December has come again, the long-awaited month of Holidays and winter mini-vacations! Time to distract from work duties, plan free time with family or loved ones – in general, that time of the year when most people direct their energy to rest and leisure, and less to professional ones. However, for some of us, the focus is not only on our personal holiday agenda, but also on the government’s agenda, as it is well known that governments usually make major fiscal changes around Christmas or New Year.

Santa Claus promises to be generous this year too, if you look at “fiscal gifts”.“ already offered to Romanian taxpayers and even “packaged” gifts in advance for 2024. Thus, a wide range of gifts (modifications and fiscal news, more or less desired or expected) have already been “published in the Official Gazette.

Next, we offer a 2023 retrospective of the most important measures taken by the authorities regarding personal income taxation in Romania. Retrospective, which can be briefly and meaningfully described by a popular saying that sounds something like this: “they gave with one hand and took with the other.”

Repeating chronologically, we remember that from the first month of 2023, the first fiscal restriction was also adopted, as the tax relief for builders was limited – in short, activities carried out outside Romania were removed from the category of activities for which there could be exempted have access to tax deductions provided for by law. On the other hand, also in January, IT fiscal benefits were extended so that employees of the state system can also get exemption from paying income tax. Also, an important addition (which basically fixed a provision that could previously be seen as discriminatory) was that the facility for IT scholars can also be accessed by non-EU nationals (workers in Romania), obviously if they meet all a mandatory condition (since previously only citizens of Romania or the EU were considered eligible).

These fiscal benefits intended for certain categories of workers in Romania (for example, in construction, agriculture, food industry, IT) they were the subject of prolonged debate throughout the year and created a state of uncertainty and tension for those targeted. After many proposals and attempts, the authorities finally managed to “take” from taxpayers only at the end of October this year, when Law 296/2023 was adopted, which provided for a number of restrictions on tax benefits for all four areas of the specified activity. An agreement was reached in terms of time, as a common “period of validity” was set for all these objects, namely until 31 December 2028, and the standardization also meant, among other things: (i) a limit of 10,000 lei including gross of monthly tax-exempt income; (ii) restoration of 10% of the CASS quota for workers in construction, agriculture and food industry; (iii) agreement on the reduction of the rate of pension – CAS with the percentage applicable to the private pension fund – Level 2.

On the other hand, the Government tried to reduce the impact felt by workers in the construction and agri-food sector and increased (by emergency decree) the minimum basic monthly wage from 4,000 to 4,582 lei for construction and from 3,000 to 3,436 lei for agriculture and the food industry, so that the net income (minimum) is not affected by the re-introduction of the obligation to pay the quota for rehabilitation. In the end, we can say that the government “gave” a higher salary with one hand, and “took” an equal one with the other (by introducing a 10% KAS). Finally, the additional tax burden was indirectly placed on employers.

Also in the given and taken category, we can also consider changes in the tax treatment for the following salary-like benefits:

• subscription services/object use sportsman: chronologically in February 2023 Law No. 34/2023 introduced certain tax advantages for these benefits, such as: the possibility of deducting their value from the taxable base when they are directly paid by employees/PFA (up to €400 per year) and exemption from contributions social security and income tax for benefits borne by employers for their own employees, also up to €400 per year. However, in the latest GEO (No. 115/2023), published on 14 December, the government significantly reduced these non-taxable and, accordingly, deductible ceilings (from €400 to €100 per year), so that within a single year, the fiscal advantage became practically imperceptible.

• allowance for remote work – until now, amounts given to remote workers within the monthly limit of 400 lei were exempted from paying social contributions and income tax. Through GEO 115/2023, the Government has completely abolished this tax benefit, starting from January 2024 income. Again, given, but then taken.

• vouchers for meals and vacations – Law 296/2023 decreed that from January 2024 these types of vouchers will be subject to a CASS tax of 10% in addition to the current tax rate of 10%. Again, a significant additional tax burden will make these benefits (some of the most valued by employees) less attractive and/or create tension between employers and employees.

Despite the fact that there were many tax changes in 2023 that affected the taxpayer’s pocket, it is still worth highlighting the following:

• 2024 introduction of a new one an upper limit of 60 gross minimum wages per country to which the CASS health care quota belongs for self-employment income (currently the maximum limit is only 24 minimum wages).

• PLACING special tax on immovable and movable property of high value – a novelty in the industry.
• Increase in taxation income, the source of which is not established (from 01.07.2024 from 16% to 70%, taking into account the revised tax base).
• significant tax changes for micro enterprises from several fields including IT, HoReCa, legal, medical and dental care.

Dramatic fiscal changes for the IT industry were trending in 2023, and in the case of PFAs in this industry (with CAEN codes 6202 and 6203), if there weren’t already too many, another restriction was added to them; this is due to the fact that from January 1, 2024, the possibility of determining net income based on the annual income rules (for activities other than those that create copyright or rights related to copyright) will be abolished. For them, the annual net income will be determined in a real system based on accounting data.

Finally, to end 2023 on a somewhat optimistic note, we also note some positive changes for taxpayers, namely:

• Acceptance of “tax amnesty” regarding the tax classification of gift vouchers received by individuals from persons who are not employers (ie Law No. 43 / February 24, 2023 on the abolition of certain tax liabilities).

• Introducing a favorable fiscal regime for digital nomads in Romania (Law No. 69/2023 of April) – however, although there are favorable provisions at the theoretical level, in practice, unfortunately, they did not give the expected result in attracting digital nomads in Romania (according to the General Inspectorate for Immigration, a small number of requests from foreign citizens who have the right to be digital nomads in Romania).

So, sprinkled with many changes to the Fiscal Code, the year 2023, unfortunately, tilts the balance between “given” and “taken” in the direction of the second category. And as 2024 comes into play, the tax burden will be felt more acutely by taxpayers, as most of the legislative changes are due to come into effect after January 1.

The article is signed by Claudia Sofianu, Partner, Head of Income Tax and Social Contributions, EY Romania, Dan Reuc, Senior Manager of Income Tax and Social Contributions, EY Romania and Ana-Maria Vintila, Assistant Tax Consultant, Income Tax and social contributions social, EY Romania

Article supported by EY Romania