Deductions from the tax base for individuals (DIVA) and tax rates

The implementation of the rules for deductions from the tax base and the progressive rates of personal income tax is based on Law no. 29/2023, dated 30.3.2023 “On Income Tax”, as well as on General Instruction no. 26, dated 8.9.2023 “On Income Tax”, as amended by Instruction no. 4, dated 4.2.2025.

Within this legal framework are defined:

• the rules on the entitlement to personal deductions,
• the method of applying additional deductions for dependent children and educational expenses,
• the procedures for monthly and annual declarations by taxpayers and payroll withholding agents,
• and the progressive tax rates on income from employment, business, and investments.

The following clarification is based on Law no. 29/2023, dated 30.03.2023 “On Income Tax”, on General Instruction no. 26, dated 08.09.2023, and on the amendments introduced by Instruction no. 4, dated 04.02.2025, which specify the technical procedures of implementation.
These acts determine the right, the amount, and the practical method for applying deductions from the tax base, as well as the applicable income tax rates.

1) Deductions from the Tax Base (Article 22)

A. Legal Provision (Scope of Inclusion)
The law defines personal deductions according to the taxpayer’s annual income level:

• For income up to ALL 600,000 per year (≤ ALL 50,000/month) → deduction of ALL 600,000/year (or ALL 50,000/month).
• For income from ALL 600,001 to 720,000/year (ALL 50,001–60,000/month) → deduction of ALL 420,000/year (or ALL 35,000/month).
• For income above ALL 720,000/year (> ALL 60,000/month) → deduction of ALL 360,000/year (or ALL 30,000/month).

In addition, the law provides:

• an additional deduction of ALL 48,000/year for each dependent child under 18 years of age, and
• the possibility of deducting annual education expenses up to ALL 100,000, subject to the conditions set out in the law.

B. Practical Meaning
The deductions reduce the tax base (i.e., gross salary or gross profit), not the tax itself.
This means that before calculating the tax, the amount of the deduction is subtracted from gross income, and tax is applied only to the remainder.
(The Instruction clarifies the formula and the specific payroll fields for recording these deductions.)

Personal deductions under points “a–c” may be applied monthly by the payroll withholding agent, provided the employee has signed the Personal Status Declaration with that agent.
Deductions for children and education are generally claimed in the annual income tax return, submitted by the parent with the higher income, together with the supporting documentation.

C. Practical Cases

• If the monthly salary = ALL 40,000 and the applicable monthly deduction = ALL 50,000, the taxable base becomes ALL 0, and no income tax is due.
  (40,000 – 50,000 = 0; the base cannot be negative.)
• If the monthly salary = ALL 70,000 and the applicable deduction is ALL 30,000 (e.g., because it falls in the >60,000 category),
  the taxable base = ALL 40,000 → tax is calculated on this amount according to the progressive rates.
  (These calculations must be made by aggregating monthly income if the taxpayer has more than one employment relationship.)

Note:
When a taxpayer has more than one employer, the deduction may be applied only with one withholding agent for the same monthly period.
The choice of the employer where the Personal Status Declaration is filed determines where the monthly deduction will be implemented.

2) Conditions and Procedures for Deductions (Articles 22.2–22.4 & 23)

A. Personal Status Declaration (Monthly Procedure)
How is it done?
The employee signs a written Personal Status Declaration with the employer (payroll withholding agent).
The agent records it (the Instruction requires entry in a special payroll field, e.g., field 30) and applies the calculated monthly deduction.
Instruction no. 4 specifies that the declaration must have a serial number and must be registered with the Regional Tax Directorate.

Limitations
The employee cannot sign the same declaration with more than one agent for the same month.
The same deduction cannot be applied by two parties simultaneously.
In cases of changes (e.g., job transfer during the month), the Instruction specifies how the declaration and monthly calculation should be recorded.

