The recipients of incomes from private pension funds (Pillar II, Pillar III and other schemes) will pay the income tax (10% currently) only for the difference between the actual revenue and the contribution - in other words, for the profit generated by their investment, according to an amendment to the Fiscal Code passed by the Chamber of Deputies as a decision-making body.

The recipients are also entitled to the standard deduction for state pension incomes (RON 2,000 per month, not subject to income tax), Economica.net reported.

The contributions to Pillar II and Pillar III are, however, still subject to very different fiscal treatments. While the former is fully deductible, the contributions to Pillar II are deductible to a very small amount: EUR 400 per year, which makes it irrelevant as a future source of income unless the firm/employee pays supplementary contributions out of their pockets (money subject to income taxation).

The amendment passed by the deputies eliminates the issue of double taxation of pension incomes from Pillar III but creates positive discrimination for Pillar II compared to both Pillar I (where incomes are subject to income tax irrespective of the contribution, except for the RON 2,000 monthly tax-free allowance) and Pillar III (where the contributions are mostly made from money already subject to the income tax).

Making the contributions to both Pillar II and Pillar III either fully deductible (and full taxation of revenues from pensions) or fully not deductible (and the taxation of the profits generated by the pension funds - a somewhat cumbersome choice preferred by the lawmakers) would eliminate inconsistencies. 

iulian@romania-insider.com

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