Romanian tax residence is an important concept in the Romanian tax law, similar to other countries’ tax laws as well, used for determining the tax obligations of both individuals and businesses. Thus, the tax residency is not only a theoretical concept, but it also has direct applicability in practice.
Depending on the tax residence status (if one is deemed Romanian tax resident or non-resident), an individual can be subject to taxation in Romania under different manners. This means that, as Romanian tax resident, one may be subject to the obligation to declare certain types of income. While as a non-resident, the tax reporting obligation for some types of income may not apply.
Also, in the case of a foreign individual, if he/she is tax resident of a country that has signed a double tax treaty with Romania, then the provisions of that specific tax treaty will have to be observed. Now let’s dive in, to see how these rules work in practice.
Romanian tax residence for individuals
If an individual is considered Romanian tax resident, he is fully subject to taxation for his worldwide income under the Romanian laws. Worldwide income includes any type of personal income, from any country of source (both from Romania or from other country).
Let’s have as an example an individual with Romanian tax residence who is working and living in Romania, and earns salary income from a Romanian employer.
He is subject to taxation on his salary in Romania. In the same time, that person also derives income from dividends paid by a company based in the UK. And he is also investing on US stock exchange market, and thus generating capital gains out of sale of some US shares.
As tax resident of Romania, he will have the obligation to report in his Romanian tax return all types of income he gains both from Romania (i.e. the salary, which in this case will be reported by his Romanian employer), as well as from the other countries (i.e. the income from dividends and the capital gains he generates from the sale of share, if any).
Nevertheless, the obligation to report his worldwide income to Romanian tax authorities does not automatically mean that the individual would have to pay full Romanian tax on all the types of income he generates. Each type of income will be taxable in accordance with the tax treaty Romania has in place with the source country of each income (i.e. tax treaty signed with the UK, and tax treaty signed with the USA).
If an individual is considered non-resident for tax purposes, then he will be subject to taxation in Romania only for the income gained from Romanian sources. In the example given above, this will be only the salary income generated from activities rendered on Romanian territory.
Other Romanian sourced income that may be subject to tax reporting in Romania are: dividends received from Romanian companies, rental income generated from renting of Romanian property, income from freelancing activities (self-employment) rendered on the Romanian territory, etc.
Important notice: salary income is not necessarily subject to taxation based on tax residence status, but rather based on the place where those employment activities are carried out by the individual.
How do I know if I am a tax resident of Romania or non-resident?
For foreign nationals traveling and living in Romania for aggregated periods of more than 6 months the Romanian tax authorities put in place a standard procedure that each foreign individual must follow for having his/her tax residency status officially assessed.
More precisely, to undergo the tax residence assessment procedure, each foreign national living in Romania for a period or periods of more than 183 days within 12 consecutive months must submit with the local Romanian tax office specific documentation. The documentation should reflect main details of their status – e.g. estimated period of stay in Romania, purpose of stay, family members living with them in Romania, etc.
Same obligation is applicable as well for Romanian residents that are leaving Romania to settle in other countries for a period or periods of more than 183 days within 12 consecutive months.
The tax residence assessment must be done by the tax authorities, taking into account the provisions of the tax treaty Romania has in place with the individual’s home country, or taking into account the tax residence criteria provided by the Romanian Tax Code (if there is no treaty in place with the home country). Every individual complying with this procedure will be notified by the local tax office on the conclusion of their assessment and if he/she is thus deemed to be a Romanian tax resident or non-resident. The notification is issued by the tax office in approximately 15 to 30 days from the date of submitting the file.
Romanian tax residence for companies
When it comes to tax residence of companies, we can say that things are a bit simpler, since companies are less mobile than individuals. Thus, a company is consider to be a tax resident of Romania in any of the below situations:
- the company is incorporated under the Romanian legislation
- its place of effective management is situated on Romanian territory.
This means that, only if one of the above mentioned conditions is met, then the company is deemed to have its tax residence in Romania. Similar to individuals, Romanian tax resident companies are subject to taxation on their worldwide income – any type of income, derived from any source. Of course, application of the double tax treaties will prevail, where the case.
The concept of tax residency is actually a basic notion used by most of the countries under their own domestic laws, to define and determine the extent to which a natural person or a business has a tax obligation in that country. Also, countries adopting the OECD Model conventions or US model conventions are largely using the same basic concept of tax residence in their bilateral tax treaties signed with other states.
Here’s a printable infographic with Romanian tax residence explained in brief: