Situation:
A Romanian company, Delta SRL, is active in the software field and intends to hire 4 programmers from Italy, who will work only from Italy. These employees will come to Romania only in exceptional situations.
Is it possible to apply the tax exemption on the income from salaries considering that these programmers have tax residence in another country than Romania and their place of work is not in RO, but at their residence in Italy?
Under what conditions could the Romanian company withhold and pay the social security contributions of these employees to the Romanian state budget?
Solution:
Concerning the income tax exemption for the software creation activity:
According to Article 1 of Order 1168/2017 on the classification of the activity of software creation, employees of economic operators operating in Romania in accordance with the legislation in force, whose activity includes the creation of computer programs (CAEN codes 5821, 5829, 6201, 6202, 6209), benefit from the tax exemption on income from wages and salaries, provided for in Article 60 pct. 2 of Law no. 227/2015 on the Fiscal Code, with subsequent amendments and additions, if the following conditions are met cumulatively: ( .).
Therefore, according to the provisions mentioned above, the income tax exemption applies only for the activity carried out on the territory of Romania.
As Italy is an EU Member State, the provisions of Regulation 883/2004 on the coordination of social security systems (Text with relevance for the EEA and Switzerland) are applicable in relation to Italy.
According to Article 11(3)(a) of this Regulation, subject to Articles 12-16:
- a person pursuing an activity as an employed or self-employed person in a Member State shall be subject to the legislation of that Member State.
Thus, the Regulation lays down the rule that social contributions are payable in the State where the employee is employed.
We mention that there are two exceptions to this rule:
– transnational secondment and
– multiple employment.
These exceptions are established on the basis of the portable document A1 and the period mentioned in this document, in these cases the social contributions are paid in Romania.
The situation described above does not fall under any of these exceptions as the employees are not seconded and are not in a state of multiple employment, so it is not possible to obtain the A1 portable document and social contributions are payable in Italy on the basis of Article 11(3)(a) mentioned above.
According to Article 21 of Regulation 987/2009 laying down the procedure for implementing Regulation (EC) No 883/2004 on the coordination of social security systems (Text with relevance for the SEE and Switzerland), an employer whose registered office or place of business is outside the competent Member State is obliged to comply with all the obligations laid down by the legislation applicable to its employees, in particular the obligation to pay the contributions provided for in that legislation, as if its registered office or place of business were in the competent Member State.
An employer who does not have a representative in the Member State whose legislation is applicable may agree with the employee that the latter may fulfil the employer’s obligations on his behalf in respect of the payment of contributions, without prejudice to the employer’s basic obligations. The employer shall make such agreement known to the competent institution of that Member State.
In view of the above, the employer is obliged to register in Italy and to pay social security contributions in that State in accordance with the legislation of that State. The conditions for paying social security contributions are those laid down by Italian legislation.
There is also the possibility for the employee to take over the employer’s obligation to pay social contributions and to pay and declare social contributions in Italy by concluding an agreement.
In order for the employee to take over the obligation to pay social security contributions, the documents regulated by Italian law must be concluded. A simple agreement is not enough.
Therefore, the Delta SRL company must inquire in Italy at the tax authorities of this country about the documents that must be drawn up/issued for the employee to take over the obligations to pay social security contributions.
After the conclusion of this agreement, the employee will proceed in accordance with the legislation of this country regarding the declaration and payment of social security contributions.
If the agreement of the two parties (employer and employee) is not that the employee will take over the payment and declaration of the social security contributions, the employer must enquire with the Italian tax authorities about the documents that he must draw up/deposit in order to pay and declare the social security contributions in Italy
Thus, if the employee is resident in Italy, income tax is due in Italy.
Legal basis:
-EU Regulation 987/2009 laying down the procedure for implementing Regulation 883/2004 on the coordination of social security systems (Text with SEE and Swiss relevance);
-EU Regulation 883/2004 on the coordination of social security systems;
-Law 28/2016 of 17 March 2016 on the ratification of the Convention between Romania and the Italian Republic for the avoidance of double taxation with respect to taxes on income and the prevention of fiscal evasion and the Additional Protocol to the Convention, signed in Riga on 25 April 2015.