Emergency Ordinance (“DVO 114”) was issued by the Romanian Government December 29, 2018, having massive implications for key economic sectors. DVO 114 introduces a compulsory and substantial increase in the minimum wage and also affords significant tax breaks for certain businesses involved in defined areas of economic activity, such as the construction industry.
New Minimum Salary
In November 2018 the government introduced the possibility of providing a differentiated minimum wage depending on education and age. The general minimum wage has been increased by a government decision which went into effect on January 1, 2019. Two aspects of the minimum wage are particularly important:
- It applies to all companies active in the building industry as defined in the tax code. It also affects architecture, engineering and technical consulting companies (CAEN code 711).
- According to the wording of the DVO 114, it applies to all employees of these companies, regardless of the position occupied.
Accordingly, companies in the above fields of activity are likely to pay not only construction workers but all their employees, regardless of their function (i.e. cleaners, contractors, etc.) at least RON 3,000.
Tax Break Relief
For the above-mentioned companies and their employees, the following tax exemptions and reductions were introduced between the period of January 01, 2019 and December 31, 2028:
- Income tax exemption
- Health insurance exemption
- Reduction of the pension insurance contribution from 25% to 21.25%
- Reduction of the labor insurance contribution from 2.25% to 0.3375%.
However, these facilities only apply if the company meets the following criteria are met cumulatively:
- Active in one of DVO 114’s defined business areas.
- Sales from these activities amount to at least 80% of total sales since the beginning of the year, including the month in which the relief becomes applicable.
- Relevant salaries range between 3,000 and 30,000 RON.