Last updated: 22 February 2018
The tax incentive concerning the income tax exemption (10%), currently in force for university graduate software developers, has been extended, as of the 1st of February 2018, to employees who are not university graduates.
Order no. 1168/492/3024/3337 from 2017 regarding the inclusion in the software development activity, published in Official Journal no. 52 from 18.01.2018, aims to reduce the tax burden for employees in the IT field, a sector considered strategic for Romania and an important source of employment for young students, also coveted by large global companies.
Despite the extension of the tax incentive to this domain, this sector remains the most affected by the recent tax reform, whereby the mandatory social security contributions were transferred to the employees.
Conditions for Granting the Income Tax Exemption
Please note that the income tax exemption for software developers concerns people employed based on individual employment contracts.
Order no. 1168/492/3024/3337 from 2017 supplements the list of the positions that can benefit from the tax exemption, by adding two additional positions, namely “software developer assistant” and “analyst assistant”, generally held by people who do not have university studies.
This list - which is enclosed to the Order – previously included the following positions: database administrator, analyst, computer systems engineer, software systems engineer, IT project manager, software developer, computer systems designer, computer systems developer.
To qualify for this exemption, software developers have to cumulatively meet the following conditions:
1. The business activity of their employer has to include one of the following business activity codes: 5821, 5829, 6201, 6202, 6209 (the business activity includes software creation).
2. The positions held by the employees who benefit from the income tax exemption have to correspond to the list attached to the Order and their position have to be specified in the employer’s organization chart, in a special subdivision dedicated to IT.
3. Employees must:
• Hold a long-term higher education diploma or a 1st cycle higher diploma, issued by an accredited higher education institution and actually carry out one of the activities provided by the appendix to the Order.
Or
• Hold a high school graduation diploma and take part to a training course organized by a higher education institution and actually carry out one of the activities mentioned in the appendix to the Order.
Please note that EU, EEC and Swiss Confederation citizens can also benefit from the income tax exemption, provided that their diploma is validated by the Romanian Ministry of National Education as an equivalent to a Master Degree obtained after the completion of an integrated cycle of university studies or to a long-term higher education diploma or to a 1st cycle higher education diploma or to a high school graduation diploma (provided they follow a training course organized by a higher education institution).
4. The company has obtained, during the previous financial year, and has recorded separately in an analytical balance sheet, income from software creation activities of at least 10,000 euros/employee that benefits from the tax exemption. The income is calculated at the monthly average exchange rate communicated by the National Bank of Romania, for each month when the income has been registered.
Attention!
The liability for the inclusion of an employee in the software creation activity belongs to the employer. As a general rule, the hiring of an employee on a certain position supposes that the said employee meets the skill requirements, which also result from the studies the employee has completed.
If the employee has studied or is studying in a different field (for example, he/she studies at the faculty of foreign languages), tax authority might challenge the employer’s choice to hire the employee on a software creation position, by invoking the lack of necessary skills to carry out such activity. In order to avoid a contrary interpretation of the tax authority concerning the qualification of an employee who does not have higher education studies in the IT field, we highly recommend you to make sure that you have documents proving the employee’s skills in the software creation field, such as: diplomas/certificates showing that the employee has completed training courses in that field, recommendation letters from previous employers, testifying the fact that the employee has already worked in IT for a significant period of time and that he/she has the necessary skills.