Are you planning to work as freelancer in Romania, or already got registered for carrying out such activities? Then, you need to know very well how this type of income is taxed, and the tax reporting obligations that you will have to comply with.
How must the income tax for a freelancer’s revenue (in romanian “persoană fizică autorizată” – PFA) be calculated? What are the social contributions that a freelancer must pay, and when do they have to be paid? What are the revenue thresholds that generate obligations of payment for Romanian social contributions? Do I have to pay health insurance contribution? What about pension fund contribution?
Find out the answers to all these questions, and all the guidance you need on income taxation for a freelancer in this article.
How is the income of a freelancer taxed in Romania?
As per the Romanian tax law, the income earned by a freelancer (as “persoană fizică autorizată” – PFA) falls in the category defined by the tax law as income from independent activities. Thus, an individual earning income from this type of activity is obliged to pay income tax in the amount of 10%.
But how should the taxable base be determined, and what are the expenses that one can deduct for calculating the tax due? Currently, in Romania there are two available methods for determining the taxable base for a freelancer:
- taxation taking into account the actual registered revenue and expenses (in Romanian “sistem real”);
- taxation on fixed (lump-sum) income (“norme de venit”).
We’ll explain below how each of them works, so you can get a good understanding on the tax impact for this type of income.
1. Taxation on actual registered revenue and expenses
Paying income tax based on the registered revenue and expenses system involves the payment of a flat tax of 10% of the net taxable income. The net taxable income represents the net amount obtained during a tax year, after deducting all business expenses and the mandatory social contributions due (please see below explanations regarding the social contributions that are due by a freelancer in Romania).
Opting for paying income tax based on the actual registered revenue and expenses system is probably the most correct method of taxation, as it fully reflects the actual net taxable income for the freelancer.
As part of this method of taxation, and to be able to correctly and accurately determine the net taxable income, the freelancer is obliged to keep single-entry bookkeeping. To describe it simpler, the freelancer will have to keep records of all income and expenses related to the activity rendered. This should be done under the form of a simple register, where the individual has to record every cash-in and cash-out transaction.
At the end of the tax year (calendar year), you will have to calculate the total income and deductible expenses (refer to the list of deductible expenses described below). Then you will have to determine the annual net taxable income by deducting the total expenses from the total gross income.
2. Taxation on fixed/lump-sum income
Choosing to tax the income of a freelancer based on the fixed/lump-sum income system also involves the payment of a flat income tax of 10%. But as part of this method of taxation, the net taxable income is a fixed amount predetermined by the tax authorities for each tax year.
This amount is known in Romanian tax terms as “normă de venit”. The main difference compared to the first taxation system is that this one does not take into account the actual revenue and business expenses registered by a freelancer during a tax year. The tax authorities establish the lump-sum taxable income every year, for each type of economic activity a freelancer can render (individual CAEN code, as per the law).
An important fact is that the freelancer choosing to pay income tax based on this system does not have an obligation to keep single-entry bookkeeping. Since this taxation system does not take into account one’s registered revenue and expenses, then keeping records of all income and expenses has no use.
Important! Not all the economic activities that a freelancer can render are allowed to qualify for taxation under the fixed/lump-sum income. A freelancer can choose to pay income tax based on this taxation system only if the economic activity he/she is authorized for with the Romanian Registry of Commerce is among one of the activities that can qualify for this taxation system.
There is a predetermined list of economic activities codes (CAEN codes) that is officially published (and updated) by the Romanian tax authorities each year. Only for those activities can freelancers choose to apply this taxation system.
Also, you have to know that the value of the fixed taxable income established by the tax authorities can differ for the same economic activity, depending on the county where the freelancer has the legal residency registered in Romania.
How is it better – paying income tax on actual revenue and expenses or based on fixed income system?
The choice for one of the taxation systems described above depends on the economic activity carried out, and the actual level of annual revenue realized. As already explained, not all freelancers (for all types of activities) are eligible to apply the taxation system based on fixed/lump-sum income. Therefore, if you do not carry out any of the economic activities that are eligible for this taxation system, you will have no option, but go with paying the income tax based on the actual revenue and expenses system.
