Romania - Tax update

[accountantromania]

Hello together,

We received many requests for residence and/or company formation in Romania.

Unfortunately it seems that many people are not up to date with the new legislation yet,
although there were some major changes. Since 1.1.2023 the following applies in Romania:

• The general corporate income tax rate is 16%
• There is a corporate income tax rate of 1% for so called "Microcompanies"
• The 3% tax rule was completely removed
• The dividend tax rate raised from 5% to now 8%
• The VAT of 19% did not change

On 1 January 2023, the microcompany tax system became optional, not obligatory as before. Companies can opt to apply for the microcompany tax system starting from the following fiscal year,
if they meet the aforementioned conditions and if they were not micro-enterprise taxpayers in a previous fiscal year beginning after 1 January 2023.

Newly formed companies can opt to apply for the microcompany taxation starting from the first fiscal year.

That being said, major changes in the legislation were passed by the Romanian parliament in regards of the definition of the formal requirements in order to obtain the 1% microcompany taxation:

1. The company needs a minimum of one full-time employee
2. The annual revenue must be less than the equivalent of 500.000 EUR
3. The company's turnover resulting from consulting and/or management services must not exceed 20% of it's revenues

Besides that, there is a new limit for shareholders of microcompanies:

Shareholders cannot hold more than 25% in shares in more than three Romanian entities, which are taxed with the 1% microcompany regime.
Moreover shareholders can choose which companies should be taxed at 1%, if they fulfill the above mentioned requirements.


The following legal entities may not participate in the microcompany taxation:

• Banking
• Insurance and Reinsurances
• Gambling
• Exploration, Development, Expoitation of oil and natural gas resources

I hope this clears things up and helps you in order to make a good decision on your business aspirations in Romania.

 

[AndyAresa]

accountantromania, thank you for this update. So, from your experience, for which types of activities are Romanian microcompanies most suitable for? software development? customer service support? online technical assistance services? adult online education and training?
as for consulting or management 20% limitation, do the Romanian authorities provide an exhaustive list of activities which are subject to the limitation? for example, there can be reference to specific codes of Statistical Classification of Economic Activities in the European Community

 

[sabawolo]

Thank you for this information!

 

[Bumpkinfvdno]

are consulting/IT development services also part of the exceptions? I read it (somewhere) that management and consulting revenue may not exceed 20% of the total

 

[accountantromania]

accountantromania, thank you for this update. So, from your experience, for which types of activities are Romanian microcompanies most suitable for? software development? customer service support? online technical assistance services? adult online education and training?
as for consulting or management 20% limitation, do the Romanian authorities provide an exhaustive list of activities which are subject to the limitation? for example, there can be reference to specific codes of Statistical Classification of Economic Activities in the European Community

The aforementioned company activities are indeed very common, we also have SEO experts, sales men, virtual assistants, real estate brokers, programmers, Saas Business, real estate rentals, handymen, youtubers, influencers and many, many more using the 1% regime.

There is a CAEN 7022 (code of economic activities for the consulting and management services:

https://caen.ro/caen/7022-activitati-de-consultanta-pentru-afaceri-si-management

are consulting/IT development services also part of the exceptions? I read it (somewhere) that management and consulting revenue may not exceed 20% of the total

It is a different CAEN, same goes for educational teaching. In order to avoid confusion with ANAF, it is advisable to avoid using the words "consulting, consultancy" on invoices too often.

 

[AndyAresa]

The aforementioned company activities are indeed very common, we also have SEO experts, sales men, virtual assistants, real estate brokers, programmers, Saas Business, real estate rentals, handymen, youtubers, influencers and many, many more using the 1% regime.

There is a CAEN 7022 (code of economic activities for the consulting and management services:

https://caen.ro/caen/7022-activitati-de-consultanta-pentru-afaceri-si-management

It is a different CAEN, same goes for educational teaching. In order to avoid confusion with ANAF, it is advisable to avoid using the words "consulting, consultancy" on invoices too often.

