What is the tax residency?
In short, tax residency determines the ability of a country to tax the income of a person or company resident in the country regardless of the country from which the person in question obtains that income.
Romanian tax residency conditions
According to the legal provisions of the Romanian Fiscal code, a resident individual is a person who meets at least one of the following conditions:
– is domiciled in Romania,
– has his/her center of vital interest in Romania,
– is present in Romania for a period or more periods exceeding a total of 183 days during any period of 12 consecutive months which ends in the calendar year concerned, and
– is a Romanian citizen working abroad as an official or an employee of a Romanian company in a foreign state.
Changing the tax residency
Starting with 2012, all individuals who come in or leave Romania and whose new residency exceeds 183 days during any period of 12 consecutive months have the obligation of informing the Romanian tax authority regarding this.
If the person in question does not declare the tax residency after meeting the above criteria, the Romanian Tax Authority will issue a fine as soon as they notice the long stay or the long-term absence from Romania.
Therefore, this person must fill in the form “Questionnaire for setting out the tax residency of an individual when coming in/leave Romania”. The deadline for this is 30 days from the expiry of the 183 days’ presence in Romania or within 30 days prior to them leaving Romania. The form must be sent to the competent Romanian Tax Authority.
The most important criteria analyzed by the Tax Office for the purpose of establishing the fiscal residence of the individual upon his arrival in Romania is the permanent residence in Romania (owned, rented or which remains available at any time for the person and / or his family) and if the center of his vital interests is in Romania.
Based on the answers to the questionnaire and the other attached related documents, the responsible tax authority will decide if the non-resident person will keep their residence of the other state or the individual becomes tax resident of Romania.
For the individuals who leave Romania, the tax authority will decide in the same manner if the person will keep the residence of Romania or the individual will become tax resident of the other state.
What happens if the Romanian tax residency is not obtained?
If the person in question does not obtain the Romanian tax residency, he or she will remain a foreign tax resident, and the Romanian authorities will not tax any income that he or she gains in other countries.
However, the person in question still must pay taxes in Romania for all income gained in this country. For example, if he/she owns a Romanian company, he/she will pay income tax in Romania for any proceeds of this business.
Double taxation treaties and their effects
The main purpose of these treaties is to avoid the payment of tax on the same income by both countries. To do this, each type of tax in both countries (the country in which the income is obtained and the country of residency) is analysed to ascertain exactly where taxes should be paid and in what amount, respectively, as well as whether the tax paid in one country is sufficient or will be considered as a tax credit in the country of the tax residency.
If a non-resident Romanian tax payer does not prove their tax residency in a state with which Romania has concluded a double taxation agreement, then the person in question will be considered a tax resident of the Romanian state. The same will be done with the person who is a resident of a state with which Romania has not concluded an agreement and meets the conditions of the tax residence provided by Romanian law.
In this situation, the person has a full tax liability in Romania being subject to income tax for income obtained from any source in Romania and outside Romania.
Av. Ana-Maria Onuța
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