Starting 2016, we will encounter a significant change when it comes to PFA taxation in Romaia. What is a PFA you might ask? For those of you non-familliar with this abbreviation, it is actually the Romanian acronym for “Persoana Fizica Autorizata” (registered freelancer).
In a nutshell, the new Fiscal Code stipulates that taxation will go down for registered freelancers who are not also concomitantly employed, while those who have both qualities (registered freelancer and employee) shall be subjected to higher taxes.
SOCIAL CONTRIBUTIONS BY REGISTERED FREELANCERS
Contribution to pension fund
The current legislation fixes the contribution to a pension fund by registered freelancers to 26.3% of income income. The minimum accepted income is equal to 35% of the gross average salary in Romania (2415 lei x 35%, that means 845 lei or the equivalent of almost 200 euros) . Applying the 26.3 % quota the result is a minimum contribution of 222 lei per month (~50 euros). Again, this contribution rate is only applicable for those who are not employed elsewhere or are not already retired persons.
Starting with 2016, the registered freelancers will have to pay this contribution whether they are or they are not employed.
Therefore, the exceptionfrom this point of view for those registered freelancers who are also employed elsewhere will be eliminated starting 2016.The only category exempted will remain the retired persons.
Regarding the contribution rate, there are two possibilities. Optionally, a registered freelancer will be able to choose between :
- Partial contribution rate = 10.5%, which will lead to a reduction of the retirement pention to 1/3 of the usual ammount
- Full contribution rate = 26.3%, which will assure them a retirement pension similar to that of an employed person.
These rates are applied to the net income (revenues minus deductible expenses). It is important to know that once the choice regarding the level of contribution is made – by a form submitted at the beginning of the year, no later than January 31st), no change of mind is possible until the next year.
In conclusion, registered freelancers will have to make a decision from the very beginning about how much they want to contribute for their retirement, determining thus the level of the retirement pension they will eventually receive (full or 1/3). Still, if they want to change their initial option, this can be done only at the beginning of every following year.
The contribution to the pension fund must also lie between certain limits: no less than the above mentioned level – chosen rate applied to 35% of the gross average salary, 2415 lei in 2015 and we are still waiting for the 2016 value – and no more than 5 times the same gross average salary.
These taxes are to be paid in advance throughout the year, on a quarterly basis, as advance payments for an estimated level of income. It is highly likely to exceed the estimated income level, or on the contrary, not to reach it. The bad news, so to say, is that the anticipated payments for social contributions will not be reimbursed in the case of an income level lower than estimated. In any case, the paid ammounts are not lost, they will be taken into account for the future retirement pension).
In the particular case of not such a good year, if a registered freelancer’s income should be lower than the minimum level (35% of the gross average salary in existence that year), they will be exempted from the pension contribution the following year.
Still, if during this exempted year he/she comes to have a higher revenue than the minimum level, the registered freelancer will be due to the pension contribution fund based on the income statement he/she will submit that year. In other words, the authorities made sure that this contribution is to be paid by all those whose income surpasses the minimum level. The only exemption is for the anticipated payments in the case we mentioned above.
Contribution to the health fund
Just as it has been so far, the contribution to the health fund will remain at a rate of 5.5% of the net income (gross income minus deductible expenses).
TAX ON INCOME
Social contributions are subtracted from the stated income by the tax authorities in order to calculate the income tax (16%). This will be made by the fiscal authorities after the submission of the annual statement, not later than May 25th of the following year.
One of the currently mandatory ledgers of a registered freelancer will no longer be in use starting with 2016, actually the LEDGER OF INCOMINGS AND OUTCOMINGS.
Similarly to regular companies, registered freelancers will have to also keep their fiscal book and the inventory book.