Rental income taxation in Romania – practical guidance for best tax saving

Looking for best advice on rental income taxation in Romania? Are you trying to get some tips on efficient reporting of your rental income in Romania, and still can’t get it? In this article our team of tax consultants will provide best practical tips for rental income reporting in Romania, so you can apply the most efficient tax reporting methods. And in the same time, you will be able to report your rental income correctly, and comply with the latest changes in the Romanian tax law for 2019.

Rental income taxation in Romania – applicable tax rates

Rental income generated from renting out any type of dwelling place – e.g. apartment or house – is an income subject to taxation in Romania. According to the Romanian tax law provisions, the income derived from rent is included in the broader category of “income generated from the assignment of use of goods”. Thus, as per the tax law in force, individuals who obtain such income have certain tax reporting obligations toward the Romanian tax authorities (ANAF).

IMPORTANT: Any tax reporting obligation for such income (income from rent) stays with the beneficiary of income (landlord), and not with the payer of the income (the tenant).

Taxes that are applicable on such type of income for year 2019 are:

  • income tax: 10% (flat tax rate)
  • health fund contribution, applicable only if the annual net income derived from rent is at least equal to 12 monthly minimum national wages; for year 2019, this threshold is set at 24,960 LEI/year; if this threshold is reached, the health fund contribution is capped at 10% out of this amount; this means a yearly contribution of 2,496 LEI for year 2019.

We will explain further on how these two taxes must be calculated, as they are not applied on the entire income as such, but certain deductible expenses can apply, as well as a cap for the health fund contribution.

Tax reporting obligations for the rental income

1. Advance reporting of the estimated income

The first reporting obligation for rental income taxation arises at the moment you sign the rental agreement with the tenant. The signing of the rental contract generates the obligation to declare to the local tax office the fact that you will start deriving such type of income (i.e. rental income) during the tax year when the agreement is signed. For example, if you signed the rental agreement with start date for 1 September 2019, you will have to declare to the local tax office that you estimate you will be deriving rental income during this year. This “estimated income” declaration must be fulfilled through the annual tax return, and in the same time you have to pay the income tax (and the health fund contribution, if the case) due on the income that you estimate.

The deadline for filing this advance tax return for the estimated income, as well as for the payment of the related income tax due is 30 days as of the date of signing the rental contract with the tenant. The same deadline applies for paying the advance taxes due. The advance tax return can be filed through electronic means:

  • by opening a virtual private account (SPV) on the Romanian tax office’s website,

or

  • by signing the tax return with a digital signature, and filing it on the website e-guvernare.ro.

The tax form can also be filed in hard copy, directly at the local tax office where you legally reside (where you have your domicile, or your living address, as per the case).

Note: If you signed the rental contract before 31 July 2019, the deadline for the advance declaration and payment of the taxes due was the annual deadline for the 2018 tax return – i.e., 31 July 2019. So, the 30 day deadline does not apply for such situations, but the deadline for the previous year’s tax return filing. And for year 2018 the tax return filing deadline was 31 July 2019.

2. Final reporting, after year end

The next and final reporting deadline for the rental income is after end of the tax year (i.e. calendar year). This is the annual tax return filing deadline, which applies to all types of income, other than salary. For tax year 2019 the deadline is 15 March 2020. There are discussions at the authorities’ level for changing it to 25 May 2020, but they have not decided yet any change. So, until a final decision is taken, and the tax law is amended as such, the deadline remains 15 March 2020.

How to calculate the taxes due

Now let’s get to the method of calculation of the taxes. As already mentioned, the Romanian taxes due on rental income are not applied to the total gross income one derives. There is a lump-sum destructibility method that applies. More exactly, for determining the taxable base, the individual is allowed to deduct from the gross income a lump-sum deduction of 40% of the total annual income. The deductible lump sum is considered to cover for the expenses one may incur during a year with any refurbishment or reparations to the house.

As way of example, if one would derive rental income during year 2019 in total amount of 30,000 LEI, he would have the right to deduct for income tax calculation purposes a sum equivalent to 40% of the income. Thus, the net taxable base will be 18,000 LEI. This means that the income tax due will be in amount of 1,800 LEI (10% of the taxable base).

Given that the taxable base determined of 18,000 LEI is lower than the minimum threshold established for the payment of the health fund contribution (24,960 LEI for year 2019), then the health fund contribution will not be due in this specific example. As consequence, the total tax payable for year 2019 will be in amount of 1,800 LEI (only the income tax).

If the rental income was already declared in advance (as per the instructions under point 1 above), then at year end the tax payer will only have to pay the differences between the final tax calculated and the amount already paid in advance during the tax year, if the case of such difference. The deadline for paying the final income tax is the same with the tax return filing – i.e. for year 2019 it is 15 March 2020.


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