Situation:
An employee of Alfa SRL (a company liable for corporate income tax) joins a voluntary pension fund. According to the membership deed the company pays 300 lei monthly on behalf of the employee. In turn, the employee pays 300 lei monthly from his personal account. The total amount transferred to the voluntary pension fund is 600 lei. The employee’s salary is 3,000 lei gross.
Given that the company is liable for corporation tax, what tax treatment applies to the payment of the 300 lei/month to the pension fund on behalf of the employee?
Solution:
According to Article 76 paragraph (4^1) letter e) of the Tax Code, in the case of contributions paid by the employer, it is stipulated that they are not considered advantages and are not taxable:
– contributions to a voluntary pension fund according to Law no. 204/2006, as amended and supplemented, and those representing contributions to voluntary pension schemes, qualified as such in accordance with the legislation on voluntary pensions by the Financial Supervisory Authority, administered by authorized entities established in Member States of the European Union or belonging to the European Economic Area, borne by the employer for its own employees, up to a limit of 400 euro per year per person;
If the amounts representing payments for contributions to a voluntary pension fund or voluntary health insurance premiums exceed the equivalent of 400 euro per year, the amounts exceeding this limit are assimilated to benefits and are included in the category of taxable income.
Moreover, the income referred to in paragraph (4^1) cumulated on a monthly basis does not represent taxable income, within the limit of a maximum of 33% of the basic salary corresponding to the job held.
Under the same conditions of inclusion in the limit of 33% of the basic salary (cumulated all benefits granted) and 400 euro/year are not included in the calculation basis of CAS according to Article 142 letter aa 1) of the Tax Code contributions to a voluntary pension fund according to Law no. 204/2006, with subsequent amendments and additions, and those representing contributions to voluntary pension schemes, borne by the employer for their own employees, so that at the level of the year does not exceed the limits of 400 euro per year per person.
Similarly, these amounts are not included in the CASS calculation basis under Article 157, under the same conditions.
According to Article 25 paragraph (2) of the Tax Code, expenses for salaries and those assimilated to salaries as defined according to Title IV are deductible expenses for the determination of the tax result, with the exception of those covered by paragraphs (3) and (4).
According to the provisions of the Methodological Norms, in application of the provisions of Article 25 paragraph (2) of the Tax Code, expenses with salaries and those assimilated to salaries, as defined according to Title IV “Income tax” of the Tax Code, are deductible expenses for the determination of the tax result, regardless of the tax regime applicable to them at the level of the natural person.
Thus, the expenses for voluntary pension contributions for own employees are fully deductible, according to Article 25 paragraph (2) of the Tax Code.
In the case of employee contributions, Article 78 of the Tax Code stipulates that recipients of income from salaries owe a final monthly tax, which is calculated and withheld at source by the payers of income, the basis of calculation being determined as follows:
Gross income minus:
– the compulsory social contributions for one month, due according to the law in Romania or according to the international legal instruments to which Romania is a party, as well as, if applicable, the individual contribution to the state budget due according to the law;
– the personal deduction granted for that month;
– the trade union contribution paid for the month in question;– contributions to voluntary pension funds according to Law no. 204/2006, as amended and supplemented, and those to voluntary pension schemes, qualified as such in accordance with the legislation on voluntary pensions by the Financial Supervisory Authority, administered by authorized entities established in Member States of the European Union or belonging to the European Economic Area, borne by employees, so that at the level of the year does not exceed the equivalent in lei of the amount of 400 euro;
– voluntary health insurance premiums, as well as medical services provided in the form of subscriptions, borne by employees, so that the yearly amount does not exceed the equivalent in lei of 400 euro. The insurance contract, i.e. the subscription, covers medical services provided to the employee and/or any dependants, as defined in Article 77(5);
– the cost of subscriptions for the use of sports facilities for the practice of sport and physical education for maintenance, prophylactic or therapeutic purposes offered by providers whose activities are covered by CAE codes
Deduction of contributions withheld for voluntary pension funds so qualified in accordance with the legislation on voluntary pensions shall be made only on the basis of documents on the qualification of the respective voluntary pension funds, issued by the Financial Supervisory Authority (ASF), at the request of the employer, and shall be recorded in the payroll under amounts to be deducted before the calculation of taxable income for the determination of payroll tax, after personal deductions and other deductions if applicable.
Throughout the year, the payer of income from salaries accumulates the amounts in euros and checks whether they fall within the deductible limit provided for by law.
Please note that in order to verify the annual limit , the exchange rate used to determine the euro equivalent is the leu/euro rate communicated by the National Bank of Romania, in force on the last day of the month for which the salary rights are paid.
Legal basis:
– Fiscal Code (approved by Law no. 227/2015, published in the Official Gazette no.688 of 10.09.2015), with subsequent amendments and additions;
– Tax Procedure Code (approved by Law no. 207/2015, published in MO no. 547 of 23.07.2015), as amended and supplemented;
– Methodological Norms for the application of the Tax Code (approved by GOVERNMENT DECISION no. 1/2016).