Contracting in Romania – a UK contractor’s overview

Romania, once given the reputation of the ‘sick man of Europe’, is now the 41st biggest economy in the world, the 10th largest in the EU, and one of the fastest growing economies of 2018.

So, asks Michelle Reilly, CEO of overseas contractor compliance firm 6CATS, is one UK contractor snapping up a Bucharest contract simply a sign of things to come?

As that ContractorUK reader will soon find out, the economic growth in Romain is so aggressive that the nation is referred to a ‘Tiger’, and current EU predictions suggest Romania will hit 1 trillion of USD Purchasing Power Parity before 2035.

Excelling in beauty and tech too

In addition to this, the tech sector is booming. Fitbit founder James Park has just invested millions into the company’s Romanian operations, stating “the tech talent here is amazing.” The sector, which employs around 150,000 people, is projected to double its share of GDP to 12% by 2025, aided by one of the fastest broadband speeds on the planet.

Despite this, there are huge skill shortages in Romania, with a survey from international recruiter Manpower showing that more than four in five of its employers were facing difficulties in finding the  talent they need. That makes the country fertile ground for skilled UK contractors.

Outside the workplace, Romania is a genuinely beautiful country with a rich history and a variety of cities and landscapes to visit. The eight UNESCO World Heritage sites in Romania range from places such as the Churches of Moldavia - ‘masterpieces inspired by Byzantine art’ -- to the stunning Danube Delta, the second largest river Delta in Europe

There’s certainly no doubt that Romania offers a multitude of opportunities for contractors both personally and professionally. However, there is a raft of legislation that professionals need to be aware of, particularly concerning employment and tax.

‘Any man can be accused of tax evasion’

The Romanian tax system is notoriously complicated, and while there has been moves to reform the system, this has not stopped people such as the President of the Chamber of Deputies, Liviu Dragneu, from being heavily critical of the law.

In May 2018, Dragneu stated that  the “legislation is not clear”, and described it as “so complicated, so dangerously drafted, that any businessman in Romania, in this second, can be accused of tax evasion.”

This mix of a complicated legal system, plus heavy government crackdowns on those who fall foul of it, makes contractor compliance more important than ever.

Even the likes of Ioan Niculae, one of Romania’s richest men, was recently sentenced to three years in prison for crimes including tax evasion. Therefore, it’s clear that contractors need to be well-informed on the legal requirements for working in Romania. Here’s what you need to know as a British contractor seeking to work in the country.

Contracting in Romania: the legal bit

Foreign nationals will require a temporary residence permit if they intend to stay in Romania for 120 days or more. This must be obtained before they arrive from the Ministry of Internal Affairs in the area they wish to reside. Contractors must also register with the Trade Register for income tax, social security and VAT.

There is a plethora of documents required to complete registration. This consists of, but is not limited to: a passport, notarised degree certificate, signed power of attorney, a criminal record certificate obtained in Romania, residence permit, medical certificate, address of the client where services are to be performed and a rental contract.

Contracting in Romania: the taxing bit

Income tax is levied at a flat rate of 16%. In year one this is payable quarterly and is based on projected income. Before May of the following year, an income tax return must be submitted in which any adjustments will be made. Standard VAT is 20%, however, if your annual income is below €65,000 (GBP 58,000), it is voluntary to pay. VAT returns can be done quarterly in year one.

Social security is considered to be very high in Romania, the 7th highest in Europe according to Deloitte Romania. Contractors and self-employed workers need to be aware of two components.

Firstly, CAS (Pension), which is 31.3% calculated on a minimum base of 35% of the average monthly gross salary and a maximum base of five times the average gross salary. Then, there is CASS (Health), which is 5.5% on taxable income with no ceiling to the contribution.

Please note, the above is merely an overview, and the deeper you’ll need to delve for your temporary work opportunity in the country, the more complicated matters can get. With the complex and sometimes murky world of tax and compliance in Romania, we strongly recommend contractors consider engaging the services of an expert contractor management organisation.

Thursday 22nd Nov 2018
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Written by Michelle Reilly

Michelle Reilly is the CEO of 6CATS International and Founder of 6CATSPRO. With over 20 years experience in developing and managing contractor workforce solutions, she is an expert in international tax compliance.
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