Government Emergency Ordinance 79/2017 has been published in the Official Gazette, Part I no. 885 of 10 November 2017.
It provides for amendments to the Fiscal Code, with effect from 01.01.2018, which mainly concerns:
Starting with January 1st, 2018, the income tax rate is 10%, and it applies to the following income categories:
– Revenue from salaries;
– Revenue from pensions;
– Revenue earned by authorized individuals;
– Revenues from intellectual property;
– Revenue earned by individual cabinets (eg lawyers, doctors, notaries);
– Income from rents, interest, prizes, agricultural activities, investments and income from other sources.
Also, the tax on anticipated payments for intellectual property income will be 7% starting with January 2018.
Dividend tax is maintained at 5%.
Compulsory social contributions
The approved ordinance provides for a 2% reduction in social contributions from 39.25% to 37.25% in January 2018, out of which 35% will be paid by the employee.
The number of social contributions is also decreasing, from 6 (9, if we consider that 3 of them were borne by both the employee and the employer) at 3, as follows:
- Social insurance contributions due to the state social insurance budget:
25% – supported by the employee;
4% – supported by the employer, for special working conditions;
8% – supported by the employer, for unsafe working conditions;
- the social health insurance contribution, due to the budget of the National Health Insurance Fund:
10% – supported by the employee
- the insurance contribution for work, due to the state budget:
It covers the risks of unemployment, accidents at work, sick leave and wages.
2.25% – supported by the employer
The 10% health insurance contribution is also payable by other individuals that obtain income for which the contribution is due. In this category you will find people who earn income such as dividend income, interest income, income from other sources, income from independent activities, etc.
For example, if a natural person is an employee, but also earns dividends, he will pay the health insurance contribution both as an employee and for dividend income. The monthly basis for calculating the health contribution in the case of dividend income is the country’s gross minimum wage valid in the month in which the dividends are paid.
Social contributions for self-employment
For independent activities (eg doctors, lawyers, notaries, journalists), the social health contribution (CASS) will be calculated at the minimum gross wage in the economy, and social security contributions (CAS) at a chosen income, which can not be lower than the minimum gross basic salary.
Also, individuals who obtain income from self-employment, liberal professions, authorized individuals, intellectual property rights, are no longer exempted from CAS or CASS payment, if they are also employees, although the initial draft amendment of the Tax Code provided for this exemption.
Starting with January 2018, the personal deduction is granted to individuals who have a gross monthly income of up to 1,950 lei inclusive, as follows:
(i) for taxpayers who do not have maintenance – 510 lei;
(ii) for taxpayers who have a dependent person – 670 lei;
(iii) for taxpayers with two dependents – 830 lei;
(iv) for taxpayers who have three dependents – 990 lei;
(v) for taxpayers who have four or more dependents – 1,310 lei.
For taxpayers who earn monthly gross wages ranging from 1,951 lei to 3,600 lei including, personal deductions are degressive.
For taxpayers who earn monthly gross earnings of over 3,600 lei, no personal deduction is granted.
The dependent person may be the spouse, children or other family members, relatives of the taxpayer or of his / her spouse up to the second degree inclusive, whose income, taxable and non-taxable, does not exceed 510 lei per month, except for the income provided for art. 62 letter o), w) and x) and / or survivors’ pensions as per the law, as well as social benefits granted according to art. 58 of Law no. 448/2006 on the protection and promotion of the rights of disabled persons, republished, as subsequently amended and supplemented.
The micro-enterprise regime
Starting January 1, 2018, legal entities with a turnover below 1 million euros will be taxed on 1% micro-enterprise income if they have at least one full-time employee and 3% if they have no employees.
At the same time, the condition related to the object of the company was removed. For example, companies earning consultancy and management revenue, irrespective of their share in total revenue, will apply the micro-enterprise regime if they have a total turnover lower than the ceiling mentioned.
It also eliminated the possibility for companies with a share capital of at least 45,000 lei to opt for the payment of profit tax.
The provisions of the European Directive for limiting the deductibility of interest and other borrowing costs from associated enterprises have been transposed into national law.
Thus, surplus borrowing costs *, which exceed the deductible ceiling of EUR 200,000 in a tax period, are deducted only in the tax period they are incurred up to 10% of the calculation basis.
The basis of calculation used to determine the excess cost of borrowing, deductible in the calculation of the taxable income, is the difference between the income and expenses recorded under the applicable accounting regulations in the reference tax period, net of non-taxable income plus tax expense profit, surplus leverage costs, and deductible amounts representing tax depreciation.
Given that the basis of calculation is negative or equal to zero, surplus borrowing costs are non-deductible in the reference tax period and are carried forward without any time limit in subsequent tax years under the same conditions of deduction.
By way of exception to these provisions, where the taxpayer is an independent entity, in the sense that he is not part of a consolidated financial reporting group, and has no associated undertaking and no permanent establishment, he fully deducts the surplus costs of indebtedness, in the fiscal period in which they are incurred.
Surplus borrowing costs * is the amount by which the cost of a taxpayer’s indebtedness exceeds the interest income and other economically-incomes that the taxpayer receives.