We explain in this article the correct Romanian tax treatment of company health insurance benefit provided to Romanian employees. As this is a type of employment benefit frequently granted by Romanian companies to their employees, we consider important to clarify which is the correct tax regime to be applied to these types of incentives, from both the employee’s taxation perspective, as well as from the perspective of corporate taxation.
Thus, we describe below the tax treatment that should be applicable to the expenses with voluntary health insurance premiums borne by a Romanian company for its own employees, according to the Romanian tax legislation in force.
Our explanations provide clarifications both from the perspective of income tax and mandatory social contributions at the level of employees, and from the perspective of corporate income tax and VAT, at the level of the employer.
This article contains a description of the applicable general tax treatment, and does not include a specific detailed analysis of an insurance contract regarding the fulfillment of the legal conditions to be included in the category of voluntary health insurance.
Tax treatment from the perspective of employment income tax and social contributions
From a salary income tax perspective, according to the provisions of the Romanian Tax Code (art. 76, paragraph 4, letter t), the expenses incurred by employers with voluntary health insurance premiums for its own employees represent non-taxable income for the employee benefitting from the health insurance, within a threshold of 400 euros per year, for each employee.
Also, from the mandatory social contributions perspective, the expenses incurred by an employer with voluntary health insurance premiums up to the same limit of 400 euros per year for each employee are not included in the monthly taxable basis, either of the employee contributions (CASS and CAS), or of the employer contribution (CAM).
In addition, according to the provisions of the Romanian tax legislation in force, the same tax treatment described above applies to expenses incurred by the employer on behalf of the employee with medical services provided in the form of a subscription (e.g., by private clinics).
If the insurance premiums borne by the company exceed this annual non-taxable threshold of EUR 400 for an employee, the difference between the actual cost and the non-taxable threshold will have to be considered a salary taxable benefit for the employee. Thus, the taxable determined value is subject to both income tax and mandatory social contributions (due by the employee and the employer), without any other exception.
Insurance premium born by employee – deductible for salary income tax calculation
Also, if the insurance premiums are borne by the employee, as per the tax legislation in force the expenses incurred by the employee with the voluntary health insurance premiums (for his own benefit) can be deducted from the taxable income (i.e., from the taxable base determined after deducting the employee social security contributions) for the purpose of calculating the salary income tax due.
The same deduction regime applies to expenses incurred by the employee with medical services provided in the form of a subscription (e.g., by private clinics).
The deduction is allowed within the same limit of 400 euros per year. This deduction is applicable only for the purpose of calculating the salary income tax due, and therefore not for the social contributions due by the employee.
It is important to mention the fact that only the voluntary health insurance premiums that fall under the conditions stipulated in Law no. 95/2006 on the health care reform are eligible for the favorable tax treatment described above.
If they do not fall under the conditions provided by Law no. 95/2006, the voluntary health insurance premiums will be considered taxable salary benefits at the level of employees and thus, will be fully subject to income tax and mandatory social contributions due by both the employee and the employer.
Corporate profit tax
Expenses incurred by a Romanian company with voluntary health insurance premiums or medical services (provided in the form of a subscription) for its own employees are deductible from a corporate profit tax perspective, starting with 1 January 2016, regardless of the tax treatment applied to the employee (i.e., if the benefit qualifies for exemption or not from the perspective of salary income tax and mandatory social contributions).
In accordance with the Romanian tax legislation in force, voluntary health insurance premiums are exempt from VAT.