Simplification of the mechanism for reporting and paying tax obligations for individuals
Emergency Ordinance no. 128/2024 for amendments and completions of Law No. 227/2015 regarding the Fiscal Code and specific measures for digitalization, as well as for amending and supplementing certain normative acts, aims to eliminate the obligation to submit the Annual Tax Return for certain categories of taxpayers.
At the same time, NAFA (National Agency for Fiscal Administration) wants to simplify the process by introducing pre-filled declarations and an electronic system for submitting them, aiming to facilitate voluntary reporting and reduce errors in the NAFA’s records.
These proposed changes are intended to streamline tax procedures, increase taxpayers’ voluntary compliance, and contribute to reducing the budget deficit. The document also aims to support the digitalization of the tax administration, in line with the objectives of the National Recovery and Resilience Plan.
Detailed targeted aspects
1. Determination of net income from independent activities
Taxpayers who earn income from independent activities and whose gross annual income exceeds EUR 25,000 (or its equivalent in RON) are required to determine their net annual income using the real system.
The option to determine net income under the real system is mandatory for a period of two consecutive fiscal years and is considered renewed for a new period unless the taxpayer requests a return to the previous system.
To revert to the previous system, the taxpayer must explicitly request this through the Annual tax return after the two-year period.
This provision applies starting with the income obtained from January 1, 2025.
2. Obligations Regarding Rental Contracts
Individuals who earn rental income (rental of personal property, excluding leases for agricultural purposes and tourist rentals) are required to register the rental contract with NAFA within 30 days of signing or modifying the contract.
For jointly owned properties, owners can designate a single property owner, usufructuary, or other legal holder to fulfill the registration obligation of the contract and who could be responsible for this obligation through the lease agreement or an additional amendment, thus reducing the bureaucratic burden.
This option does not apply to ongoing rental contracts as of January 1, 2025, as well as to their amendments registered with the tax authority prior to this date.
The procedure for designating a single responsible person for filing will be regulated later by an order from the Ministry of Finance, within 60 days of the entry into force of the normative act
3. Income from agricultural, forestry, and fishery activities
Income from agricultural activities will be taxed at a rate of 10% applied to the annual income norm.
The Annual tax return for this income must be submitted annually, and the norm is not adjusted if the structure of agricultural areas changes during the year
This provision applies starting with the income obtained from January 1, 2025.
4. Elimination of the obligation to estimate income
By eliminating Articles 120 and 120^1, individuals who were required to complete Chapter II: "Data Regarding the Estimated Income Tax/Norm of Income to be Earned in Romania and the Social Contributions Due" and who determined their income tax and estimated social contributions for the current year, will no longer be required to declare the estimated income tax and social contributions.
At the same time, in line with the above, the obligation to submit the Annual Tax Return in the current year is eliminated for taxpayers who begin or cease an activity during the fiscal year, or who temporarily interrupt or suspend their activity according to the relevant legislation, or in cases where modifications to contractual clauses occur, or if rental contracts are terminated during the fiscal year.
In these cases, individuals must submit the Annual Tax Return by May 25th, inclusive, of the year following the one in which the income was earned.
This provision applies starting with the income obtained from January 1, 2025.
5. Income exempt from the obligation to submit the Annual Tax Return
The following taxpayers are exempt from the obligation to submit the Annual Tax Return regarding income tax and social contributions for individuals, for the purpose of establishing and declaring in-come tax:
a) Income from categories mentioned in paragraph (1) for which tax is withheld at source and represents final tax;
b) Income in the form of salaries and salary-related income, for which information is included in the specific declarations;
c) Income from pensions;
d) Income from the transfer of real estate property from personal assets; e) Income from prizes and gambling winnings;
f) Income from the sale of electricity as prosumers, who are exempted from paying fiscal obliga-tions related to the amount of electricity produced for self-consumption, as well as for the ex-cess sold to suppliers.
This provision applies starting with the income obtained from January 1, 2025.
6. Social security and health fund contributions
Changes regarding estimated income also apply to the social security contribution (CAS) and health fund contribution (CASS). Taxpayers will declare these obligations only in the fiscal year for which the Annual Tax Return is submitted for income tax and social contributions due by individuals.
Furthermore, the option for individuals to pay the health fund contribution (CASS) under certain conditions is regulated. Individuals can opt to pay if they start independent activities, have a tax loss, earn specific income, or are not exempt from CASS.
The contribution is calculated based on 6 minimum gross national salaries and is declared through the Annual tax return at any time during the year. However, the payment deadline is May 25th, inclusive, of the year following the year in which the option was exercised.
If, after the voluntary option to pay CASS, the individual becomes exempt, the contribution owed is not recalculated.
7. Other provisions
- For determining income thresholds and calculating the annual base for social security contributions and health fund contributions, the value of the minimum gross national salary in effect on January 1st of the income year will be considered, regardless of whether multiple values of the minimum gross national salary are used during the same year.
- Similar to previous years, a bonus of up to 10% is provided for taxpayers who pay social contributions on time.
The application method and specific conditions for granting bonuses will be regulated by the Annual State Budget Law.
- For individuals earning below the threshold of 12 minimum gross national salaries and opting to pay CAS, the contribution paid is non-refundable but will count towards their pension contribution period.
- Starting with income for the year 2025, NAFA will transmit the pre-filled Annual tax return regarding income tax and social contributions due from individuals, including details on earned income, income tax owed, social insurance contribution base, health fund contribution base, and the amount of contributions due, based on available data.
The procedure for pre-filling, verification, and submission of the Annual tax return regarding income tax and social contributions will be approved by an order of the president of the National Agency for Fiscal Administration, which will be issued within 180 days of the publication of this emergency ordinance in the Official Gazette of Romania.
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