Natural persons that obtain income from copyrights and rights connected to copyrights, intent patents, designs and models, trademarks and geographical indications, topographies for semiconducting products and other similar and are remunerated based on a copyright assignment contract, owes income tax to the state budget based on the income thus obtained. In the following, we present you the rules regarding the taxation of the copyright income.

Legal provisions

Income tax

General rule

According to art. 72 from Law no. 227/2015 regarding the Tax Code, for intellectual property right income, the taxpayers have the obligation to calculate, to withhold and to pay the taxation corresponding to the amounts paid by withholding tax, representing anticipated payments, form the income paid to the natural persons.

The tax that has to be withhold by anticipated payment by applying the taxation rate of 10% from the gross revenue and shall be paid to the state budget until the 25, inclusively, of the month following the one in which the income was paid.

Natural persons are obliged to submit the 200 statement (Statement regarding the income achieved iun Romania) until May 25th of the year following the one in which the income was obtained (with the aim of establishing the final tax and the regularization of the tax owed by them to the state budget).

Option

According to art. 73 from the Tax Code, natural persons can choose to establish the tax as final income tax, expressing this taxation choice, in writing, at the moment of concluding the contract.

In this case, the income tax shall be calculated by tax withholding at the moment the income is paid by the income payers, by applying a 16% rate over the gross income from which a flat expenditures rate, representing 40% of the gross income and mandatory social contributions withheld, shall be deducted, according to the law.

The income shall be calculated and withhold when the payment is made towards the natural persons and it shall be wired to the state budget until the 25th of the month following the one in which it was withheld.

In this case, the natural persons are not obligated to submit the 200 statement, any more as we mentioned in the situation above regarding anticipated payment.

Also, the art. 71 from the Tax Code provides the fact that the natural persons that obtain income from copyrights have the possibility to chose the determination of the net income in the actual income system.

This option once exercised is mandatory for natural persons for a period of 2 consecutive tax years and is considered to be renewed for a new period if the natural person does not request to come back to the previous system, by appropriately filling out the statement regarding the estimated income/income standard (D220) and submitting the form to the competent tax body until the 31st of January, inclusively, of the year following the expiry of the 2-year period.

Mandatory social contributions

For the income from intellectual property rights for which the income tax is withheld at source

For mandatory social contributions related to the intellectual oroperty rights income are CAS (social insurance fund) in the rate of 10.5% and CASS (health insurance fund) in the rate of 5.5%..

The base for the calculation of the mandatory social contributions is represented by the net income obtained from intellectual property rights (gross income – deductible expenditures in a 40 % flat rate) and cannot be higher than the equivalent of five times the average gross salary gain used for the state budget social insurance base.

For the income from intellectual property rights for which the net income is determined using the actual income system method

In the case of natural persons that choose the determination of the net income using the actual income system method, the obligation to declare the obtained income and to pay the mandatory social contributions are their responsibility.

Practical aspects

Firstly, for the natural persons that obtain income from intellectual property rights, the question is whether to chose the income taxation by tax withholding by the payer or to opt for its taxation by determining the income by the actual income system method.

It should be noted that determining the income by the actual income system method, gives the natural persons the obligation to follow the provisions of art. 68 from the Tax code regarding the taxation of the obtained income and to keep accounting books for their activities (filling in the tax record registry). Because of these reasons, this option is advisable to be usually used by natural persons that record expenditures higher than the deductible expenditures of 40% from the gross income provided by the law, regarding the activity from which they obtained intellectual property rights income.

In the following, we will give you an example regarding the taxation of intellectual property rights, respectively that of the Romanian artists.

Regarding the taxation of the income obtained by the Romanian artists, these can choose between the establishing of the income tax withholding with anticipated payment or for the establishing of the income tax as final taxation.

The most used alternative is the one regarding the final taxation, and in such a situation, firstly, the artist has to express in writing this option at the moment of concluding the legal relationship/contract. In this situation, the taxpayer shall withhold the tax by applying the 16% quota over the gross income from which he/she shall deduct the expenditures in the flat rate of 40% and the mandatory social contributions.

Separately, it would be recommended for the company to check if, from a judicial standpoint, the payment of the artist for copyright can be applied. Essentially, the copyright contract is applicable in the case of certain artists/singers/musicians that come within an event with their own compositions for which they hold intellectual property rights. Contrary, for example, in the case of artists/singers/musicians that come within an event with compositions that are not theirs, it could be considered that a copyright contract is not applicable, but a service contract, case in which the tax withholding won’t be necessary, since the tax obligations are the responsibility of the artist.

In conclusion, the income from intellectual property rights are taxed by withholding the tax and the mandatory social contributions by the income payer, either by anticipated payment system, or by the final payment system, with the exception of the case in which the natural persons chose to use the actual income system, case in which the payment and declarative obligations are their responsibility.
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