Law 239/2020 for the amendment and completion of Law no. 227/2015 regarding the Fiscal Code (hereinafter the “Fiscal Code”), adopted by the Government on 06.11.2020, brought good news for both employees and employers. The expenses incurred for placing the children of the employees in early education units could be deducted, under certain conditions, in the amount of RON 1.500/ month per child.
What does pre-school exactly mean?
Law no. 1/2011 of the national education, adopted by the Parliament on 05.01.2011, stipulated that the national pre-university education system includes, among other, the pre-school education, applicable to children up to 6 years old, respectively:
- early pre-school level (for children up to 3 years); and
- pre-school level (for children from 3 to 6 years);
The educational units that carry out the pre-school education activities are to be endorsed and authorized by the local public administration authorities and school inspectorate, according to the provisions of Government Decision no. 1252/2012, art. 6-7 on the methodology of organization and functioning of nurseries and other pre-school education units.
In conclusion, it can be understood that „pre-school education” involves education services for children up to 6 years (such as nurseries, kindergartens, pre-schools), and at the same time, it is important to note that not all such units are accredited/ approved/ authorized to perform these type of services.
Who can apply for the tax facility?
Legal entities, tax payers that are subject to pay profit tax, in accordance with art. 13 of the Fiscal Code. The companies operating under the micro-enterprise tax regime cannot invoke the facility in question as they do not qualify as taxpayers within the meaning of art. 13 of the Fiscal Code.
In other words, the legal entities paying profit tax in accordance with art. 13 of the Fiscal Code may invoke the new legislative provisions for those employees whose children are under 6 years of age and who are enrolled in an accredited/ approved/ authorized educational unit in accordance with the law above mentioned.
Additionally, non-profit organizations carrying our economic activities may invoke the tax facility in question.
What is the required documentation for invoking the facility?
The normative acts do not bring clarifications regarding the practical way of justifying the fiscal treatment implemented at the level of each taxpayer. Our recommendation is for each taxpayer to prepare a file of document that will be available in case of a potential tax audit, as follows:
- A written request from the employee addressed to the employer for bearing the expenses of the pre-school education of his children;
- The copy of the authorization of the pre-school education unit (if it is not authorized, there is a risk that in case of a tax audit from the authorities, such expenses not be allowed for deduction);
- The signed agreement between the parents and the pre-school education unit or the certificate of enrollment (in order to identify the beneficiaries of the service and confirm the attendance of the pre-school unit);
- The birth certificate of the child/children;
- Relevant documents confirming the payment for these services (bank transfers or cash, with the purpose of confirming the actual payment).
How can the facility be invoked by the employer?
According to art. 25 of the Fiscal Code, para.(4):
“[…] (12) taxpayers who incur expenses with the pre-school education can deduct such expenses from the corporate income tax due […] if the expenses exceed the corporate income tax due, the difference shall be deducted, in order, from the taxpayer’s withholding tax from the employee’s salaries, from value added tax or from the excises due […]”
Therefore, based on the above, the expenses with the pre-school education are to be deducted firstly from the corporate income tax due.
Moreover, according to art. 19 of the Fiscal Code, para.(2), the fiscal result if calculated quarterly/annually, cumulated from the beginning of the fiscal year, depending on the nature of the taxable subject and the specifics of the activity carried out. Thus, if the taxpayer calculated the quarterly corporate income tax, he will deduct the expenses recorded in such quarter, and if the expenses exceed the tax – they will be deducted from the employee payroll tax, VAT or excise duties, in that order. If the taxpayer calculates the annual corporate income tax, he will be entitled to the deduction only at the time of determining the income tax due, meaning at the end of the year.
Are these employer-borne costs taxable at the employee level?
According to art. 76 of the Fiscal Code, para.(4), letter (x), art. 142, letter (z), art. 157, para.(2), as well as art. 2204, para.(2), these expenses borne by employers are not considered income from salaries nor are such assimilated to salaries, respectively these are not subject to income tax, mandatory social security contributions and insurance contributions for work.