The Government Emergency Ordinance (GEO) no. 3/2018 regarding certain fiscal and budgetary measures was published in the Official Gazette no. 125 of February 08th, 2018.
The Ordinance has been approved with the purpose of establishing two tax incentives, as follows:
I. Ensure the tax-exempt employees that their net salaries will not be diminished as of January 1st, 2018, further to the application of the provisions of GEO no. 79/2017, amending and supplementing the Tax Code;
II. Ensure the part-time employees, whose gross salaries are lower than the minimum gross salary established by the law, that their net salaries will not be diminished by the application of mandatory social security contributions.
I. The first tax incentive provided by GEO no. 3/2018 is applicable to individuals who derive income from salaries and assimilated to salaries, which are exemptfrom income tax, namely:
• Individuals with severe or profound disabilities;
• Individuals carrying out software development activities, as defined by the specific legislation;
• Individuals carrying out R&D activities, according to the specific legislation;
• Individuals carrying out seasonal activities.
In order to benefit from the first mentioned tax incentive, the respective individuals need to fulfill the following cumulative conditions:
1. To have an ongoing individual employment contract/assignment contract in force at December 31st, 2017;
2. To fall, under the specific legislation, into one of the four categories of individuals mentioned above;
3. To benefit from a gross salary increase of at least 20% as compared to the level of December 2017.
By applying GEO no. 3/2018, the net salaries of tax exempt employees should remain at the same level as the one from December 2017, given that, according to its provisions, income payers have now the obligation to compute, withhold and pay the health insurance contribution (“CASS”) to the State Budget based on the following formula:
CASS withheld = Gross Income 2018 – Social Insurance Contribution “CAS” due in 2018 – Net Salary December 2017
Note! Net Salary December 2017 = Net salary, determined by deducting the mandatory individual social contributions from the gross salary, according to the law, in December 2017 (16.5%), corresponding to the gross salary stipulated in the individual employment contract, in force in December 31st, 2017. It actually represents the taxable base of salary, used for the computation of income tax.
In fact, the computation formula attests the following:
• Should keep net salaries for tax exempt employees similar to net salary levels from December 2017 for the same employer costs;
• CASS (Health Insurance Contribution) – a part of the amount will be borne by the state budget, and the employee will pay only the amount resulted from the above calculation formula;
• CAS (Social Insurance Contribution) - the computation is not changed, i.e. 25% applied to the gross income of the employee, without any ceiling;
• The reference for computing the health insurance contribution is actually the taxable base of the salary as of December 2017.
It is important to note that these fiscal measures do not apply:
a) to the budgetary sector personnel paid from the general consolidated state budget, stipulated in the specific legislation;
b) in cases where, according to the agreement of the parties in 2018, the level of the monthly gross salary is reduced below the level of the salary resulting from the 20% increase of the gross salary from December 2017 (e.g., in December, the gross salary = Lei 1,000, subsequently increased by 20% = Lei 1,200; thus, if the parties agree during 2018 that the salary should be reduced to less than Lei 1,200, the provisions of GEO no. 3/2018 are no more applicable);
c) for the period during which the individual employment contract is suspended according to the law.
The amount representing the positive difference between the health insurance contribution due according to the Tax Code (i.e. 10%) and the health insurance contribution withheld according to the above formula, is set by the employer/payer and is distinctly marked as deductible amount in Statement 112 regarding social contributions, income tax and nominal record of insured individuals.
II. The second tax incentive is applicable to individuals who earn salary or salary-assimilated income under a full-time or part-time employment contract for whom the level of the retirement social contribution (“CAS”) due cannot be lower than the CAS level corresponding to the gross national minimum basic salary in force during the month for which the CAS is due; for these individuals, the difference up to the CAS level corresponding to the gross national minimum salary shall be paid by the employer/income payer, on behalf of the employee.
The Ordinance has temporary applicability, until 31 December 2018.
