Tax exemption for ICT employees in Romania

The procedure regarding the exemption from income tax for IT employees was modified by
Order of the Ministry of Finance no. 835/2015 which replaces the old legal framework (MFP
Order no. 1479/2013 repealed). The new regulations stipulate that the employees in this sector
may be exempt from income tax only if they occupy certain positions, as defined by the law.

Starting July 30, the alumni working in this sector must be in one of the eight functions, as
defined in the Annex of the Order 835/2015:

Database Administrator
Analyst
System Engineer in Computer Science
Software System Engineer
IT Project Manager
Programmer
Information System Designer
Computer System Developers

In the old regulation, the provisions established that the IT employees can benefit from
exemption if, besides the specific jobs, they graduated with bachelor certain specialties such as
automation, mathematics, physics or chemistry informatics, cybernetics, accounting and
management information systems etc.

The new regulation makes no reference to the graduate specialization, but specifies the
requirement of higher education: IT employees holds a diploma awarded after completion of
a higher education long-term form or a diploma awarded after the completion of the first cycle
of the collage studies, issued by an accredited higher education institution, and actually provides
one of the activities listed in the Annex, according to the Order 835/2015.

But there are no changes on the rest of the conditions to be met for the IT employees to benefit
from income tax exemption:

the posts including the occupations correspond to the aforesaid;

the post is part of a specialized compartment, highlighting in the organizational chart;
the employer has made in the previous fiscal year and recorded separately in analytical
balances as a result of a creative activity of computer programs for trading on a contract
basis, an annual income of at least the equivalent of 10,000 US dollars (calculated on the
average monthly exchange rate by the National Bank of Romania related to each month
which saw income) for each employee who is exempt from income tax.

DOCUMENTS REQUIRED FOR IT EMPLOYEES TO BE EXEMPT FROM PAYING

INCOME TAX

The supporting documents for IT employees not to pay income tax are defined as such in the
new order and are in accordance with Law no. 571/2003 updated:

memorandum of association, in case of commercial companies;

organizational chart;
job description ;
 the authenticated copy of the diploma awarded after completing university studies
accompanied by an authenticated copy of the transcript or, if applicable, the supplement to
the diploma or the certified copy of the diploma awarded after completing the first cycle
undergraduate degree, accompanied by authenticated copy of the diploma supplement or
certified copy of the diploma equivalency certificate issued by the Ministry of Education
and Scientific Research structures for citizens of member states of the European Union,
European Economic Area and Swiss Confederation;
authenticated copy of the individual labor contract;
the salary sheet separately for employees who benefit from the exemption from tax on
income from salaries, in accordance with Law no. 571/2003, with subsequent amendments;
the builtin, approved by the authorized management staff of the employer, stating the
creation of computer programs;
the analytical balance to be reflected in revenues distinctly from creative computer
programs.

These documents are kept at the employer office, in order for inspection. Meanwhile, the setting
of an employee in the category of exemption from income tax is the responsibility of the
employer.

The citizens of the states member of the European Union, European Economic Area and Swiss
Confederation also benefit from this exemption of income tax, if their degrees are equated by
the structures of the Ministry of Education and Scientific Research.

The income tax exemption, applicable per month only for income from salaries obtained under
a labor contract is not the subject of the individual employment date or the employee
contribution to achieving the minimum level of income.

Proposed amendments to existing exemption for IT roles - coming soon in 2017

A draft order has been published stating how similar income tax exemptions for individuals in
specialist Information Technology (IT) roles under the current law will be subject to change.
Under the new rules the activities of the individual will be more important than the formal job
title when determining whether the exemption will apply.

Under certain conditions, Romania currently provides for favorable tax treatment for salary
income derived by IT specialists as follows:

Positions held by the eligible employees are limited to Database Administrator, Analyst,
Informatics System Engineer, Software Engineer, Informatics Project Manager,
Programmer, Informatics System Designer, Informatics System Programmer.

Employees eligible for the income tax exemption work within a specialized IT department
in accordance with the organizational chart of the employer.

Employees should effectively perform one of the activities referred to in the relevant
Order and hold a study diploma awarded after graduating from a long-term higher
education institution or, alternatively, a diploma awarded after completing cycle one of
 university education (the diploma should be issued by an accredited higher education
institution).

During the previous fiscal year, the employer has realized, and it has booked distinctively
in the trial balance, a yearly turnover of at least USD10,000 for each of the respective
employees (this income being obtained from software creation activities based on a
services contract).

In order to apply for the IT exemption, the employer should hold on file the employers
related justifying documentation.

The main amendments to the existing exemptions are the following:

For companies founded in the current year, the condition of USD10,000 referred above
should be fulfilled by the end of the next fiscal year when they benefit from the income
tax exemption. This will also apply to existing companies that undertake an activity of
software creation in the year as a result of business reorganization.

Instead of defining activities eligible for the exemption by reference to formal role
descriptions they will be defined by reference to the tasks and activities to be performed
by the individual. In other words the title of the role will no longer of itself define whether
the exemption applies.

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