Romania Tax Guide for US Expats
Romania has become a popular destination for American expatriates, offering a favorable tax environment and a vibrant cultural experience. With a flat 10% income tax rate and comprehensive social security benefits, Romania provides a compelling option for US citizens seeking to live and work abroad. Here’s what to know.
- Tax year: January 1 – December 31
- Tax filing deadline: May 25
- Currency: Romanian leu (RON)
- Primary language: Romanian
- Population: Approximately 19 million
- Capital city: Bucharest
- Tax treaty: Yes
- Totalization agreement: Yes
Understanding Tax Residency in Romania
In Romania, you are considered a resident for tax purposes if any of the following are true:
- You have a permanent home in Romania.
- You spend more than 183 days in Romania within a 12-month period.
- You have “vital interests” in Romania (e.g., family, work, economic ties).
Tax residents are taxed on their worldwide income, while non-residents are taxed only on Romanian-sourced income. The US-Romania tax treaty helps prevent double taxation by outlining which country has taxing rights over various types of income. You may need to obtain a tax residency certificate from Romanian authorities to claim tax treaty benefits.
Individual Income Tax Rates
Romania has a flat 10% tax rate on individual income. This includes:
- Employment income
- Self-employment income
- Retirement income, whether from Romanian or foreign sources
- Rental income
Common Deductions
Romanian residents can claim common deductions, including:
- Personal deductions: Employees with gross monthly salaries up to RON 3,600 are eligible for personal deductions, which vary based on income level and the number of dependents. These deductions can range from RON 15 to RON 1,300 per month.
- Voluntary pension contributions: Contributions to voluntary pension funds are deductible up to the RON equivalent of EUR 400 annually. This incentive encourages additional retirement savings.
- Voluntary health insurance premiums: Premiums paid for voluntary health insurance or subscriptions to private healthcare facilities are deductible up to EUR 400 annually.
- Donations to charitable organizations: Individuals may direct up to 3.5% of their annual income tax to charitable purposes, supporting various social causes.
Social Security Contributions
Social security contributions in Romania are mandatory. Both employees and employers are required to make social security contributions. Employees contribute 25% for pensions and 10% for health insurance, while employers contribute 2.25% for work insurance.
Self-employed individuals and freelancers are subject to similar contributions, calculated based on their declared income. The US and Romania have a totalization agreement that allows US expats to avoid dual social security taxation under certain conditions.
Filing Taxes in Romania: Process and Deadlines
1. Determine if You Need to File
Confirm your filing obligations based on residency status and income sources.
- Tax residents: Romanian residents must report their worldwide income.
- Non-residents: Only report income sourced within Romania (employment, self-employment, rental, and investment income).
2. Gather Required Documentation
- Tax residency certificate: If needed, obtain this from Romanian tax authorities to confirm your residency status.
- Income records: Collect proof of all income, such as employment contracts, invoices for freelance work, bank statements for dividends, or rental contracts.
- Deduction receipts: Organize documents for deductible expenses (e.g., private pension contributions, health insurance premiums, etc.).
3. Choose Your Filing Method
Most expats prefer filing through the ANAF portal, where you can complete forms digitally. Alternatively, you can submit forms at a local tax office, especially if you need additional assistance or translation.
4. Submit Your Tax Return by the Deadline
The deadline for filing taxes in Romania is May 25. Extensions are rare, so plan to submit before the deadline. Failing to do so can result in severe penalties.
5. Retain Copies of Your Tax Return and Receipts
Keep copies of your tax return, receipts, and proof of any payments. This documentation is essential for record-keeping and in case of future audits or inquiries.
Avoiding Double Taxation
The IRS provides several benefits to help expats avoid double taxation. This includes:
Using these benefits, many expats are able to reduce their US tax bill to zero.
Additional Taxes in Romania
In addition to the flat 10% income tax, Romania imposes several other taxes that expatriates should be aware of.
Capital Gains Tax
Capital gains in Romania are generally taxed at a flat rate of 10% for individuals. This rate applies to profits from the sale of assets such as real estate and shares. For corporate entities, capital gains are included in ordinary profits and taxed at the corporate income tax rate of 16%.
Dividend Tax
Dividends received by individuals are subject to an 8% tax rate. This rate applies to dividends distributed after January 1, 2023. The entity distributing the dividends is responsible for withholding and remitting this tax to the state budget.
Property Tax
Property owners in Romania are liable for local taxes on buildings and land. The tax rates vary depending on the property’s location, type (residential or non-residential), and value. Local councils set these rates annually, and payments are typically due in two installments: March 31 and September 30. Paying late may lead to penalties.
Value Added Tax (VAT)
Romania applies a standard VAT rate of 19% on most goods and services. Reduced rates of 9% and 5% apply to specific items, such as food products, medicines, and books. While VAT primarily affects consumers, businesses, including self-employed individuals, must register for VAT if their annual turnover exceeds certain thresholds.
Excise Duties
Excise duties are levied on specific goods, including alcohol, tobacco, and energy products. These taxes are included in the price of the goods and are paid by the producer or importer but ultimately affect the consumer.
Practical Tips for American Expats
Leverage Tax Treaties and Credits
Using expat tax treaty benefits or IRS deductions like the Foreign Tax Credit and Foreign Earned Income Exclusions can help you minimize your tax bill. You may even be able to erase your US taxes entirely.
Comply with All Reporting Requirements
In addition to Romanian and US income taxes, you may have to file additional tax forms.
- If you have one or more foreign financial accounts exceeding $10,000 at any time during the year, you must file a Foreign Bank Account Report (FBAR).
- If you own foreign assets exceeding certain thresholds, you will have to report it by filing a FATCA report.
These forms do not create a tax liability, but failing to file them when required can lead to serious penalties.
Stay Informed
Both US and Romanian tax regulations can change. Staying updated will help you avoid penalties for non-compliance and keep you from missing out on new opportunities to save.
Talk to an Expat Tax Expert
Consulting with an expat tax advisor can help you remain in compliance while optimizing your tax benefits. At Greenback Expat Tax Services, we have helped 8,000 expats file over 60,000 returns in 193 countries — including Romania.
Optimize Your Romanian Taxes with Help from Greenback
Navigating the tax landscape as an American expat in Romania can be complex. A little help goes a long way.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.
