The Impact of the ‘Train’ Ordinance on Romania’s IT Sector

On December 31, 2024, the Romanian Government passed Emergency Ordinance No. 156/2024, commonly referred to as the “Train Ordinance.”

A Sudden Policy Shift – What It Means for IT Professionals

This legislative measure introduced significant tax policy changes, including the removal of the income tax exemption for IT&C employees. Previously, this exemption was a major incentive designed to foster the growth of Romania’s technology sector, and it was initially scheduled to remain in effect until December 31, 2028. The abrupt nature of this change, implemented without prior consultation with industry stakeholders, has triggered strong reactions from both employees and employers in the sector.

The removal of the income tax exemption directly impacts the net earnings of IT professionals. Employees who have long benefited from this tax relief are now experiencing a decrease in their take-home pay, reducing disposable income and financial stability for many. Beyond immediate financial concerns, this change has broader implications for employee morale and job satisfaction, particularly in a field where skilled workers have numerous opportunities both domestically and internationally.

Employers Under Pressure – How Companies Are Adapting 

Employers have responded to these fiscal changes in varied ways. Some companies have opted to increase gross salaries to offset employees’ net income losses, but this approach is financially viable only for a limited number of firms, primarily large multinational corporations. A significant portion of IT businesses, particularly small and medium-sized enterprises (SMEs) and startups, cannot afford such salary adjustments due to budget constraints.

As a result, some companies have sought alternative compensation models, such as shifting employees to project-based contracts which can benefit from different tax treatments. Additionally, certain companies have attempted to mitigate the impact by enhancing non-monetary benefits, such as increasing the value of meal vouchers or offering additional health and wellness perks. Other employers have resorted to cost-sharing strategies, negotiating a partial distribution of the new tax burden between the company and its workforce, though this approach remains contentious among employees.

Romania’s IT Competitiveness at Risk? 

Beyond the immediate financial consequences, the Train Ordinance raises serious concerns about Romania’s attractiveness as a destination for foreign investment in the IT sector. The country has long been a favourable hub for tech companies due to its highly skilled workforce and competitive tax regime. The removal of the tax exemption undermines one of Romania’s key advantages, potentially prompting multinational firms to reconsider their presence in the country.

Some industry analysts suggest that companies might shift operations to neighbouring countries such as Poland, Hungary, or Bulgaria, where fiscal policies remain more favourable to the tech industry. Additionally, Romanian IT specialists, who are highly mobile and well-connected to international opportunities, may increasingly seek employment in other countries or opt for remote work arrangements under the fiscal residency of more tax-friendly jurisdictions.

Rise of Freelancing

Another noteworthy consequence is the potential impact on freelancing and the gig economy. With higher taxation imposed on traditional employment agreements, a growing number of IT professionals may transition to self-employed status, registering as freelancers, sole proprietors, or small business owners to optimize their tax liabilities.

While this shift allows individuals to retain more of their earnings, it also raises concerns about labor protection, as freelancers do not benefit from social security measures such as paid leave, unemployment benefits, or pension contributions. This transition could lead to long-term instability in the sector, with a workforce that increasingly operates outside traditional employment structures.

The Train Ordinance also poses significant challenges for Romania’s startup ecosystem. Small and emerging tech companies, which often operate on tight budgets and rely on a highly skilled yet cost-effective workforce, may struggle to compete with well-established corporations that can absorb additional payroll costs. This shift could lead to a decline in local innovation, as startups might be forced to relocate to jurisdictions with more favourable tax conditions, designed to encourage digital entrepreneurship.

Legal Uncertainty and Investor Confidence 

From a legal standpoint, the Train Ordinance raises concerns regarding legislative predictability and the principles of social dialogue. The sudden implementation of such a significant tax change without prior consultation contradicts the fundamental principles of transparency and stability in tax legislation. Initially, there were no discussions with social partners, and those that took place later proved futile, as the negative effects could no longer be mitigated.

Businesses typically require a predictable fiscal environment to plan for long-term growth and investments. The lack of structured consultations with employer associations and trade unions highlights an inadequate approach to policymaking, which could lead to future disputes and legal challenges. Some legal experts argue that the Train Ordinance may face constitutional scrutiny, particularly due to the absence of public debate and its disproportionate impact on a single sector of the economy.

Beyond IT – A Ripple Effect Across Industries 

Moreover, the effects of the Train Ordinance extend beyond the IT industry, as similar tax exemptions for the construction and agriculture sectors have also been revoked. While the IT sector may have more flexibility in responding to these changes, industries such as construction, where wages are typically lower, could face even more severe financial challenges.

A comparative analysis of how different sectors are handling these tax changes may provide further insight into the broader economic ramifications of this policy shift.

A Call for Policy Dialogue

In conclusion, Government Emergency Ordinance No. 156/2024 has introduced sweeping changes that have already begun to reshape Romania’s IT sector. The removal of the income tax exemption represents a substantial financial burden for employees while placing additional pressure on employers to find creative ways to retain talent.

The long-term consequences of this legislative shift remain uncertain, but the immediate reactions suggest that it could hinder Romania’s competitiveness as a tech hub, encourage talent migration, and accelerate the transition to alternative employment structures. Given the scale of these changes, policymakers may need to reconsider their approach, engaging in meaningful dialogue with industry stakeholders to develop more balanced and sustainable tax policies.