The introduction of the 16% flat tax has made Romania more fiscally appealing, both to foreign investors and foreign individuals providing services in Romania.
A rising number of non-resident foreign individuals are trying to benefit from the low, 16%, tax. "(...) In this regard, I can say there's a scenario reversal: while until the end of 2004 clients used to ask us to structure their remuneration so as to be taxed in their country of origin, now they are asking for taxation in Romania", said Gabriel Sincu, senior manager at the tax department of Mazars consultancy.
Competition in the field of taxation is gaining momentum, particularly between countries in the same region and as a result governments have to be permanently informed about the development level of neighbouring countries. Inside the EU this is the more important as the single market allows individuals and companies to operate outside their national borders, Patrick Leonard, a partner in the tax department of KPMG, has recently stated. The 16% level places us at the top end of the EU ranking, only behind the Czech Republic and Bulgaria, with a 15% and 10% tax level, respectively.
However, if we consider that besides the 16% income tax an employee with a local labour contract also makes social security contributions, Romania is no longer equally appealing.
Mazars' Sincu also says the 16% income tax makes Romania competitive, but social security contributions do not. As a result, only those that come as expatriates and those that earn incomes other than salary have significant advantages, tax-wise.
Emilian Duca, a partner with BDO Conti Audit, one of the biggest tax consultancies and audit companies after the BIG4, says Romania boasts some advantages in terms of the income tax levied to individuals. "Still, the simple comparison of nominal taxes for individuals can be deceiving. Thus, in most European states the real tax level is lower due to some substantial deductions granted to individuals (...)", Duca explained.
The simple comparison of a series of tax levels does not show us the real tax levied to residents, Emilia Dragu, a partner with TaxHouse tax consultancy firm, also believes.
For a 1,000 income level, Romania is positioned somewhere at the bottom end of the ranking.
Still, can multinationals' employees providing services both in Romania and other country prefer fiscal registration in Romania as being more beneficial?
"The respective employees are not free to choose where their incomes should be taxed (...)," Sincu said. The same answer was given by all the tax consultants contacted by ZF. "(...) Thus, establishing fiscal residence is not a personal option, but a fact generated by the specific situation of each individual and the fulfilment of certain conditions," said Daniela Oprescu, senior tax manager with KPMG.
Thus, can we say Romania has a more attractive tax system compared with other European countries? " (...) Practically, individuals are reluctant to establish their fiscal residence in Romania compared with other European countries," said Emilia Dragu.
Taxation
- Romania ranks third in the EU in terms of flat tax, behind Czech Republic, 15% and Bulgaria, 10%.
- Social security contributions added to the flat tax hurt Romania's attractiveness for tax residence purposes
- Tax residence in Romania provides advantages to those that come in this country as expatriates or earn an income besides salary
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