The “civil convention” is a well-known form of civil contract and has been used for some years now. It is reflecting the work relation between an entity and a person who renders different services. The legal framework is a bit unclear for persons in this situation in Romania. We are trying to shed some light into this aspect, be it for freelancers who want to do thinks by the book or for companies willing to employ them.
THE ROMANIAN CIVIL CONTRACT: A PECULIAR STATUS
As its name shows it, it is actually a contract concluded under the Civil Code and the Fiscal Code, but not the Labour Code. Since 2016, the Fiscal Code has totally removed this denomination. Therefore, tax consultants and accountants have ever since been trying to find the most appropriate legal form of collaboration, one fitting as closely as possible this type of work relationship.
To be clearer, it can be the situation of a plumber who comes to replace a broken pipe or a person who works for you as the bartender at the company’s Christmas party. We are talking about a one time service, this detail being very important.
Actually, when providing a professional service, a person can be in one of the following two situations:
- They are a professional in what they do, performing the activity more or less on a regular basis. In this situation, the person should get a legal authorisation, as an authorized freelancer or an “Authorised Physical Person” (Persoana Fizica Autorizata, in Romanian). He/she will be then able to issue invoices for the provided services. The taxation for this kind of activity will be the subject of one of our other articles.
- They have no legal authorisation, only occasionally providing a service for an entity. This is the case we are treating further on
TAXATION FOR THE CIVIL CONTRACT AS OF 2017
In terms of taxes to be retained/paid, the income obtained is a so called “Income from other sources”. The 16 % income tax is to be retained and paid by the company until the the 25th of the next month.
If the person in question has no other income (as from salary, pension, agriculture, unemployment or child raise indemnity) and if the amount of the civil contract is higher than 1 450 lei (approx. 320 €), then the 5.5 % contribution to the health fund is also to be paid also. But this is directly the person’s obligation, not the company’s, for the following year.
The amount is be calculated by the fiscal authorities, based on the examination of all incomes declared by or for the individual.
As for the statements to be filled in for this kind of income by the company, it is the form n° 100. The deadline for this one is also the 25th of the next month. On top of it, the company must file an yearly form – n° 205 – until the end of February next year. Both forms state the income tax on income (16 %) retained by the company .
No social contribution is to be paid for these incomes from other sources.
The most important fact to be taken into account when an entity decides to use this kind of civil contract to pay a service provider is the fact that the activity should really be occasional. Some authors consider that even more than one time per year can be considered a continued activity and therefore, taxed as a salary. In my opinion, this criteria cannot be that severe, but the substance of the contract, the nature of the provided service and of course the periodicity are more important when judging the opportunity to conclude this type of contract.
In conclusion, for occasional services, the civil contract is still a solution and seems to be the “cheapest” from the taxation point of view. Nevertheless, the other side of the coin is that the contract should be very carefully written in order to avoid any possible reconsideration of the income. All in all, do not worry for the one time per year plumbing job but take care when you have amounts of money paid more or less on a regular basis for other kind of services.