Romania’s New Tax Reforms: Summary and Implications for the IT Sector and Its Workforce

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The introduction of the 10% tax on IT incomes over 10,000 lei could have a notable impact on the disposable income of IT professionals in Romania. Particularly for those earning at the higher end of the spectrum, this additional financial obligation may reduce their take-home pay and potentially affect their spending patterns. 

While the Romanian IT sector has traditionally enjoyed tax incentives to boost growth and attract talent, this new measure signifies a shift in the government’s approach. The long-term effects on talent retention and attraction in the booming tech sector remain to be seen.

Here are the key takeaways of the emergency ordinance that will bring about significant changes to the country’s taxation system, set to take effect from November 1st.

  1. Micro-enterprises will now be taxed 1% on revenues up to €60,000 annually. Should they surpass this threshold, the tax rate increases to 3%. Notably, the government has opted out of the 16% profitability tax for businesses whose profitability rate exceeds 30%.
  2. Major Companies with turnovers exceeding €50 million will be subjected to a minimum 1% tax on their revenues. This figure will account for investments and excises, which are also a form of tax. The 16% profit tax remains, but it can’t drop below 1% of the turnover based on the mentioned criteria.
  3. In a move likely to be celebrated by NGOs, the government has backtracked on provisions that would deprive them of corporate sponsorships.
  4. Energy Sector companies, specifically those in distribution, supply, and transport of electricity and natural gas, have been exempted from these tax stipulations.
  5. Banks are set to bear a heavier tax burden, with a 2% revenue tax in 2024 and 2025, returning to 1% in 2026.
  6. Oil and Gas Firms with turnovers over €50 million will face an additional 0.5% tax on their revenues.
  7. The IT Tax Exemption remains, but only for incomes under 10,000 lei.
  8. Workers in construction, agriculture, and the food industry will now be liable for CASS payments.
  9. VAT Increases are slated for specific products, details of which are yet to be released.
  10. Luxury Property and Vehicle Taxes: Individuals possessing properties valued over €500,000 and vehicles above €75,000 will incur a special tax.
  11. Vacation Vouchers have been bumped up to 1,600 lei but will have a 10% health insurance contribution and are limited to individuals with net incomes below 8,000 lei. Notably, these vouchers can now also be granted in cash. Meal tickets remain unchanged.
  12. For Freelancers (PFA), the current ceiling system of 6-12-24 minimum salaries stays, but a supplementary cap of 60 minimum salaries has been introduced.
  13. Excise Duties for tobacco and alcohol are set to rise.
  14. In a move to combat money laundering and undisclosed income, revenues with untraceable sources will face a hefty 70% tax.

For companies operating in Romania’s IT sector, the imposition of the 10% tax on incomes over 10,000 lei might lead to a reevaluation of compensation packages and benefit structures. Firms might feel the pressure to increase gross salaries or offer additional perks to mitigate the effects of the tax and ensure that their talent remains competitively compensated. Moreover, startups and SMEs, which traditionally operate on tighter budgets, may face greater challenges in attracting and retaining top talent, possibly leading to a shift in the sector’s dynamic.

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