Tax exemption for ICT employees in Romania
The procedure regarding the exemption from income tax for IT employees was modified by Order of the Ministry of Finance no. 835/2015 which replaces the old legal framework (MFP Order no. 1479/2013 – repealed). The new regulations stipulate that the employees in this sector may be exempt from income tax only if they occupy certain positions, as defined by the law.
Starting July 30, the alumni working in this sector must be in one of the eight functions, as defined in the Annex of the Order 835/2015:
- Database Administrator
- System Engineer in Computer Science
- Software System Engineer
- IT Project Manager
- Information System Designer
- Computer System Developers
In the old regulation, the provisions established that the IT employees can benefit from exemption if, besides the specific jobs, they graduated with bachelor certain specialties such as automation, mathematics, physics or chemistry informatics, cybernetics, accounting and management information systems etc.
The new regulation makes no reference to the graduate specialization, but specifies the requirement of higher education: IT employees “holds a diploma awarded after completion of a higher education long-term form or a diploma awarded after the completion of the first cycle of the collage studies, issued by an accredited higher education institution, and actually provides one of the activities listed in the Annex”, according to the Order 835/2015.
But there are no changes on the rest of the conditions to be met for the IT employees to benefit from income tax exemption:
- the posts including the occupations correspond to the aforesaid;
- the post is part of a specialized compartment, highlighting in the organizational chart;
- the employer has made in the previous fiscal year and recorded separately in analytical balances as a result of a creative activity of computer programs for trading on a contract basis, an annual income of at least the equivalent of 10,000 US dollars (calculated on the average monthly exchange rate by the National Bank of Romania related to each month which saw income) for each employee who is exempt from income tax.
Proposed amendments to existing exemption for IT roles - coming soon in 2017
A draft order has been published stating how similar income tax exemptions for individuals in specialist Information Technology (IT) roles under the current law will be subject to change. Under the new rules the activities of the individual will be more important than the formal job title when determining whether the exemption will apply.
Under certain conditions, Romania currently provides for favorable tax treatment for salary income derived by IT specialists as follows:
- Positions held by the eligible employees are limited to Database Administrator, Analyst, Informatics System Engineer, Software Engineer, Informatics Project Manager, Programmer, Informatics System Designer, Informatics System Programmer.
- Employees eligible for the income tax exemption work within a specialized IT department in accordance with the organizational chart of the employer.
- Employees should effectively perform one of the activities referred to in the relevant Order and hold a study diploma awarded after graduating from a long-term higher education institution or, alternatively, a diploma awarded after completing cycle one of university education (the diploma should be issued by an accredited higher education institution).
- During the previous fiscal year, the employer has realized, and it has booked distinctively in the trial balance, a yearly turnover of at least USD10,000 for each of the respective employees (this income being obtained from software creation activities based on a services contract).
In order to apply for the IT exemption, the employer should hold on file the employer’s related justifying documentation.
The main amendments to the existing exemptions are the following:
- For companies founded in the current year, the condition of USD10,000 referred above should be fulfilled by the end of the next fiscal year when they benefit from the income tax exemption. This will also apply to existing companies that undertake an activity of software creation in the year as a result of business reorganization.
- Instead of defining activities eligible for the exemption by reference to formal role descriptions they will be defined by reference to the tasks and activities to be performed by the individual. In other words the title of the role will no longer of itself define whether the exemption applies.
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