B. Deductions for Children and Education (Annual Procedure)
Who claims them?
The allowance for dependent children and the deduction for education expenses are claimed by the family member with the highest annual income (usually the parent with the higher income).
The claim is submitted through the annual personal income tax return or the business income declaration.
Supporting documentation (family status certificate, school contracts/invoices, proof of payment) is mandatory.

C. Administrative Risks and Controls
If the taxpayer declares inaccurate data (e.g., claims a child deduction when it belongs to the other parent),
the tax administration may correct the return, request repayment of excessive deductions, and apply legal penalties.
Supporting documentation must therefore be carefully maintained.
For example, the Instruction requires serial registration of the declaration and retention of payment proofs for education expenses.

3) Tax Rates (Article 24)

A. Employment Income (Wage Tax)

• 13% on annual employment income up to ALL 2,040,000
  (or up to ALL 170,000/month after the applicable deductions).
• 23% on the portion of annual income exceeding ALL 2,040,000.

The relief for low-income earners is provided through deductions from the tax base (Article 22),
not through a 0% rate on a portion of the wage.
In other words, the base deduction is the main mechanism to support low-income employees.

B. Business Income (Net Profit)

• 15% on taxable income up to ALL 14,000,000/year.
• 23% on the portion exceeding ALL 14,000,000, calculated progressively.

Example:
For annual taxable income of ALL 20,000,000:
14,000,000 × 15% + 6,000,000 × 23% = 2,100,000 + 1,380,000 = 3,480,000 ALL tax.
(This calculation matches the formula in the law and instruction.)

C. Investment Income

• 8% on dividends/distribution of profits.
• 15% on other types of investment income (e.g., interest, certain capital gains).
  Generally, no expenses can be deducted against such income unless expressly provided by law.

4) Practical Example (Individual “A”)

As illustrated:

• Salary of ALL 70,000 at Company “XX” → no deduction applied (because the employee chose otherwise) →
  this income will be taxed according to the progressive rates (13%/23%) after applying any allowable deductions.
• Salary of ALL 40,000 at an accounting firm → the employee signed the Personal Status Declaration with this employer →
  for salaries up to 50,000 ALL/month the deduction is 50,000 → taxable base = 0 → monthly tax = 0.

Practical Observation
The choice of the employer where the declaration is signed has an immediate monthly effect.
For individuals with two salaries, the decision can mean the difference between zero tax on one employment
and full taxation on the other.
For higher-income individuals, it may be more efficient to apply the deduction to the job that minimizes total annual tax (monthly numerical analysis is recommended).

Practical Recommendations & Checklist for Taxpayers / Employers

For the Taxpayer

• Carefully choose the employer (withholding agent) with whom to sign the Personal Status Declaration.
  Make a quick calculation to determine where the deduction will save the most tax each month.
• Keep documentation for children/education (family status certificate, school contracts, payment invoices),
  as claims for these deductions are mainly made in the annual declaration.
• When changing jobs during a month, request clarification from the agent on how the deduction will be reflected in payroll.

For the Employer / Withholding Agent

• Ensure registration of the Personal Status Declaration (serial number) and update the payroll fields as required by the Instruction.
• If the employee submits the declaration, apply the monthly deduction and record it properly.
• Maintain all documents and records for any corrections requested by the Tax Administration;
  submit payroll statements within the legal deadline (by the 20th of the following month).

Potential Risk
If two employers apply the same deduction for the same month for the same employee,
the administration will require corrections and may impose penalties.
Careful registration and monitoring of the declaration are therefore essential.

Final Note

Under the new Law no. 29/2023 and the Ministry of Finance instructions, the income tax system offers a clearer and more transparent mechanism where deductions from the tax base provide relief to individuals and families, especially those with lower incomes.

Key takeaways for every person working or running a business:

• A portion of income is not taxed thanks to personal deductions.
• Families with children or education expenses can benefit from additional reliefs.
• Tax is applied progressively, meaning those who earn more contribute more.
• Declarations and supporting documents are mandatory to benefit from these deductions.

When the rules and deadlines are followed, the system ensures that each individual pays tax fairly and proportionately to their ability,
while offering stronger protection for low-income groups.