The Ordinance has been approved with the purpose of establishing two tax incentives, as follows:
I. Ensure the tax-exempt employees that their net salaries will not be diminished as of January 1st, 2018, further to the application of the provisions of GEO no. 79/2017, amending and supplementing the Tax Code;
II. Ensure the part-time employees, whose gross salaries are lower than the minimum gross salary established by the law, that their net salaries will not be diminished by the application of mandatory social security contributions.
I. The first tax incentive provided by GEO no. 3/2018 is applicable to individuals who derive income from salaries and assimilated to salaries, which are exemptfrom income tax, namely:
• Individuals with severe or profound disabilities;
• Individuals carrying out software development activities, as defined by the specific legislation;
• Individuals carrying out R&D activities, according to the specific legislation;
• Individuals carrying out seasonal activities.
In order to benefit from the first mentioned tax incentive, the respective individuals need to fulfill the following cumulative conditions:
1. To have an ongoing individual employment contract/assignment contract in force at December 31st, 2017;
2. To fall, under the specific legislation, into one of the four categories of individuals mentioned above;
3. To benefit from a gross salary increase of at least 20% as compared to the level of December 2017.
By applying GEO no. 3/2018, the net salaries of tax exempt employees should remain at the same level as the one from December 2017, given that, according to its provisions, income payers have now the obligation to compute, withhold and pay the health insurance contribution (“CASS”) to the State Budget based on the following formula:
CASS withheld = Gross Income 2018 – Social Insurance Contribution “CAS” due in 2018 – Net Salary December 2017
Note! Net Salary December 2017 = Net salary, determined by deducting the mandatory individual social contributions from the gross salary, according to the law, in December 2017 (16.5%), corresponding to the gross salary stipulated in the individual employment contract, in force in December 31st, 2017. It actually represents the taxable base of salary, used for the computation of income tax.
In fact, the computation formula attests the following:
• Should keep net salaries for tax exempt employees similar to net salary levels from December 2017 for the same employer costs;
• CASS (Health Insurance Contribution) – a part of the amount will be borne by the state budget, and the employee will pay only the amount resulted from the above calculation formula;
• CAS (Social Insurance Contribution) - the computation is not changed, i.e. 25% applied to the gross income of the employee, without any ceiling;
• The reference for computing the health insurance contribution is actually the taxable base of the salary as of December 2017.
It is important to note that these fiscal measures do not apply:
a) to the budgetary sector personnel paid from the general consolidated state budget, stipulated in the specific legislation;
b) in cases where, according to the agreement of the parties in 2018, the level of the monthly gross salary is reduced below the level of the salary resulting from the 20% increase of the gross salary from December 2017 (e.g., in December, the gross salary = Lei 1,000, subsequently increased by 20% = Lei 1,200; thus, if the parties agree during 2018 that the salary should be reduced to less than Lei 1,200, the provisions of GEO no. 3/2018 are no more applicable);
c) for the period during which the individual employment contract is suspended according to the law.
The amount representing the positive difference between the health insurance contribution due according to the Tax Code (i.e. 10%) and the health insurance contribution withheld according to the above formula, is set by the employer/payer and is distinctly marked as deductible amount in Statement 112 regarding social contributions, income tax and nominal record of insured individuals.
II. The second tax incentive is applicable to individuals who earn salary or salary-assimilated income under a full-time or part-time employment contract for whom the level of the retirement social contribution (“CAS”) due cannot be lower than the CAS level corresponding to the gross national minimum basic salary in force during the month for which the CAS is due; for these individuals, the difference up to the CAS level corresponding to the gross national minimum salary shall be paid by the employer/income payer, on behalf of the employee.
The Ordinance has temporary applicability, until 31 December 2018.
Any presented information is general and is not meant to address the specific conditions of a particular individual or legal person. Although we try to provide accurate and up-to-date information, there is no warranty that such information is accurate at the time of its receipt or that it continues to be accurate. No action should be taken based on this information without relevant professional assistance following a careful examination of the circumstances that are typical of a particular state of affairs.
