers, individuals or companies.

Where individuals are employed by a Romanian entity, both salary tax and social contributions are applicable. In case of secondment, if a certificate for social security coverage (A1 form) is available, the assignee will be exempted from the mandatory SSC.

Social security contributions are mandatory and must be paid by the 25th of the next month.

Reporting Tax in Romania

Monthly

Declaration D112

Submitted by employers for all the individuals under work contracts or assimilated with employees (information regarding employer, employees, income and taxes).

Online registration on the website of Ministry of Finance, based upon a digital certificate is mandatory.

Can be submitted on behalf of the client by the legal representative.

The legal representative needs to have a digital certificate issued by the tax authority.

Declaration D224

For employment income derived from Non-Romanian Employers, tax returns (D224 tax return) are due on monthly basis by the 25th day of each month, for the previous month payment.

Subsequently, D222 is submitted for the same category of employees, but only upon assignment start and assignment end.

Yearly

Annual tax reports are submitted at the end of the financial year to the tax authorities. In Romania, annual tax returns are due by 25th May each year for the previous fiscal year.

By 28th of February, the informative declaration D402, must be submitted by EU residents for salary and assimilated incomes (including the allowances for company administrators). Additionally, the D224 return submitted in December must include the tax incomes for the whole year (for all previous months from January until November).

New Employees in Romania

All employers in Romania must comply with the Romanian labor law, whether they employ Romanian citizens or foreign nationals and regardless of the size of business. The Romanian Labor Code (“Codul Muncii”), which was enacted in 2003, governs the relationship between employers and employees, and covers local employees working for Romanian employers in Romania and abroad, as well as foreign citizens working in Romania.

All new employees are required to be registered with the Labor Inspectorate and in specific software for evidence of all employees, called Revisal, 1 (one) day before starting their working contract at the latest.

All new employees must be issued with an employment contract which should include the following information:

• The identity of the parties;
• The workplace or, in the absence of a permanent workplace, the possibility of working in several places;
• The headquarters or, as appropriate, the domicile of the employer;
• The position/occupation according to the Romanian Classification of Occupations or other regulatory documents and the job description;
• The job-specific risks;
• The date when the contract takes effect;
• In the case of an employment contract of limited duration or of a temporary employment contract, its respective length;
• The length of the leave the employee is entitled to;
• The conditions under which the contracting parties may give notice and its length;
• The basic pay, other components of earned income, and the payment frequency for the wage the employee is entitled to;
• The normal length of work, expressed in hours per day and hours per week;
• The reference to the collective labour agreement governing the working conditions of the employee, if applicable. Only employers with more than 20 employees are due to conclude a collective agreement at unit level, according to the law.
• The length of the probationary period.

The reference to the collective labour agreement governing the working conditions of the employee, if applicable. Only employers with more the 20 employees are due to conclude a collective labour agreement at unit level, according to the law.

The mandatory documents required for hiring a Non-EU citizen are:

• Passport
• Work Permit obtained from the Immigration Office
• Employment visa issued by the Romanian Consulate in the country of origin;
• Signed Labour Contract and payroll documents;
• Valid lease agreement for a residence address in Romania (the domicile address is considered the one in the country of origin)

Non-EU citizens have the legal right to stay and work on the Romanian territory only upon obtaining the employment visa. EU citizens benefit from the same treatment as Romanian citizens and can be hired without a work permit.

Leavers in Romania

The notifications should be made to the local authorities when there is a leaver. The termination must be recorded in the specific software Revisal, at the latest by the first non-working day.

Employers are required to withhold tax and social security contributions from their employees’ wages - and report those to the national tax authority. Residency status is relevant to income tax collection in Romania: non-residents must pay tax on income derived only from within Romania, while residents must pay tax on all worldwide income.

Income tax in Romania is charged at a flat rate of 16%, while social security contributions amount to 15.5% for employees, and up to 32.6% for employers (depending on working conditions). Social security contributions cover pension, unemployment and health funds.

It is acceptable for employers in Romania to provide employees with online payslips, while payroll reports must be kept for a minimum of 50 years. Given Romania’s often complex tax requirements, international businesses setting up in Romania may choose to engage a global payroll provider to handle the process - ensuring compliance and the efficient delivery of pay.