Tax alert 9 – Government Emergency Ordinance 3/8 February 2018 on various budgetary tax measures published in the Official Gazette 125/8 February 2018

The Government Emergency Ordinance no. 3/8 February 2018 brings several amendments to the Law no. 227/2015 regarding the Tax Code.

We have summarized below several changes provided by the Emergency Ordinance:

  • Purpose of the Emergency Ordinance

The purpose of the envisaged changes is to maintain the December 2017 net salary for certain categories of individuals affected by the transfer of social contributions from the employer to employee, as a result of previous Tax Code amendments.

  • Concerned taxpayers

Individuals who earn income from salaries and assimilated to salaries, based on individual employment or assignment agreements, with the cumulative fulfillment of the following conditions:

  • The document governing the employment relationship was active on 31 December 2017;
  • The employee benefits from income tax exemption (employees performing IT activities, research and development, seasonal workers, individuals with severe disabilities);
  • The employee’s gross salary is increased by at least 20% in comparison with December 2017.

The envisaged measures shall also apply to the employees who earn salary income from non-resident employers and for whom social security contributions are due in Romania.

  • Withholding of a reduced health fund contribution

For the implementation of the envisaged measures, the amount representing the health fund contribution (CASS) withheld from the employees will be reduced. The computation algorithm used by employers / income payers for determining, withholding and paying the health fund contribution is the following:

CASS withheld = Gross income2018 – CASdue in 2018 – Net WageDec 2017

Please find below a sample computation representing a comparison between December 2017 and January 2018, considering a 20% increase of the employee’s gross salary income:

December 2017  

January 2018

 

Gross income 6,800 8,160
Pension 714 2,040
Health 374 442
Unemployment 34
Net income 5,678 5,678
Employer’s cost * 8,347 8,344

 

* Notes:

– The employer’s cost includes gross income and employer’s social contributions;

– For the 2017 employer contributions, we considered:

·          0.15% work accidents and professional diseases fund;

·          No cap on medical leave contributions.

The difference between the health fund contribution withheld and the contribution due according to the Tax Code shall be separately indicated in the monthly 112 statement.

The provisions of this Emergency Ordinance apply proportionally with the gross salary increase. Therefore, if the Gross Salary increase exceeds 28%, CASS rate due will remain at level provided by the Tax Code (10%) and the above measures shall not be applicable.

The December 2017 gross salary considered for the computation algorithm provided by the Emergency Ordinance includes:

  • Base salary;
  • Other monthly salary related income provided in the individual employment contract valid in December 2017, which are included in the computation base for the mandatory social security contributions.

If the gross salary is reduced by a mutual agreement between the parties during the period concerned by this Emergency Ordinance, the envisaged provisions do not apply.

The provided measures are applicable to income from salaries and assimilated to salaries realized in the year 2018.

Reconciliations can be made by amending the monthly statements (i.e., 112) up to 31 December 2018 for any income earned prior to the date when this Emergency Ordinance will be in force.

Part-time employment contracts

The Emergency Ordinance also brings amendments on the pensions and health fund contributions payment method, for the employees with part-time employment contracts, such as:

  • If the computation base for the health fund contribution is lower than the minimum national gross salary, the difference will be paid by the employer/income payer on behalf of the employee;
  • Similarly, if the computation base for pension contribution is lower than the national gross minimum salary, the difference will be paid by the employer/income payer on behalf of the employee.

The above mentioned amendments will be applicable starting with the January 2018 reporting obligations.

For a better overview of the envisaged measures, please see below a sample computation:

Gross Salary 1,000
Pension withheld

Pension borne by the employer

250

225

Health withheld

Health borne by the employer

Income tax

100

90

34

Net income 616
Employer’s cost * 1,338

Since no changes have been brought on the computation base for the income tax, we are of the view that the entire social contributions deduction shall apply, even if they are partially paid by the employer.

Also, the Emergency Ordinance indicates that the norms will be published within 15 days after it enters into force.

 

Author:

Stela Andrei – Senior Manager, People Advisory Services



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