Income Tax in Romania : 2017 Updates

In Romania, the income tax is collected from individuals and is imposed on different sources of income like labour, pensions, interest and dividends.
For the government, the income tax is very important because it is generating a considerable source of revenue. Since 2005, Romania is applying a flat tax rate of 16 %.


The Government Emergency Ordinance no.3/2017, issued on the 3rd of January 2017, brought some modifications to the Romanian Fiscal Code. Among the modifications and amendments we are presenting here after only those which have an impact on payroll management activities.
One of them introduces the exemption of income tax for persons having concluded a 12 months contract with Romanian entities which have seasonal activities.

In which cases does this exemption apply ?
The range of the activities recognized for this amendment is given by Law 170/2016.
According to the codification CAEN (Romanian acronym for National Economic Activities Classification), the domains are :

5510 Hotels and similar accommodation facilities
5520 Vacation and short rental accommodation facilities
5530 Parking spaces for caravans, camping activities, camps
5590 Other accommodation services
5610 Restaurants
5621 Catering for events
5629 Other catering activities which are not classified at other codes
5630 Bars and other drink serving activities

Law 170, issued in October 2016, come in force on the 1st of January 2017, introduced the specific tax for the entities mentioned above, a tax which replaces the tax on profit.
Now, by the GEO no.3/2017, the field of tourism and other seasonal activities can benefit from this tax exemption, which encourages the employers to conclude a 12 month extended contract in order to qualify for it.

It is well known that the Romanian seaside is active mainly during the summer, while winter sports occupy mountain resorts for two or three months at the most. Some companies provide services in both summer and winter resorts. For these entities, this exemption represents very good news. People negotiating a gross salary will thus get an increased net amount. On the contrary, for those who negotiated the net amount, the employer is the one who “wins”.
Exemple : let’s take a gross salary of 3000 lei. Normally, the net amount is 2104 lei. With the tax exemption, the net will be 2505 lei.
On the other hand, small companies providing vacation services only for a couple of months per year usually don’t have enough financial resources to sustain personnel costs for the whole year. Therefore, in their case, the exemption doesn’t help a great deal.
This means mainly that only big companies will benefit from it. They will use this exemption because they have enough financial power as well as incoming revenues throughout the year.

In conclusion, small businesses are unfortunately not encouraged. The goal of this measure was of course to discourage black labour – a well-known problem in the seasonal activities – but will it be indeed eliminated by applying this ordinance ? We seriously doubt it. There is a certain discrepancy between the syntagm of “seasonality” and the request of the law for “12 months basic contract”. The government’s intention was to avoid staff mobility in the tourism sector and thus lay the grounds for better quality services. Again, practice will show if this measure will encourage labour market in those fields, or it will be forgotten before being applied.

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