If you choose to be a freelancer in Romania and you have the legal authorization for this, the taxes to be paid are a bit different than for employed people. We hereby offer a big picture of all the different contributions to be taken into account by those undergoing such freelance activities.
TAXATION FOR FREELANCE ACTIVITIES: A BIT OF CONTEXT
Up until 2016, becoming a freelancer in Romania was a popular option for employees looking for fiscal optimization. Being a well-known situation, the authorities decided to come up with a few changes. Their purpose was precisely to reveal those labour relations which originally should have been treated as labour contracts (functioning under the Labour Code) and not as civil contracts, with an authorized independent person. As a result, taxation of freelancers came very close to the taxation for salary income, but not identically.
One of the reason why taxation cannot be identical resides in the nature of the freelance concept. An employee is not independent, he acts only within the limits of his labour contract. Moreover, he has limited responsibility and doesn’t have to go find the source of his income. A freelancer on the other hand is responsible with his personal assets in front of the law, has to find the source of his income all by himself and he runs all the risks associated with his activity.
In this category we can count, beside small businesses, also the so-called liberal professions: lawyers, architects, chartered accountants. The general rule being that of belonging to a professional body (as the Bar of Lawyers, Chartered Accountants Organisation, National Order of Architects, Fiscal Consultants Chamber).
All freelance activities are subjected to the sole income tax of 16 % and to social and health fund contributions.
FREELANCERS’ SOCIAL CONTRIBUTIONS: AMOUNTS AND EXEMPTIONS
By social contributions we understand the freelancer’s contribution to his retirement. The entire amount to be paid adds up to 26.3 % of his/her income, which will give them the right to a full pension. There is also the possibility to pay only 10.5 % of the income in social contributions, which will of course lead to a reduced pension.
These levels are applied to a capped income of 5 average salaries, but cannot be applied to less than 35 % of it. Starting February 2017, the average salary was announced to be 3 131 lei (~ 700 €). The social contribution of 26.3 % can thus vary from a minimum of 288 lei (64 €) up to 4 117 lei (915 €) at the most, paid on a monthly basis.
As a reminder : also starting February 2017, please note that employed people pay their social contributions to the whole amount of the salary, no matter if it exceeds 5 average salaries.
If the freelancer’s option is to contribute for a partial pension, he will then have to pay only 10.5 % of his income. The amounts go between 115 lei (~26 €) and 1 644 lei (365 €). It is important to mention that, once this choice is made, it cannot be changed until the end of the year.
People who already retired don’t have to pay the social contribution. The same goes for those whose freelance income is less than the minimum income of 1 450 lei/month. Obviously, in this case, they won’t have any rights towards a pension.
Another special category is the one of lawyers. They have their own pension fund to which they contribute solely, but using the same rates.
HEALTH CONTRIBUTIONS
The contribution to the health budget amounts to 5.5 % of the net income. The payment has to be made 4 times/year, at the end of each quarter, based on the incomes of the previous year. The amount is also capped to 5.5 % of maximum 5 average salaries (5*3 131 lei * 5.5 % = 861 lei).
A legitimate question can be raised at this point : what if the contribution paid this year, based on the income made last year, is more (or less ) than the amount of 5.5 % applied to the actually obtained income ? The regularisation is to be made the next year, after submitting the form 200 (deadline on the 25th of May for the incomes of the previous year). The extra amount can be reimbursed or left to compensate future contributions.
In terms of the way of taxation, freelancers generally have 2 options:
- based on the real income;
- based on a previously estimated income (no matter if they actually obtain it or not).
The second option is not applicable to all activities. It can apply for example for IT activities, small trade, manufacturing, activities with children. The general rule for the estimated income is that it cannot be less than the minimum wage (1 450 lei – amount in force starting the 1st of February 2017).
OPTIONAL CONTRIBUTIONS
The above contributions are mandatory and give the freelancer the right to pension and health services. Some other contributions are optional, opening access to other rights.
Contribution for medical allowance
A freelancer can contribute with 0.85 % of his/her income, on a monthly basis, in order to have the right to a state allowance in case of disease or maternity.
Contribution to the unemployment fund
If the freelancer wants to be entitled to an unemployment allowance (should he/she not be able to make ends meet at some point), he/she has to conclude a contract with the specialized unemployment agency and pay a monthly a contribution of 0.5 % of his income.
Contribution for risks and labour accidents
This contribution depends on the freelancer’s activity. The amount is set between 0.15 % and 0.85 % of the income.
Important ! All these rates are applied to the income after the deductible expenses were subtracted.
Last but not least, in case the freelancer’s spouse is involved in the “business”, he/she can access the public social system by concluding separate contracts for pension, health or unemployment, according to the Law no.4/2014.
