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Romania - Fiscal changes coming soon - Need Plan B

#21
Any link to read(even in Romanian)?

I just applied for tax residency last month. The changes in the first post look scary especially considering the deadline.

Romania also has a solo trader option which is a bit more expensive than SRL micro company, but considering the changes it makes sense to switch.

A good reason to stay in Romania is 10% capital gains tax which is one of the lowest in EU.
 
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#23
Alright, so it seems that the solo trader option(PFA) is also getting knifed. The limit will be around 20k eur plus extra taxes.

Dividend tax info is contradictory at the moment, but might get to 10% or stay at 8 for now. But it will be raised again, that's for sure.

So, according to some sources, deadlines:
1st September - CG changes, might be something positive. If I'm reading it right, moving yours stocks to Romania and then selling after will save 7% on capital gains.
1st Oct - Revenue tax increase from 1 to 3%. Still ok, not the end of the world.
1st Jan - After 60k eur per year the company switches to 16% tax. So still not bad, have some time to reach the cap before moving somewhere else.

Just need to figure where to?

accountantromania said:
Nothing has actually been decided as of now
Click to expand...
That's true. But the trend is very visible, and the deadlines are soon. One should not terminate everything tomorrow, but start searching for a way out already.
 
#24
For many people with a Romanian micro company it makes sense to max out the possible benefits and have an alternative structure available when you are getting close to relevant thresholds.

I would use the Romanian company shares to make a capital contribution to the Estonian holding company.
Estonian company only pays tax on distributions so it can be effectively 0% tax vehicle.

Now you can have an Estonian company as a parent with a Romanian subsidiary.
As per EU parent-subsidiary directive the profits distributed by a subsidiary to its parent company are exempt from withholding tax. Similarly, Estonia may not and will not charge withholding tax on the profits that this company receives from its subsidiary and can redistribute them tax free. Immediately saving 8% tax and you will only pay this revenue tax.

Lets say we used discounted cash flow method and valued the romanian subsidiary as EUR 500k.
Now the holding will be generating 500k surplus cash over time. As we are sort of miser and don't want to pay 20% tax we will not distribute dividends from the operating profits of the Estonian holding. Instead, at some point we would consider the holding company to be overcapitalized and decide to reduce the capital up to the extent of the previous capital contributions leaving us with additional EUR 500k tax-free income (which will not even be considered income, although technically it is).
Because the amounts are so low and we have structured everything appropriately we don't need to involve auditors in the process.

Estonian company with a branch in Bulgaria is also a great structure with maximum 10% total tax.
You can structure the profits that you need to distribute under Bulgarian branch where they will be taxed at 10% and reinvestable profits to Estonia where they will not be taxed if not distributed (0%).
 
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#25
Don said:
For many people with a Romanian micro company it makes sense to max out the possible benefits and have an alternative structure available when you are getting close to relevant thresholds.

I would use the Romanian company shares to make a capital contribution to the Estonian holding company.
Estonian company only pays tax on distributions so it can be effectively 0% tax vehicle.

Now you can have an Estonian company as a parent with a Romanian subsidiary.
As per EU parent-subsidiary directive the profits distributed by a subsidiary to its parent company are exempt from withholding tax. Similarly, Estonia may not and will not charge withholding tax on the profits that this company receives from its subsidiary and can redistribute them tax free. Immediately saving 8% tax and you will only pay this revenue tax.

Lets say we used discounted cash flow method and valued the romanian subsidiary as EUR 500k.
Now the holding will be generating 500k surplus cash over time. As we are sort of miser and don't want to pay 20% tax we will not distribute dividends from the operating profits of the Estonian holding. Instead, at some point we would consider the holding company to be overcapitalized and decide to reduce the capital up to the extent of the previous capital contributions leaving us with additional EUR 500k tax-free income (which will not even be considered income, although technically it is).
Because the amounts are so low and we have structured everything appropriately we don't need to involve auditors in the process.

Estonian company with a branch in Bulgaria is also a great structure with maximum 10% total tax.
You can structure the profits that you need to distribute under Bulgarian branch where they will be taxed at 10% and reinvestable profits to Estonia where they will not be taxed if not distributed (0%).
Click to expand...
But you will eventually have to pay those 20% of Estonian tax? Plus anything that your current residency will require
Although keeping the money in Estonia for years and reinvesting sounds tempting.
 
#26
Segd said:
But you will eventually have to pay those 20% of Estonian tax? Plus anything that your current residency will require
Although keeping the money in Estonia for years and reinvesting sounds tempting.
Click to expand...
No this dividend will not be taxable in Estonia. With Estonian holding you can accumulate rights to pay out tax free profits and pay them out whenever you want (e.g., when your tax residency is in a good place) and meanwhile reinvest.

A resident company, including a general and limited partnership, shall pay income tax on profit distributed as dividends or other profit distributions upon payment thereof in monetary or non-monetary form (no tax before distribution)

The income tax is not charged on

dividends, if:
1) the resident company paying the dividend has derived the dividend which is the basis for the payment from a resident company of a Contracting State or the Swiss Confederation subject to income tax (except for a company located in a non-cooperative jurisdiction for tax purposes) and at least 10 per cent of such company’s shares or votes belonged to the company at the time of deriving the dividend;

2) the company paying the dividend has derived the dividend which is the basis for the payment from a company of a foreign state (except for a company located in a non-cooperative jurisdiction for tax purposes) and at least 10 per cent of such company’s shares or votes belonged to the company at the time of deriving the dividend, and income tax has been withheld from the dividend or income tax has been charged on the share of profit which is the basis thereof;

PE profits, if:
a) the dividend is paid out of the profit attributed to foreign permanent establishment of a resident company and income tax has been charged on such profit;

b) the dividend is paid out of profit attributed to a resident company’s permanent establishment located in a Contracting State or Swiss Confederation;
 
Last edited:
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#27
>If your profit is over 30%, you ll be taxed 16%
Where did you find information about this proposal? It would mean for an IT freelancer, the combined tax rate of 16% profit tax + 10% dividends gives a combined taxation of >24% at a near 100% profit margin.

