The new rules are set out under Government Emergency Ordinance no. 114/2018,1 published in the Romanian Official Gazette no. 1116 dated December 29, 2018 (the Ordinance no. 114/2018).
Although Ordinance no. 114/2018 is widely debated for several questionable measures, it is to be seen whether the investors will welcome the few positive aspects highlighted below.
As a rule, foreign investments in Romania are governed by an equal treatment principle. Consequently, the incentives set forth by Ordinance no. 114/2018 would apply to both national and foreign construction investment companies.
When and who is impacted
Ordinance no. 114/2018 is applicable between January 1, 2019 and December 31, 2028, respectively.
It concerns a quite broad area of construction businesses.2
What is new
These provisions could be seen as a novelty brought to the construction industry, as no special tax regime was in place in regard to this industry, even though it is a business facing a shortage of experts due to massive migration of experts in the past years, merely in other EU countries.
In this context, Ordinance no. 114/2018 has brought significant changes targeting, among others, the construction industry.
As a preliminary remark, the minimum monthly gross base salary guaranteed for payment for an average full-time schedule of 167,333 hours/month will be, without including bonuses/augmentations or other additional payments, RON 3.000 (approx. €635).
Employees working in construction may welcome Ordinance no. 114/2018 due to the unwinding of income tax and social contributions. Of course, certain conditions have to be met to enjoy such tax incentives, among which:
- The construction investment companies should realize at least 80 percent of their turnover from construction activities under specific business (CAEN) codes; and
- A specific level of monthly gross salaries are arising under an individual labor agreement.
As a result, employees meeting the conditions above would:
- be exempted from paying the income tax of 10 percent of the gross income;
- be exempted from paying the health insurance contribution of 10 percent of the gross income;
- pay social insurance contribution at a level of 21.25 percent of their income (i.e., lower than 3.75 percent than the country average of 25 percent); and
- be exempted from joining a private pension fund.
The employers' mandatory labour insurance contribution would be decreased from 2.25 percent (as provided in the relevant applicable provisions of the Romanian Fiscal Code) to 0.3375 percent.
It is to be seen whether these incentives will be implemented without further amendments and would result in a fresh start for the construction industry. Stay tuned and follow our news on this topic.
1 On the establishment of measures in the field of public investments and of fiscal – budgetary measures, amendment and completion of certain normative acts and extension of certain deadlines.
2 It concerns construction activities defined by CAEN
codes 41, 42 and 43 – section F – Constructions and the
industry of production of building materials, defined by the
following CAEN codes: 2312 – Processing and shaping of
2331 – Manufacture of ceramic tiles and slabs; ;
2332 – Manufacture of bricks, roof tiles and other construction products of burnt clay; ;
2361 – Manufacture of concrete products for construction; ;
2362 – Manufacture of plaster products for construction; ;
2363 – Manufacture of concrete; ;
2364 – Manufacture of mortar; ;
2369 – Manufacture of other articles of concrete, cement and plaster; ;
2370 – Cutting, shaping and finishing of stone; ;
2223 – Manufacture of articles of plastics for construction purposes; ;
1623 – Manufacture of other carpentry and joinery for construction; ;
2512 – Manufacture of metal doors and windows; ;
2511 – Manufacture of metal structures and parts of metal structures; ;
0811 – Extraction of ornamental stone and building stone, extraction of limestone, gypsum, chalk and slate; ;
0812 – Extraction of gravel and sand; ;
711 – Architectural, engineering and technical consultancy services.
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