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Romania | Social Security | Income tax and social security changes based on the government’s emergency ordinance no. 115/2023

Romania | Social Security | Income tax and social security changes based on the government’s emergency ordinance no. 115/2023

January 3, 2024

Individual income tax and social security contributions

Romania | Social Security | Income tax and social security changes based on the government’s emergency ordinance no. 115/2023

Summary
New amendments of the Law No. 227/2015 (Romanian Fiscal Code) are adopted through the Government’s Emergency Ordinance no. 115/2023 (GEO 115) that was published in the Official Gazette No. 1139 on 15 December 2023.

The Detail

The most important changes in respect of income tax and social security contributions

Salary income and assimilated income
The amounts granted to the employees within the limit of 400 lei/month for teleworking are eliminated from the category of non-taxable income.

The following changes impact the income category considered cumulatively non-taxable within the limit of 33% of the monthly base salary:

the annual limit of EUR 400 for sport subscriptions paid by the employer is reduced to EUR 100; thus, when determining the taxable basis, the value of the sport subscriptions supported by employees will be deducted within the limit of EUR 100/year;
the amounts paid by the employer for the early education of the employees’ children are considered within the limit of 1.500 lei/month for each child, the amount being granted only to one of the parents;
the favorable difference between the negotiated preferential interest rate and the interest charged on the market for loans and deposits (formerly considered non-taxable income) is included in this category.

The calculation method of the monthly ceiling of 3 base salaries applicable to per-diem during delegation and secondment, for internal and external business travels, granted starting December 2023, is set; the ceiling is calculated separately for each month, based on the number of days worked in that month.

Additional clarifications are brought regarding the moment of taxation for different types of salary benefits.

Software development, construction, agriculture and food industry income
New clarifications are brought on the taxation method of employees that, during the same month, earn salary income and salary assimilated incomes, for a fraction of a month, from several successive employers. Thus, in order to apply the tax facilities related to the income tax and the social security contribution for these categories of income, each employer establishes the non-taxable part of the ceiling of up to and including 10.000 lei/ month corresponding to the related period and grants the exemption for the corresponding gross monthly salary within the limit of the fraction of the ceiling determined this way.

It is clarified that employees falling under the category of this section have the option to either contribute or to opt-out from paying social security contributions to the privately managed pension fund – 2nd Pillar, by signing an agreement with the employer.

It is clarified that the reduced contribution to the 2nd Pillar applies only to the part of the income up to and including 10.000 lei ceiling.

Income from independent activities
The private scholarships grants and protocol expenses are eliminated from the category of deductible expenses when determining the annual net income from independent activities.

Rental income
Starting 1st of January 2024:

the option of the taxpayers deriving rental income to calculate the net income using the real system, based on the data from the accounting, is eliminated;
the deductible fixed quota for expenses, representing 20% from the gross income, is reintroduced when determining the taxable base;
taxpayers who earn rental income from more than 5 lease agreements will no longer qualify for the category of income from independent activities;
companies or other entities, which have the obligation to conduct bookkeeping, have the obligation to calculate, withhold and pay the income tax due on the rental income, corresponding to the amounts paid to the owners of the buildings (natural persons);
the deductible fixed quota for expenses applicable when determining the net lease income obtained starting with 2024 is diminished from 40% to 20%.

Fiscal losses reporting
The annual fiscal loss registered by the taxpayer starting the year 2024 on each source of income (i.e., from independent activities, from intellectual property rights, from agricultural, forestry and fish farming activities, from the transfer of securities and any other transactions of financial instruments, including derivative financial instruments and gains from the transfer of investment gold), shall be offset within the limit of 70% from the annual taxable gains, the compensation period being reduced from 7 years to 5 consecutive years.

The annual fiscal losses recorded by the taxpayer prior to 2024 and not offset by 31 December 2023, shall be compensated within the limit of 70% of the annual net income / gains realized as of 2024 over the remaining period of 7 years and are offset against the annual fiscal losses incurred starting 2024.

With regards to the rental income, the uncompensated fiscal loss carried forward, as well as the fiscal loss incurred during the year 2023, represents taxpayer’s final loss.

Redirecting 3.5% of the income tax to support non-profit entities
Starting with the income obtained during the year 2024, it will no longer be possible to redirect 3.5% of the income tax obtained from independent activities, intellectual property rights and private income to non-profit entities.

Thus, it will be possible to redirect 3.5% only from the income tax on income from salaries and assimilated to salaries.

General provisions
For determining the annual social security and health fund contributions due, the value of the gross minimum salary per country valid on 25th of May of the year the income is earned shall be considered, in case during one tax year several gross minimum wages are applicable.

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