Thanks a lot. can you give an annual costs summary or breakdown for an EU citizen wishing to use this microcompany regime for software development. 1 individual shareholder, 1 director (himself if possible, or a hired one), 1 employee (himself if possible), annual revenues 150k-200k, with 2-3 invoice per month, from 5 to 10k each invoice. Residence permit for the individual, set up company and bank accounts, also in USD and EUR, payroll expenses, and fees for accounting and filing of tax return. Please share here or by direct message.

 

[accountantromania]

Thanks a lot. can you give an annual costs summary or breakdown for an EU citizen wishing to use this microcompany regime for software development. 1 individual shareholder, 1 director (himself if possible, or a hired one), 1 employee (himself if possible), annual revenues 150k-200k, with 2-3 invoice per month, from 5 to 10k each invoice. Residence permit for the individual, set up company and bank accounts, also in USD and EUR, payroll expenses, and fees for accounting and filing of tax return. Please share here or by direct message.

Our prices are publicly available on our website, which I will not post here since it is not complying with the forum rules.

 

[ilpablo]

Our prices are publicly available on our website, which I will not post here since it is not complying with the forum rules.

Hi, can you please PM me with your company details? I actually own a company in Romania but after the recent modifications, I also moved to another country and need to understand what to do.

 

[digger]

As a Cyprus Non-Dom resident, can I use a Cypriot Holding company to own Romanian Microcompany (with substance) and thus pay only the 1% turnover tax at Romania?
Dividend from Romanian trading company to Cyprus Holding will be 0% WHT exempt because of the EU Parent-Subsidiary directive?
As far as I understand, Cyprus Holding is exempt from the 12.5% CIT if the income is from a foreign dividend under EU PSD.

What do you think?

As a Cyprus Non-Dom resident, can I use a Cypriot Holding company to own Romanian Microcompany (with substance) and thus pay only the 1% turnover tax at Romania?
Dividend from Romanian trading company to Cyprus Holding will be 0% WHT exempt because of the EU Parent-Subsidiary directive?
As far as I understand, Cyprus Holding is exempt from the 12.5% CIT if the income is from a foreign dividend under EU PSD.

What do you think?

Forgot to mention I am also in a process to obtain Romanian citizenship by ancestry (within less than a year timeframe) and I own an apartment in Bucharest which can act as an office, so I believe it can play well together?

 

[Wayugo]

I contacted this accountant but got no reply whatsoever.

 

[accountantromania]

Hi, can you please PM me with your company details? I actually own a company in Romania but after the recent modifications, I also moved to another country and need to understand what to do.

No I can't but you can easily find us using google or having a closer look at my profile here.

As a Cyprus Non-Dom resident, can I use a Cypriot Holding company to own Romanian Microcompany (with substance) and thus pay only the 1% turnover tax at Romania?
Dividend from Romanian trading company to Cyprus Holding will be 0% WHT exempt because of the EU Parent-Subsidiary directive?
As far as I understand, Cyprus Holding is exempt from the 12.5% CIT if the income is from a foreign dividend under EU PSD.

What do you think?


Forgot to mention I am also in a process to obtain Romanian citizenship by ancestry (within less than a year timeframe) and I own an apartment in Bucharest which can act as an office, so I believe it can play well together?

The EU Directive is applicable for PROFIT Tax payers.

I contacted this accountant but got no reply whatsoever.

Please use the usual communication channels.

Another Update:

Currently politicians are publicly debating drastic changes in the tax legislation. So far it is exactly that, a debate.
Once the situation is clear and laws have passed, we will inform our mandates, accordingly and will post an update here.

 

[MRot]

If you employ yourself in your microcompany.
Can you register your rental house as the location of office?

>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?

 

[accountantromania]

For the registered office it is not relevant, if you employ yourself at your microcompany or not.

The necessary requirement is the so called 'comodat', a document that allows you to use the space for commercial purposes e.g. as a registered office, usually issued by the owner of the real estate.

 

[MRot]

Ignore the bottom part, it is an accident and I cannot remove it.