>the non-ceiling of social health insurance contribution taxes for freelancers (PFAs)
Does this mean a PFA would have to pay in total 10% income tax + 35% social security contribution = 45% effective tax?
 
#29
Thanks interesting.
I have been reading these documents, however don't fully understand one thing.


Looking at Section 84D;

nivelul de 36 de salarii minime brute pe ţară, în vigoare la termenul de depunere a declaraţieiprevăzute la art. 120, în cazul veniturilor realizate cel puţin egale cu 36 de salarii minime brute peţară


If I read correct, the proposal would have PFA Social Security contribution be capped at 36 minimum wage (up from a max. of 24 minum wage previously)?
 
#30
MRot said:
Thanks interesting.
I have been reading these documents, however don't fully understand one thing.


Looking at Section 84D;

nivelul de 36 de salarii minime brute pe ţară, în vigoare la termenul de depunere a declaraţieiprevăzute la art. 120, în cazul veniturilor realizate cel puţin egale cu 36 de salarii minime brute peţară


If I read correct, the proposal would have PFA Social Security contribution be capped at 36 minimum wage (up from a max. of 24 minum wage previously)?
Click to expand...
Yes it's correct they increase from 24 to 36
 
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#31
I have to say, it's a little bit unclear for me.
This blog;

MODIFICAREA CODULUI FISCAL - IMPACT FĂRĂ PRECEDENT ASUPRA MEDIULUI DE AFACERI!!!

reinventconsulting.ro reinventconsulting.ro
PFAs will pay CASS 10% applied on all taxable income earned – any cap below which no health is due is removed

And this news article;
therecursive.com

The Clock is Ticking: Is Romania’s IT Competitiveness at Risk with the Proposed Taxation Changes?

Only have 1 minute? Here are 3 takeaways: In a bid to reduce the budget deficit and access European Union funds, the Romanian government has recently
therecursive.com therecursive.com
the non-ceiling of social health insurance contribution taxes for freelancers (PFAs)

Seems to mention completely removing the cap. So that information is not correct then?
 
#32
Don said:
Now the holding will be generating 500k surplus cash over time. As we are sort of miser and don't want to pay 20% tax we will not distribute dividends from the operating profits of the Estonian holding. Instead, at some point we would consider the holding company to be overcapitalized and decide to reduce the capital up to the extent of the previous capital contributions leaving us with additional EUR 500k tax-free income (which will not even be considered income, although technically it is).
Click to expand...

I didn't understand this part, can you explain it a bit more?
And why would you need to do something like this? If the dividends were taxed in Romania, shouldn't it be possible to distribute them free of tax anyway?
More importantly maybe: Will Romania accept the substance of your Estonian holding company?

Don said:
Because the amounts are so low and we have structured everything appropriately we don't need to involve auditors in the process.
Click to expand...

What if the tax authorities of either country audit you?
 
#33
JustAnotherNomad said:
I didn't understand this part, can you explain it a bit more?
And why would you need to do something like this? If the dividends were taxed in Romania, shouldn't it be possible to distribute them free of tax anyway?
More importantly maybe: Will Romania accept the substance of your Estonian holding company?



What if the tax authorities of either country audit you?
Click to expand...
If you dont use holding company you pay 8% WHT on dividends.
taxsummaries.pwc.com

Romania - Corporate - Withholding taxes

Detailed description of corporate withholding taxes in Romania
taxsummaries.pwc.com

The act of moving Romanian company under holding company can give you opportunity to structure up to 800k of tax free income in one year if done right.
 
#35
MRot said:
I have to say, it's a little bit unclear for me.
This blog;

MODIFICAREA CODULUI FISCAL - IMPACT FĂRĂ PRECEDENT ASUPRA MEDIULUI DE AFACERI!!!

reinventconsulting.ro reinventconsulting.ro
PFAs will pay CASS 10% applied on all taxable income earned – any cap below which no health is due is removed

And this news article;
therecursive.com

The Clock is Ticking: Is Romania’s IT Competitiveness at Risk with the Proposed Taxation Changes?

Only have 1 minute? Here are 3 takeaways: In a bid to reduce the budget deficit and access European Union funds, the Romanian government has recently
therecursive.com therecursive.com
the non-ceiling of social health insurance contribution taxes for freelancers (PFAs)

Seems to mention completely removing the cap. So that information is not correct then?
Click to expand...
I think I understand better now, reading the following blog;
start-up.ro

Cum te pot afecta propunerile de impozitare a PFA-urilor și SRL-urilor în 2024

Cum vrea statul să descurajeze liber-profesioniștii să mai muncească în România? Care sunt propunerile pentru impozitarea PFA-urilor și SRL-urilor în 2024.
start-up.ro start-up.ro

For freelancers, they plan to uncap the Health contribution (10%).
And the Pension Contribution (25%) is now capped at 36x minimum wage. (maximum of 5400 euro).

Meaning under the Proposal, a PFA would pay 20% + 5400 euro in taxes.
 
#36
JustAnotherNomad said:
Yeah, but we were talking about using a holding company? Why would you then have to use this capital contribution trick (which I didn't understand)?
Click to expand...
Indeed its not mandatory at all - just an example how you can pay zero tax for many years with certain business models.
 
#38
Expatas said:
Yeah.....Bulgaria is a good place to be.....
Click to expand...
Do you have any past- or current experience your want to enlighten us of ?
 
#40
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