According to the New Romanian Tax Code, as of January 1st, 2016, income obtained from activities performed based on civil-law contracts/agreements, concluded in accordance with the Civil Code, as well as based on agent contracts, are excluded from the category of income from independent activities for which the income tax representing anticipated payments is withheld at source.
Under such conditions, the sole legal basis for income obtained under civil-law contracts/agreements to be integrated may be article 114 para. (2) g) of the Tax Code, which defines income from other sources as the income obtained by taxpayers that are not registered from a tax point of view and perform an occasional activity, although the law is not very clear in this respect.
Moreover, such income will be subject to an income tax calculated on a withholding basis at the time of payment of such income, by applying a 16% rate to the gross income.
Also, as of January 1st, 2017, individuals obtaining income from other sources shall pay a health insurance contribution of 5.5% set by the tax authority, but no social security contribution shall be charged.
Consequently, experts recommend taxpayers to use contracts regulated under the Civil Code only for occasional activities, i.e. those that are not salary-based and do not generate any obligation of being registered as self-employed (in Romanian, Persoană Fizică Autorizată – PFA), so that categorization as “income from other sources” can be compliant with reality. In other words, if a person does not provide services on a continuous basis, any income thereof will be treated as “income from other sources” and taxed accordingly.
Otherwise, when an activity is performed more than once in a tax year by the same person, it shall be considered as a continuous activity, and therefore the income obtained from such activity may be qualified by the tax authority as income from independent activities rather than income from other sources.
For the future, a clarification of the law is necessary in this regard, and a review of civil-law contracts is required for each situation, checking exactly how the civil-law contracts/agreements and the related income can be categorized.
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