Romanian tax changes see more income tax go to charity

Recent amendments to tax legislation in Romania have seen an increase in the share of income tax that individuals can direct to charity.

At the start of this year, Government increased the income tax share that could be distributed to nonprofits or houses of worship from 2% to 3.5%. However, the increase only applies to NGOs that provide state licensed social services.

Previously, through the country’s ‘2% provision’, all income taxpayers could nominate a nonprofit organisation to receive 2% of their tax payment from the Fiscal Authority. According to one news report, in 2017 over 1.8 million Romanians redirected 2% of their income tax to NGOs, totalling over RON 200 million (approximately €43 million).

Last year however, a draft Ordinance to amend the Fiscal Code proposed to cut the income tax flat rate for individuals from 16% to 10%, reducing therefore the amount of tax available to be redirected through the 2% provision. In response, the Association for Community Relations (ARC Romania) proposed increasing the percentage that could be directed to non-profit organisations to 3.5% to offset this change. The Ministry of Finance agreed to apply this increase only for nonprofits offering state licensed social services, leaving Romanian NGOs still negotiating with the authorities for equal treatment for all NGOs.

The recent tax law amendments also now enable small businesses to allocate a proportion of their tax bill to charities under the Sponsorship Law. Previously,  legislation allowed companies to do this, but small businesses – which only pay a turnover tax – were unable to re-direct tax monies in this way. Under the changes, small businesses can now direct up to 20% of their turnover tax due in the quarter in which the expense is recorded to an NGO that provides social services licensed by the state.