The Emergency Ordinance no.79/2017 (the so called “fiscal revolution”) was adopted on 8th of November by the Romanian Government regarding the modification of the Fiscal Code and it came into force, being published on 10th of November in the Official Gazette, although the draft was negatively endorsed by the Fiscal Council and the Economic and Social Council.
Note: The Emergency Ordinance refers to national legislation and the provisions of Directive 2016/1164/EU to combat the outsourcing of multinational companies’ profits by: limiting interest deductibility; introduction of exit taxation – preventing the erosion of the taxable base in case of a transfer of assets outside Romania; strengthening anti-abusive regulation that will allow Romanian authorities to refuse taxpayers the tax benefits from abusive arrangements; introducing rules on foreign controlled companies (SSCs) aimed at preventing tax avoidance by diverting revenue to tax haven affiliates.
What’s new?
The main changes concern the transfer of social contributions from the employer to the employee and the reduction of the income tax, from 16% to 10%. Specifically:
- reduction of the cumulative share of mandatory social contributions, by a total of 2%, from 39.25% to 37.25%;
- reduction of the number of social contributions from 9 to 3, being maintained: the social insurance contribution (CAS), paid for the employee; the social security contribution (CASS) paid to the employee; employers’ insurance contribution for work;
- compulsory social contributions owed by the employer will be transferred to the employee in case of salary and salary income;
- an additional CAS rate (4% and 8% respectively) is set for special, special or other conditions of work defined by the law;
- the social security contribution (CASS) is 10%, payable by individuals who are employed or for whom there is the obligation to pay the social security contribution.
The Government also decided to increase the level of gross monthly income according to which the personal deduction is granted, as follows:
- from 1500 lei (currently) to 1950 lei – the limit up to which the deductions are granted in a fixed amount, depending on the number of dependents,
- from 3000 lei (currently) to 3600 lei – the maximum limit until which the deductions are granted in a degressive manner.
Gains or losses? An employee who is now paid with a gross average salary in the economy would have only 2- 3 lei extra salary starting next year.
However, the announced salary increase from January 1 is generated by adding to the employee’s gross salary the employer’s contributions, which probably will be stopped at source.
Furthermore, the Emergency Ordinance reviews how micro businesses are taxed so they will benefit from a 1% corporate tax on earnings and SMEs that earn revenue from € 500,000 to € 1,000,000 and currently pay a 16% corporate tax.
Note: In the opinion of some consultants who preferred to remain anonymous, Romania is becoming a kind of tax haven for small and medium-sized enterprises, given that the 1% turnover tax is one of the lowest in the world.
To put it in a nutshell: of the one part, the Government presents these measures as beneficial, encouraging and even creative opportunities for employers, but of the other part business representatives, entrepreneurs, analysts, consultants, employers and investors reject them, whether in whole or in part, invoking major risks to macroeconomic stability.
For further details: EMERGENCY ORDINANCE No. 79/2017 of 8 November 2017 for amending and completing the Law no. 227/2015 regarding the Fiscal Code