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Social contributions changes as of January 2018- Ministry of Public Finance of Romania

posted onJuly 31, 2017
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Social security contributions will be borne exclusively by employees as of January 1, 2018, the Ministry of Public Finance says in a press release. At European level, the average contribution paid by employees is 13.35% and for employers 23.57%.  Romania is currently close to the EU average. The employees pay social contributions amounting to 16.5% of their gross salaries while the employers pay 22.75%

The Finance Ministry plans to decrease by 4.25 percentage points the overall social contributions from 39.25% to 35% and to move this burden to the employees alone. The income tax rate (flat tax) is also scheduled to be reduced from 16 pct to 10 pct.

The measures will not involve an increase in wage costs for the employer, according to the press release. “This measure will ensure the employee’s percentage growth in the pension calculation, implicitly a bigger pension” reads the release. At the same time, given the decrease in the income tax rate, the employee's net income will not be affected, either, according to the same source.

Mihaela Mitroi, Tax and Legal Services Leader with PwC Romania, said the decision could lead to situations in which employees’ current net wages will fall nearly 22%. On the other hand, such consequences will be partially offset by the cut in income tax from 16 to 10%, the analyst added.

On Wednesday, Prime Minister Mihai Tudose stated that as long as he is the head of the Executive, the measure regarding the payment of social security obligations by employees themselves won’t be applied.

On Sunday, Labour Minister Lia-Olguta Vasilescu told private TV broadcaster Antena 3: “I can guarantee that no salary in Romania will decrease when we change the contributions’ system. It is in the Governing Programme and whoever has read the Governing Programme saw some six months ago that this was going to happen.  ”

UPDATE 08/11/2017

Romania’s government approved on Wednesday legislation that shifts  the payment of social security contributions from employers to employees as of January 1, 2018, cuts the income tax from 16% to 10%, and increases the turnover threshold for companies that pay a turnover tax instead of the tax on profit.The Southeastern European country will become the EU’s only member state to shift all social security taxes to employees. In the EU, all member states have divided this burden between the employer and the employee, and in most cases, the contributions paid by the employers are higher. 

According to a news report in Reuters, the emergency decree will also enforce a European Union directive that will make it harder for multinational companies to ship out their profits to their mother firms.