Romania tax residency became popular because the 1% tax for micro-companies.
In any case, Romania applies a general income tax rate of just 10%. However, many people forget to account for social contributions which increase your overall tax burden.
Let’s have a closer look at the full picture.
Overview of Tax Residency in Romania
- Flat personal tax rate of 10%
- Tax rate of 16% for dividends and capital gains
- Different social contributions for both employees and freelancers adding up quickly
- Health insurance contribution of 10% also applies to non-professional income (e.g. dividends)
- Flat corporate tax rate of 16%
- Qualifying micro-companies can pay 1% on revenue instead of the corporate tax rate
Tax Benefits of Being a Tax Resident of Romania
The main tax benefit of Romania tax residency is its 10% flat personal income tax rate.
Moreover, micro-companies just pay 1% tax on their revenue.
Yet, in both cases, you shouldn’t lose the social contributions out of sight when you make your assessment whether Romania tax residency is an interesting option for you.
Taxes in Romania
Let’s have a closer look at the different tax rules and rates in Romania.
Personal Income Tax Rates
Romania applies a flat personal tax rate of 10%.
However, for certain types of income, different rates can apply.
The rate for capital gains is 16%. The same rate also applies to dividends.
Yet, the general tax rate of 10% applies to interest payments.
Nevertheless, both on dividend and interest you also have to pay health insurance contributions (see below).
So, unlike in most countries social contributions aren’t limited to professional income only.
Romanian Social Contributions
If you have Romania tax residency you shouldn’t only focus on income tax. You’ll also have to pay social contributions.
For employees, the social contributions are shared between the employer and the employee:
- Employer: 6,25-10,25%
- Employee: 35%
The calculation basis is the salary plus the value of any benefits in kind the employee receives.
For self-employed individuals, the system works a bit different.
One the one hand there is a social insurance contribution at the rate of 25%. This leads to the following contributions depending on your income level:
- Annual income <RON 48.600: only voluntary contributions
- Annual income RON 48.600-RON 97.200: minimum contribution of RON 12.150 per year but higher possible if wanted
- Annual income >RON 97.200: minimum contribution of RON 24.300 per year but higher possible if wanted
Furthermore, you have to pay health insurance contributions at a rate of 10% of your taxable income.
The maximum contribution basis for this calculation is set at 72 times the minimum wage or RON 291.600. This leads to a maximum contribution of RON 29.160 per year.
These health insurance contributions are also due on other types of income like dividends depending the level of income from these particular sources (excluding professional income):
- Annual income <RON 24.300: no health contributions
- Annual income RON 24.300-48.600: health contributions of RON 2.430
- Annual income RON 48.600-97.200: health contributions of RON 4.860
- Annual income >RON 97.200: health contributions of RON 9.720
These social contributions will be due in Romania if you receive Romanian income even if you’re not a tax resident there.
However, bilateral agreements could exempt you if you already pay social contributions in another country.
Corporate Income Tax
The corporate tax rate in Romania is 16% on profit.
However, Romania also has a specific regime for so-called micro-companies. The rules in this regard have changed a lot over the past years.
Currently, your micro-company will pay a 1% tax calculated on your revenue if you meet the following criteria:
- Revenue of less than €100.000
- Employ at least one individual
- The owner can only participate in one company benefitting the micro-company regime
Furthermore, there are some administrative requirements you need to meet.
If your company pays out a dividend, it will have to withhold a dividend tax of 16%.
Furthermore, as you could read above, the health insurance contribution also applies to dividends.
Requirements to Become a Tax Resident in Romania
There are three ways by which you can become a tax resident in Romania.
The first way is by spending more than 183 days in Romania during a twelve month period.
Most nomads don’t like to be locked in one place though. So, this rule doesn’t always apply to them. If you would qualify as a Romanian tax resident under this criterium, you would be liable to taxes as from the day of your arrival in Romania.
The second way to become a Romanian tax resident is by having the centre of your vital interests situated in Romania.
In this case, they look at your connections with the country (e.g. house, family, business, bank accounts, memberships).
If you would qualify as a Romanian tax resident under this criterium, you would be liable to taxes as from the day you establish your centre of vital interests in Romania.
The third way is by being domiciled in Romania. This means you have a permanent home available to you in Romania and the intention to live there long term.
Domicile demands a stronger connection than just merely having a house available. It tends to only apply when you have at least a permanent residency permit or citizenship.
Technically, there is also a fourth way to qualify as a Romanian tax resident, but this is only applicable to Romanian citizens working abroad as a civil servant.
If you hold the Romanian digital nomad visa and stay less than 183 days, the law explicitly states you aren’t considered a Romanian tax resident.
How to Establish Tax Residency in Romania?
Let’s have a look at the different steps to establish Romania tax residency.
Meet Romania Tax Residency Criteria
The first in obtaining tax residency in Romania is to make sure you meet the criteria for tax residency:
- Spend 183 days in the country
- Have your center of vital interests there
- Have your domicile in Romania
Complete Tax Residency Questionnaire
Romania has a specific system for establishing your tax residency.
They ask you to complete a questionnaire of the Romanian tax authority (ANAF) when you arrive with the intent to settle there or after staying there for 183 days.
Based on your answers in the questionnaire (form Z015) they will determine if you qualify as a Romanian tax resident or not.
Please note that if you ever want to end your tax residency in Romania you’ll have to fill out a similar questionnaire.
File Tax Return
As a last step you need to file an annual tax return by 25 May of the following year.
However, depending on your situation you might already have to complete certain administration during the year and make prepayments for taxes and social contributions.
My Tax Perspective on Getting Tax Residency in Romania for Nomads and Expats
Many people are attracted by the micro-company regime in Romania. They focus on the 1% tax on revenue.
However, what many seem to forget is that you also pay dividend tax plus social contributions on dividend payouts from your company.
If you add all of this up, you quickly end up with a tax burden of 26%. So, not so interesting anymore.
Alternatively, you opt for registering as a freelancer. In that case you can pay the flat income tax rate of 10%. However, also in this case it’s the various social contributions that make the whole story less interesting. All together, your tax burden will quickly rise above 20% as well.
Not too bad if you compare to many Western European countries but at the same time there are definitely more tax efficient options out there.
How is Romania for Digital Nomads?
Romania does have a few things to offer to digital nomads:
- Cost of living: low cost of living compared to the rest of Europe
- Internet: some of the fastest internet in Europe
- Safety: mostly a safe country
The launch of the Romanian digital nomad visa is interesting if you’re a digital nomad from outside the EEA and want to stay for a longer period in the country.
Need Further Help? Work With Me!
You want to see if Romania tax residency is a good idea for you or what could be a good alternative? Reach out!