Contractor compliance in Romania set to get more complicated as intelligence services screen for tax evasion

Contractor compliance Romania

26th July 2019

Romania, once known as the ‘sick man of Europe’, is a country on the up. Now the 41st biggest economy in the world, 10th largest in the EU, and one of the fastest growing economies of 2018, it’s no surprise that the country is a contracting hotspot. This is only compounded by the current skills shortages in the country, with a survey from international recruiter, Manpower, showing that more than four out of five employers were facing difficulties in finding the talent they need. However, the nation is taking an increasingly strict stance towards compliance, and contingent workers should be aware of a recent move to digitalise tax collection in the country. So, what effect will this have on contractor compliance in Romania?

Contractor compliance Romania: IT service

According to reports, Romania is following in the footsteps of many countries around the world by implementing strict digital tax collection functions. Similar to big data technologies such as HMRC’s Connect and India’s Project Insight, the Romanian Intelligence Service has also put into operation an IT system aimed at better controlling how money is spent in public institution – and preventing tax evasion.

The system will quickly identify firms whose shareholders or directors are listed in more than one company and have a criminal record, as well as individuals with discrepancies between declared income and purchases.

To do this, it will analyse a number of data sources and assets, such as declared income, property owned, land, cars and social media.  The project, titled the SII ANALYTICS program was co-financed by the European Regional Development Fund through the Competitiveness Operational Program 2014-2020.

Contractor compliance Romania: ‘Any man can be accused of tax evasion’

This is not the only step that has been has taken to tighten up contractor compliance in Romania, and the country’s tax system has long had a reputation for being notoriously complicated. In fact, the President of the Chamber of Deputies, Liviu Dragneu, recently stated that Romanian tax laws are ‘so complicated, so dangerously drafted, that any business man in Romania, in this second, can be accused of tax evasion.’

Even the likes of Ioan Niculae, one of Romania’s richest men, was recently sentenced to three years in prison for crimes including tax evasion.  Therefore, it’s clear that contractors need to be well informed on the legal requirements for working in Romania.

The legal bit

Clearly, contractor compliance in Romania is not straightforward. While there are many intricacies, here’s some of the most important things to take note of.

Foreign nationals will require a temporary residence permit if they intend to stay in Romania for 120 days or more. This must be obtained before they arrive from the Ministry of Internal Affairs in the area they wish to reside. Contractors must also register with the Trade Register for income tax, social security and VAT.

There are a plethora of documents required to complete registration. This consists of, but is not limited to: a passport, notarised degree certificate, signed power of attorney, a criminal record certificate obtained in Romania, residence permit, medical certificate, address of the client where services are to be performed and a rental contract.

Income tax is levied at a flat rate of 16%. In year one this is payable quarterly and is based on projected income. Before May of the following year, an income tax return must be submitted in which any adjustments will be made.

Standard VAT is 20%, however, if your annual income is below €65,000, it is voluntary to pay. VAT returns can be done quarterly in year one.

Social security is considered to be very high in Romania, the 7th highest in Europe according to Deloitte Romania. Contractors and self-employed workers need to be aware of two components. Firstly, CAS (Pension), which is 31.3% calculated on a minimum base of 35% of the average monthly gross salary and a maximum base of five times the average gross salary. Then, there is CASS (Health), which is 5.5% on taxable income with no ceiling to the contribution.

Contractors need to be aware

While the demand for talent in Romania is likely to ensure it remains a destination of choice in the near future, contractor compliance in the region can be tricky, and given the growing global scrutiny on tax, partnering with a specialist international contractor management company is something that we strongly advise. With expert help, you can rest easy that your affairs are being handled professionally, allowing you to focus on the job at hand. To guarantee tailored compliance solutions that keep you on the right side of the law, contact our team today:


Follow our LinkedIn page

Follow us on Twitter

Get in touch on Facebook

Contact Us