Accace: Foreign-source income and tax residence in Romania: Why ANAF issues tax assessment decisions and how taxpayers can respond

by Ștefan Cîrstea, Senior Tax Consultant and Oana Țăranu, Director, Head of Tax

Recently, the National Agency for Fiscal Administration in Romania has intensified its reviews of foreign-source income earned by individuals who are recorded as Romanian tax residents in its records. The reviews cover, among other items, employment and self-employment income, rental income, investments, digital asset transactions and income earned through online platforms.

According to Accace tax experts, these measures should be viewed in the context of the development of international tax cooperation mechanisms and the automatic exchange of information between tax administrations. Nevertheless, the mere receipt of a tax assessment decision does not necessarily mean that the individual concerned owes tax in Romania. The tax liability must be determined based on the individual’s tax residence, the nature of the income, the place where the activity is performed and the provisions of the applicable double tax treaty.

How information on foreign-source income reaches ANAF in Romania

Romania participates in European and international mechanisms for the automatic exchange of tax information. At European Union level, the main legal framework is Council Directive 2011/16/EU on administrative cooperation in the field of taxation, generally known as the “DAC”, which was transposed into domestic law under Title X of the Romanian Tax Procedure Code.

Under these mechanisms, tax administrations may periodically exchange information concerning certain categories of income and assets, including:

• employment income and directors’ fees;
• pensions and certain life insurance products;
• ownership of immovable property and income derived therefrom;
• financial accounts, account balances and certain investment income;
• income earned through certain digital platforms;
• information concerning certain cross-border arrangements of relevance for tax purposes.

Broadly speaking, these categories correspond to the various components of the DAC framework: financial accounts are reported under DAC2/CRS, income earned through digital platforms under DAC7, certain cross-border arrangements under DAC6, and crypto-asset transactions under DAC8.

Therefore, ANAF may receive information from foreign tax authorities, financial institutions and, where required by law, digital platform operators or reporting crypto-asset service providers. The information received may be cross-checked against tax returns filed in Romania and the information held in the individual’s Romanian tax records.

It is important to note that the automatic exchange of information does not entail the indiscriminate reporting of all of an individual’s income. The categories of information to be reported are defined by the applicable legislation, and the data received must subsequently be analysed in light of the specific circumstances.

Leaving Romania does not automatically terminate tax residence in Romania

One of the main causes of the discrepancies identified by ANAF is the situation of individuals who left Romania for an extended period without formally clarifying their tax residence status.

Under Order No. 1099/2016 of the President of ANAF, individuals who leave Romania for one or more periods of residence abroad exceeding a total of 183 days during any 12 consecutive months are required to file the “Questionnaire for determining an individual’s tax residence upon leaving Romania”. As a general rule, the questionnaire must be filed 30 days before departure.

Failure to file the questionnaire does not necessarily mean that the individual will remain a Romanian tax resident in all circumstances. However, this omission may create a discrepancy between the individual’s actual circumstances and the information held in ANAF’s records, as well as difficulties in subsequently demonstrating the transfer of tax residence.

Tax residence in Romania is not determined exclusively by citizenship or the number of days spent in a particular country. Relevant factors may include domicile, the availability of a permanent home, the centre of vital interests, personal and economic ties, habitual abode and the other criteria laid down by the Romanian Tax Code.

Where an individual could be regarded as a tax resident of both Romania and another country, the tie-breaker rules contained in the double tax treaty concluded between the two countries apply. Such treaties generally consider, in sequence, the individual’s permanent home, centre of vital interests, habitual abode and nationality. Consequently, Romanian citizenship or ownership of property in Romania does not automatically result in the individual remaining a Romanian tax resident, although it may constitute a relevant element of the analysis.

What worldwide tax liability in Romania means

Under Article 59 of the Romanian Tax Code, an individual who is a Romanian tax resident may be subject to worldwide taxation, which generally entails taxation of income derived from any source, both in Romania and abroad. Worldwide taxation primarily applies to Romanian tax-resident individuals who are domiciled in Romania; specific rules may apply to residents who are not domiciled in Romania and, therefore, each case must be assessed based on its particular circumstances.

Accordingly, foreign-source income in Romania does not become non-taxable merely because it was earned or has already been taxed in another country. The provisions of the Romanian Tax Code and the applicable double tax treaty must be analysed. Depending on the relevant treaty and the category of income, double taxation may be relieved through an exemption or by granting a foreign tax credit for tax paid abroad, in accordance with Article 131 of the Romanian Tax Code.

