Romania’s new government plans to replace the profit tax in controversial move

The government led by Mihai Tudose plans to replace the 16 percent profit tax with a differentiated tax rate based on turnover, according to the governing program that was submitted to Parliament.

“We will introduce the taxation based on the revenues of all companies in Romania, (turnover tax) starting January 1 2018. This tax will replace the profit tax and will have two or three tax brackets,” according to the official document.

What’s new: A solidarity contribution will be enforced starting 2018, but it’s unclear how it will work. In addition, the government plans an additional tax of products whose consumption have a negative impact on the health of people. According to sources quoted by HotNews.ro, the solidarity tax will be levied on individuals earning more than 10 minimum wages, or RON 14,500 per month.

The government says it will implement the household tax from 2018 and will also amend the way in which the social contributions for employees are paid by companies. The contributions will be slashed by 4.25 percentage points to 35 percent. In addition, four of the six contributions paid today will be eliminated.

“Thus, we will end up with the health and social insurance contributions, owed by the employee, but which will continue to be paid by the employer to the state. To make this possible, at the end of 2017 the computation base for the gross wage will be changed by increasing it by 22.75 percent. This measure will not generate an increase of wage expenses for employers, but will level the gross wage with the total expenses related to a salary,” says the document.

Furthermore, the number of taxes for individuals will be limited to 10, while the total number of taxes and commissions will not exceed 50 starting January 1 2018.

In the case of companies, the maximum number of fiscal and non-fiscal taxes will stand at 40.

The income tax will be reduced to 10 percent, according to government plans.

The cut in VAT from 19 percent to 18 percent has been delayed by one year through to 2019. Furthermore, the government plans to enforce a different VAT collection system as of September 2017. The government says that the split payment system, which is used in Italy, will dramatically reduce the VAT evasion.

In addition, the gross minimum wage will reach RON 2,400 by 2020

The dividend tax will be eliminated as of January 2018, while the tax for farmland will also be removed. However, in the case of farmland without operations for 2 years, the tax will be doubled.

In the case of oil & gas companies there will be an increase of at least 20 percent of the taxation rate for profits obtained from the extraction of natural resources that are not processed in Romania, through the adoption of the new royalties law, by the end of 2017.

Full text – governing program – in Romanian

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