Tax news, Taxes

Higher taxes on dividends as of 2023 (Romanian tax law amended)

Following a recent amendment in the Tax Code, Romanian authorities will apply higher taxes on dividends as of January 1, 2023. Among a series of tax law amendments, taxation of dividends was also modified, which will lead to higher taxes collected from this type of income starting next year.

The first modification that impacts dividend income refers to a higher personal income tax rate on this type of income. The higher tax rate will apply on dividends generated after January 1, 2023.

The new (higher) income tax rate that will apply is 8% (increased from 5% as applicable in the present), as per the recent Ordinance amending the Tax Code.

This modification will apply to income from dividends received after January 1, 2023. Therefore, dividends received this year (2022) will continue to be taxed at 5%. The increased tax rate is applied to dividends received both from Romanian companies and from non-resident companies. So, if you generate dividend income from non-resident companies (resident outside of Romania), your income will be impacted as well.

The second modification refers to the application criteria of CASS (health insurance contribution) for extra-salary income (e.g. dividends, capital gains, rental income, income from independent activities, etc.). Criteria based on which the health insurance contribution (CASS) is due on certain types of extra-salary income (including dividends) were also modified.

More exactly, starting with revenues derived as of next year (2023), the obligation to pay CASS will apply when the total annual income reaches the threshold of 6 gross minimum wages per economy, compared to the current higher applicable threshold, which is set at 12 minimum wages per economy. In addition, a new threshold of 24 minimum wages per economy was introduced.

Thus, for 2023 and going forward, individuals who obtain income from dividends (or cumulative income from several sources, such as dividends, capital gains, rental income, freelancing activities, etc.) will be due the CASS at the rate of 10% on three thresholds, as follows:

at the level of 6 gross minimum wages per economy, if their total annual income is between 6 and 12 gross minimum wages per economy;
at the level of 12 gross minimum wages per economy – if their total annual income is between 12 and 24 gross minimum wages per economy;
at the level of 24 gross minimum wages per economy – if their total annual income is of at least 24 gross minimum wages per economy.

Example of impact for application of health insurance contribution

As a practical example, a person who realizes in 2023 income from dividends worth at least 6 minimum gross salaries per economy, if in 2022 he had no obligation to pay CASS on this income, for 2023 he will owe CASS in the amount of 10% of this ceiling. Assuming that the minimum wage per economy remains at the level of 2,550 lei in 2023 (it may still be increased), the CASS owed will be in the amount of 6 x 2,550 x 10%, i.e. 1,530 lei.

The same obligation will apply to a person who generates income from dividends below this threshold, but who, cumulated with other types of extra-salary income (such as rents, capital gains, income from freelancing activities), reaches this income threshold in 2023.

If the total aggregated annual income obtained from all these sources reaches the higher thresholds, i.e. 12 or 24 minimum wages per economy, the CASS due will be calculated at the respective threshold.

Regarding the obligation to declare the dividend income received from non-resident companies, both the income tax and the health insurance contribution (CASS) related to tax year 2022 must be declared and paid by each Romanian tax resident individual through the annual tax return (“declarația unică”), not later than May 25, 2023. For year 2023, the tax return submission deadline is May 25, 2024.