However, there are also important exceptions. For example, under Article 76(4)(o) of the Romanian Tax Code, employment income relating to an activity performed abroad and paid by a non-resident employer is, in principle, not taxable or reportable in Romania. Nevertheless, the treatment must be verified in light of the specific circumstances, particularly where the remuneration is borne by an employer or permanent establishment in Romania, or where part of the activity is effectively performed in Romania.

For other categories, such as rental income, dividends, interest, capital gains, income from independent activities or income earned through digital platforms, reporting and payment obligations may arise in Romania if the individual is a Romanian tax resident. Each category must be analysed separately, including by reference to the applicable double tax treaty.

What happens if the ANAF assessment is incorrect

Information received through automatic exchange mechanisms constitutes a starting point for the tax authority’s analysis, rather than a definitive conclusion concerning the tax liability. There may be classification discrepancies, incorrectly reported periods, gross income treated as taxable income or situations in which ANAF does not hold the documents demonstrating tax residence in another country. For example, an individual who effectively relocated to another EU Member State and paid taxes there may receive an assessment simply because, in the absence of a notification concerning the change of tax residence, the individual continues to be recorded by ANAF as a Romanian tax resident.

A tax assessment decision may be challenged if it does not reflect the individual’s actual tax position. Under Article 270 of the Romanian Tax Procedure Code, an administrative tax appeal must, as a general rule, be filed within 45 days of the date on which the tax administrative act is communicated. The administrative tax appeal is a mandatory preliminary administrative remedy; once it has been resolved by the tax authority, the resulting decision may be challenged before the competent administrative and tax court.

The relevant supporting documents vary depending on the particular circumstances. Organising them by scenario helps build a coherent defence:

• Employee who worked remotely for an employer established in another country: relevant documents include the employment agreement, payslips and evidence of the place where the activity was effectively performed, together with the tax residence certificate issued by the foreign country, in order to determine whether the exemption under Article 76(4)(o) or the treaty rules apply.
• Individual who rented out immovable property located abroad, including short-term accommodation through platforms such as Airbnb or Booking: relevant documents include rental agreements, income statements issued by the platform and tax returns filed in the country where the property is located.
• Individual who earned gains from digital asset transactions through reporting platforms: relevant documents include account statements and transaction reports, as well as evidence of any tax paid in another country.
• Individual who effectively relocated to another country and pays taxes there: the central element is evidence of the transfer of tax residence, namely the tax residence certificate issued by the foreign country for the years under review, documents concerning the permanent home and centre of vital interests, as well as a copy of the tax residence questionnaire and ANAF’s notification.

In all cases, foreign tax assessment decisions, evidence of taxes paid and an analysis of the applicable double tax treaty remain useful.

It should also be noted that filing an administrative tax appeal does not automatically suspend enforcement of the tax liability. If there is a risk of enforcement proceedings, the taxpayer may apply to the administrative court for the suspension of the tax administrative act, under the conditions set out in Article 278 of the Romanian Tax Procedure Code, read in conjunction with Law No. 554/2004 (generally subject to the payment of a security). Therefore, the assessment should be reviewed immediately upon receipt, both as regards its substance and the applicable deadlines and procedures.

Key take-aways

ANAF’s current reviews are the result of the tax authorities’ increasingly broad access to cross-border information and their ability to compare such data against the tax residence status and tax returns recorded in Romania.

Individuals who have lived or worked abroad should assume neither that they automatically owe tax in Romania nor that paying tax abroad eliminates their Romanian tax obligations in every situation. The key element is the correct determination of tax residence for each relevant period, followed by a separate analysis of each category of income and the applicable treaty.

Upon receiving a notification or tax assessment decision, it is advisable to review it before making payment. If the individual’s actual tax position and the available documents contradict ANAF’s conclusions, the taxpayer may request clarification or challenge the tax administrative act within the statutory deadline.

About Accace Romania

Accace Romania was founded in Bucharest in 2007. Understanding the needs of our clients to have all internal processes managed under one umbrella, we have developed into a proactive consultancy and outsourcing partner who bridges the gap between needs and solutions, by combining smart and streamlined technology with an integrated approach. Today, we offer accounting, reporting, payroll, HR administration services, tax and corporate advisory and legal consultancy through an affiliated law firm.

About Accace Group

Accace is a proactive consultancy and outsourcing partner who bridges the gap between needs and solutions. Combining smart and streamlined technology with a holistic approach, we provide an all-round care to clients and consider their matters as our own. With over 800 experts and approximately 2,000 customers, we have vast experience with facilitating the smooth operation and growth of small to large-scale, global businesses. Accace operates internationally as Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience and erase the borders of service delivery. Covering over 60 jurisdictions with more than 7,000 professionals, we support over 80,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and process at least 800,000 pay slips globally.

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