Situation:
A commercial company, liable for corporate income tax, with no employees, wants to enter into a collaboration contract (civil agreement) with an individual.
What are the conditions that must be met when concluding this agreement and what are the company’s obligations from a tax and reporting point of view?
Solution:
First of all, we mention that the company can enter into a contract for the provision of services (civil agreement) with a natural person, provided that it needs services to be provided by third parties, without having to meet certain conditions for the conclusion of the agreement.
According to Article 115, paragraph 11 of the Tax Code, if the natural person providing services to the company under the civil convention is a natural person authorized to carry out economic activities in Romania (PFA, II, etc.) and provides proof of his tax registration for this activity, then the company has no obligation to pay or declare at the time of payment of the services provided.
According to the current provisions, the payer of income does not have to withhold any tax at source from individuals who obtain income from the provision of services and provide proof of tax registration for that activity, by submitting a declaration on their own responsibility to the payer of income, at the time of payment of income.
If the individual providing the services is not authorised and is not registered for tax purposes, and if the provision of services is of an occasional and non-continuous nature from the individual’s point of view, then the income obtained occasionally by this individual on the basis of a civil agreement will be classified as other income (Article 114, paragraph 2, letter g of the Tax Code and point 34, paragraph 2 of the Implementing Rules).
Therefore, the company, as a payer of income to the collaborating natural person, is obliged to withhold only the tax on income from other sources of 10% on the gross amounts paid, the tax being final and to be paid by the 25th of the month following the month in which it was withheld according to article 115 of the Tax Code.
The tax shall be declared by means of form 100 “Declaration on payment obligations to the state budget” by the tax payment deadline and, for information purposes, by means of form 205 “Informative declaration on tax withheld at source, income from gambling and gains/losses from investments, by income beneficiaries”, by the last day of February inclusive of the current year for the expired year, according to Article 132 of the Tax Code.
As regards the payment of social security contributions, the company paying this income has no obligation in this respect, as this is the sole responsibility of the individual as income beneficiary, depending on his personal situation.
Therefore, for these incomes, the individual will not owe CAS because income from civil contracts/agreements included in other incomes is not included in the calculation of the CAS limit
However, this type of income is included in the calculation of the cumulative annual limit for CASS according to article 155 paragraph (2) and article 170 paragraph (2) of the Tax Code, so depending on the level of income obtained by accumulation with the other income listed in article 155, paragraph (1), letter b-h of the Tax Code, the individual may owe CASS on the basis of the single declaration D212, if the accumulated income exceeds at least the limit of 6 gross minimum basic salaries per country.
If the activity provided by the individual is not occasional and the individual is not authorized to carry out economic activities, the provisions of Article 7, point 3 of the Tax Code and point 1, paragraph (1)-(5) of the Implementing Methodological Norms concerning the self-employed nature of the activity carried out by the individual, i.e. whether or not at least 4 of the 7 criteria provided for in this article of the Tax Code are met, must also be taken into account:
1.the natural person has the freedom to choose the place and the way of carrying out the activity, as well as the working hours;
2.the natural person is free to carry out the activity for several clients;
3.the risks inherent in the activity are assumed by the natural person carrying out the activity;
4.the activity is carried out by using the assets of the natural person carrying it out;
- the activity is carried out by the natural person by using his/her intellectual capacity and/or physical performance, depending on the specifics of the activity;
6.the natural person is part of a professional authority /ordination with the role of representation, regulation and supervision of the profession, according to the special normative acts regulating the organization and exercise of the profession;
7.the natural person has the freedom to carry out the activity directly, with employed staff or through collaboration with third parties in accordance with the law.
If the criteria for qualifying the activity as independent are not met and the activity is of a continuous nature, there is a risk of reconsideration during tax inspections in accordance with Article 11, paragraph (1) of the Tax Code and point 4 of the Implementing Methodological Norms, regardless of the legal nature of the relationship established on the basis of the civil agreement between the company and the individual, and the company may be obliged to pay tax on income from salaries and compulsory social contributions, specific to salary income, instead of paying tax on other income.
Legal basis:
– Tax Code (approved by Law no. 227/2015, published in the Official Gazette no. 688 of 10.09.2015), as amended and supplemented;
– 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).