Tax incentives play a vital role in stimulating economic growth, encouraging investment and providing employment, perhaps even reorienting the workforce. Currently, given the turnover in certain industries, the tools can also promote employee loyalty and long-term retention in companies.

In the current economic context, with 2024 expected to be more challenging (see the recently adopted tax changes, as well as the European and global trend of changing geo-economic routes), it is indicated that corporate governance moves to the next level of analysis and application of fiscal tools available in the Fiscal codes In other words, we are talking about the optimization of some tax costs, and if one of the tax benefits is applicable to the company, it becomes absolutely necessary to study it in detail and accept it in order to avoid the risk of default.

Although the fiscal instruments available in Romania have been enshrined in the Fiscal Code and related legislation for a very long time, it is still surprising that in a complex and challenging economic context they do not have sufficient access for companies, with the notable exception of the IT sector.

In Romania, there are a number of tax benefits that apply to employees, with certain aspects that taxpayers applying them should pay attention to.

IT sector income tax exemption

It is probably the most famous institution, the oldest (in operation since 2001) and the most widespread in practice, being one of the competitive advantages that has created an attractive environment for IT professionals in Romania. This exception is even more important because it is a distinguishing factor for potential foreign investors considering opening IT centers in Romania. It seems that this norm is not available in other countries of the European Union, and this fact makes Romania one of the countries that encourage the development of the IT sector.

In practice, as far as we know, ANAF has not yet launched a fiscal control or focused campaign of control over the use of this option. However, given the strong desire to collect revenue for the state budget and the new changes made to the fiscal mechanism, we can expect future ANAF campaigns to focus on employers applying the exemption.

It is recommended that employers applying for the benefit review their personnel files (eg job descriptions, employment contract appendices) annually to ensure that the legal requirements are met. At the same time, the substance of the activities performed by the employees is important for the application of the exemption and must also be carefully scrutinized.

Income tax exemption for research and development (R&D) sector.

It is a tool that enjoys a high level of recognition at the level of the European Union (and not only), and since 2017 it is also present in Romanian legislation on workers. However, the lack of legal clarity has resulted in the reluctance of employers in Romania to apply exemptions (both at the level of income tax and at the level of income tax). Since January 1 of this year, the obligation for large taxpayers to have a certificate for carrying out scientific research activities has been introduced, and in February 2023, a list of experts who can issue certificates in this regard was published. Thanks to the introduced clarifications, we see a greater openness of companies to use opportunities in the field of R&D.

Another opportunity for this sector is the migration of R&D and IT workers from the IT tax exemption to the benefits offered by the R&D sector. This migration is based on the requirements of the C&D legislation for more user-friendly documentation, as well as a broader scope without a restrictive list of functions that an employee must perform to meet the requirements. In addition, upon certification of research activities by an expert, ANAF cannot challenge the specifics of the activity, and therefore cannot reclassify the exemption applied by taxpayers to the level of employees in the event of a tax audit. The more stable nature of the facility (compared to the facility for IT professionals, which is currently undergoing some changes) is reinforced and supported by, for example, the National Strategy for Research, Innovation and Smart Specialization (SNCISI) 2022-2027.

We recommend that R&D companies analyze the feasibility of applying tax exemptions for employees (as well as the entire company), ensure that they comply with the legal conditions in both content and form, and obtain certification from experts (including the usual taxpayers / small, even if it is not mandatory for them) to benefit from this opportunity. At the same time, for IT-specialized companies that are also engaged in research and development, it is recommended to consider the transfer of the object from IT to R&D, of course, to the extent that employees perform such activities.

Opportunities for Stock Option Plans (SOPs)

Starting in 2017, the Fiscal Code offers companies in a clearer regulation tax benefits for share plans. In the current economic environment, stock plans can be a relatively safe and attractive type of investment for both management and executive personnel.

The fiscal benefit consists in the non-taxation of the income received from such a plan at the time of grant, maturity of the shares and their use. The taxable moment occurs when SOP participants sell shares. At that time, a natural person resident in Romania is obliged to submit a single declaration on capital gains received from the SOP by May 25 of the year following the year of receipt of income. From February 2023, employers are also required to report SOP income via statement 112, and there are corporate tax and accounting implications that companies need to be aware of.

Companies are advised to consider whether they want to implement the action plan at the local level (which involves efforts from the fiscal and legal side to draw up the plan and the relevant documents) or transfer the action plan to Romania, which is implemented at the Group level. . In both scenarios, there should be transparency regarding the obligations of the Plan participants and supporting documents to support compliance with the legal conditions for the SOP.

Despite the advantages they can bring and the fact that they have been regulated for a long time in Romania, certain tax benefits often remain underutilized for various reasons, such as the lack of information on the tax benefits available to them, the complexity of the legislation or the administrative burden that may cause them to be received.

We recommend that employers who apply tax incentives ensure compliance with the legal conditions both formally and from the point of view of the substance of the activity in order to reduce fiscal risks in case of control by the authorities. At the same time, efforts to support and develop the efficient operation of companies should be accompanied by efforts to optimize financial flows, analysis and application of tax benefits provided by the Fiscal Code, which suit each company, thus becoming a priority.

The article is signed by Crina Onuc, Manager of Income Tax and Social Contributions, EY Romania

Article supported by EY Romania