On the other side, if the activity you carry out as freelancer is among those that are eligible for this taxation system, depending on the level of the annual taxable fixed income established for that CAEN code, this type of taxation may be a better choice.
For example let’s assume the annual taxable fixed income for year 2022, for the activities you render as freelancer, is established by Romanian tax authorities at the level of 27,600 lei/year. This means that, irrespective of the revenue you actually generate for tax year 2022 (higher or lower), you will have to pay income tax in amount of 10% of 27,600 lei.
Of course, in case your actual annual revenue is much higher than 27,600 lei, and you do not incur too many business expenses (that could significantly decrease your taxable income, if you were to choose the other taxation system), applying the taxation on fixed/lump-sum income would be more convenient.
At the same time, if the business expenses for the specific type of activity you render are significant, this could help in significantly decreasing your annual net taxable base to a level lower than 27,600 lei. So, choosing to pay tax on a fixed annual net income wouldn’t be so convenient.
Therefore, for a helpful assessment on the better option in your case, it is important to take into account the following aspects:
Ultimately, the most convenient taxation method will be the one under which, at year end, your net-in-pocket income is the highest that can be achieved.
Expenses that can be deducted from the annual income when calculating the income tax due by a freelancer
When calculating the income tax due by a freelancer in Romania, certain business related expenses can be deducted, in whole or in part. Here are listed below the types of most common expenses. Some of them are fully deductible, while certain types of expenses can be deducted only within a certain threshold.
Fully deductible expenses:
Partially deductible expenses:
Are social contributions due by a freelancer?
Apart from the income tax (10%), which is due regardless of the level of income derived by the freelancer, mandatory social contributions are due only if the annual income reaches a certain threshold. Otherwise, social contributions are not applicable to a freelancer’s income for year 2022.
Thus, no matter of the chosen method of taxation from the two explained above, the freelancer may also have to pay health insurance contribution and pension fund contribution. More exactly, for year 2022, the two social contributions are due only if the net taxable annual income generated by a freelancer is at least equal to 12 gross minimum national wages. For year 2022, this threshold is set at 30,600 lei (i.e., 12 x 2,550). This is the equivalent of approximately EUR 6,200/year.
Thus, if for year 2022 the freelancer’s net taxable income is at least 30,600 lei, on top of the income tax, he/she will also have to pay the following:
In 2022, the calculation base for the social contributions is capped at 30,600 lei. This means that, if the freelancer’s taxable income exceeds 30,600 lei per year, the amounts of social contributions will not exceed – will remain the same as showed above.
An important aspect to know is that the social contributions due on a freelancer’s income apply strictly in relation to the freelancing activity, regardless if the freelancer works also as an employee in parallel. In other words, a freelancer could be in the position to owe social contributions for the income generated from freelancing, as well as for his salary income.
When and where are taxes due by a freelancer in Romania?
All taxes due by a freelancer in Romania (both income tax and social contributions) must be determined and reported to the state through the annual tax return. For the year 2022, the annual tax return must be completed and submitted by May 25, 2023 to the Romanian tax authorities (ANAF).
The annual tax return can be submitted only online, by opening an online tax account through the Virtual Private Space with ANAF, or on the e-guvernare.ro website (in the case of freelancers that have a qualified electronic signature). Starting this year, freelancers cannot file tax returns or other requests/applications with ANAF in physical format.
The deadline for the tax return submission (May 25, 2023) is also the deadline for paying the taxes due. So, until this date, the freelancer must file the tax return with ANAF, and pay also the taxes calculated in the tax return.
The taxes can be paid either through the Virtual Private Space, either directly through the online platform ghișeul.ro. Alternatively, payments can also be done by bank transfers, using the accounts of the tax authorities, and the relevant payment instructions.
If you just registered as freelancer in Romania, or planning to do so, make sure you know how taxation on a freelancer’s income works, and what are the social contributions you have to pay to the state. Thus, depending on the activity that you carry out, you will be able to invest intelligently and plan your tax costs efficiently.
Interested to run simulated tax calculations for freelancing income? You can easily use or calculator: Self-employment tax calculator for Romania.
Do you have any experience as freelancer that you can share with the expat community? Please post some useful advice below.