Conditions for the Application of the Tax Exemption for Salary and Similar Income earned as a result of the Research & Development Activity

Bear in mind that any salary or similar income earned as of August of 2016 from R & D (Research & Development) and/or technological development activities are exempt from income tax.

In this context, please note that the Joint Order no. 4947/899/2018/1840/906/2016 on the classification in the applied R & D and/or technological development activities was published in the Official Journal, thus laying down the conditions for the application of the aforementioned tax incentive.

This new Order defines a series of types of activities which are included in the applied R & D and technological development activities, as follows:

• Applied/industrial research;
• Experimental development;
• Testing activities carried out in order to solve the scientific and technological uncertainties and reach the objectives of the research & development activities;
• Technological development.

Moreover, the Order regulates a series of specific activities which are not eligible for the tax incentive, including, as an example, the following:

• Current testing and analysis programmes in view of controlling the quality or the quantity;
• Changes in colour or appearance of existing products, services or processes, even if such changes constitute improvements;
• Market research, testing and development studies, sales promotion or consumption etc.;

In order to validate the eligibility of the activities which require the application of the tax exemption for salary and/or similar income, the employer/employee/tax authorities may request expert reports drafted by experts enrolled in the Register of Experts from any research & development area.

According to the Order, the employees who run R & D and/or technological development activities in Romania, and who fall within the definition provided for in the Order, based on an individual employment agreement, work relationship, special status provided for by law or secondment act entered into with/at a public or private unit/institution, included in the national R & D system, benefit from this tax incentive if all the conditions below are met:

• The employee’s position is part of a research & development department, as shown by the employer’s organizational chart;
• The employee carries out eligible applied R & D and/or technological development activities, included in a research & development project;
• The employee has graduated at least from bachelor studies or a form of long-term higher education and holds a bachelor’s degree or an equivalent degree, awarded by an accredited Romanian higher education institution, or a degree obtained on graduating from the undergraduate studies of accredited higher education institutions from abroad, and acknowledged and equated by the Ministry of National Education and Scientific Research;
• The salary-related and similar expenses are included in the applied R & D and/or technological development project budget;
• The employer’s object of activity also includes applied R & D and/or technological development activities.

Furthermore, this legislative act also clarifies the following:

• The tax exemption is granted on a monthly basis subject to the budget allocated for that project;
• If the project budget also includes amounts representing annual leave allowances, these types of income shall also qualify for the application of the exemptioni;
• The rules and method of calculation are regulated for when, during the same month, the taxpayer earns both income exempted from tax and taxable income;
• The tax exemption for salary and/or similar income shall even be granted if the objectives of the applied R & D and/or technological development project are not achieved.

The tax exemption for salary and/or similar income shall even be granted if the objectives of the applied R & D and/or technological development project are not achieved.

Should you require further clarification, please contact our team.