Romania, known for its rich history and natural beauty, is emerging as a prime destination for business expansion in Europe. Having a growing economy with a 4.8% growth rate, Romania offers numerous opportunities for entrepreneurs and investors alike.
In this article, we discuss the tax system and tax rates in Romania highlighting how it is possible to pay as little as 1% tax through its remarkable micro-companies tax regime.
We also explain the company types and the process of business registration in Romania.
If you want to deal with the tax system or incorporate a company in Romania’s business-friendly environment the experts at TaxMove help you grow and expand your business with one of the lowest tax rates in the European Union,
Applicable Taxes to Companies in Romania
Romanian Corporate Income Tax:
Recent Updates in Romanian Corporate Income Tax Law:
From January 1, 2024, companies with turnover exceeding EUR 50 million face a minimum turnover tax if higher than the Corporate Income Tax (CIT). The minimum turnover tax is to be computed as 1% of the total revenue adjusted for tax purposes.
Banks will pay a 2% turnover tax on financial incomes in 2024, reduced to 1% by 2026.
Oil and gas companies with turnover above EUR 50 million pay an additional 0.5% turnover tax based on the same formula as the minimum turnover tax.
Group Taxation:
Group taxation in Romania is available provided certain requirements are met.
Controlled Foreign Company (CFC) Rules in Romania:
Romania has implemented Controlled Foreign Company (CFC) rules according to ATAD 1.
However, CFC rules are not applicable when the CFC entity is resident in the European Economic Area.
Withholding Tax:
In Romania, taxes are withheld on dividend distributions at an 8% rate.
Royalties, interest, legal, and consulting service payments are subject to a 16% withholding tax. Special conditions apply, such as a potential 50% rate for income to non-information-exchanging countries.
EU Directives and Double Tax Treaties may exempt or reduce rates on certain payments under specific conditions.
Double Tax Treaties:
Romania has signed 90 Double Tax Treaties (DTTs) with different jurisdictions across the globe.
These DTTs provide mechanisms for the elimination or reduction of double taxation on various types of income including, dividends, interests, and royalties making Romania an attractive jurisdiction for international tax planning strategies.
VAT:
Romania applies a standard VAT rate of 19%. Reduced rates of 9% and 5% are applied to specific goods and services.
VAT registration is required if annual sales exceed RON 300,000. Foreign entities must register for VAT when conducting taxable transactions or exports under certain conditions.
Social Security Contributions:
Employees in Romania contribute 25% towards pension and 10% towards medical insurance, deducted from their income tax calculation.
Employers pay 4% or 8% social security contributions, depending on labor conditions, and a 2.25% unemployment insurance contribution.
Property Tax:
Tax rates for residential buildings range from 0.08% to 0.2%, varying for individuals and companies.
Non-residential buildings are taxed from 0.2% to 1.3%, with possible increases by local authorities.
Landowners pay a fixed tax based on the purpose and location of the land.
Starting January 1, 2024, a special tax of 0.3% was introduced for expensive residential buildings and high-value cars exceeding certain thresholds.
Tax rates in Romania
Here is a brief table summarizing the key taxes in Romania:
| Tax Type | Resident Tax Rate | Notes |
|---|---|---|
|
Corporate Income Tax |
16% |
This applies to the global income of Romanian companies (when not considered microcompanies) |
|
Capital Gains Tax |
16% |
Applies to gains from asset sales. |
|
Value Added Tax (VAT) |
The standard rate is 19%; Reduced rates are 9% and 5% for specific goods and services. |
VAT registration threshold applies. |
|
Withholding Tax |
Dividends: 8%; Interest and Royalties: 16%. |
Exemptions may apply under EU Directives and double tax treaties. |
|
Social Security Contributions |
Pension: 25%; Health Insurance: 10%.. |
Paid by employees and employers. |
|
Property Tax |
Varies by property type and location; special rates for certain high-value properties introduced in 2024. |
Local authorities may apply a surcharge. |
Micro-company Taxation
Starting from January 1, 2024, Micro-companies in Romania are subject to specific profit tax rates based on their annual turnover:
- 1% Tax Rate: This applies to Micro-companies with annual turnover below EUR 60,000, excluding certain specified business activities.
- 3% Tax Rate: This applies to Micro-companies with annual turnover exceeding EUR 60,000 or engaged in sectors such as software development, IT services, hospitality, medical services, and others.
If the Micro-company receives dividends from a subsidiary located in the European Union the income can be deducted from the calculations of the Micro-company tax provided both companies meet the requirements of the European Parent-Subsidiary Directive.
Criteria for Micro-companies:
As of January 1, 2024, a Micro-company in Romania must meet the following criteria:
- Have at least one employee.
- Maintain annual turnover below EUR 500,000.
- Shareholders holding more than 25% of the capital or voting rights must not own more than one Micro-company. Previously, shareholders were limited to owning up to three Micro-company.
- Income from sources other than management and consulting services must constitute over 80% of total income.
Micro-companies Tax Compliance:
The tax calculation and payment for micro-companies are to be conducted quarterly, with the deadline set on the 25th day of the month following the respective quarter.
Tax on Income from Independent Activities
Income from independent activities in Romania, including freelancing (PFA) and sole proprietorships, etc., is taxed at a flat rate of 10%. This includes earnings from production, trade, services, and free professions, whether received individually or in partnership.
Methods of Taxation: Freelancers can choose between two tax calculation methods:
- Actual Income and Expenses: Tax is 10% of net taxable income, deducting actual expenses.
- Fixed Income Basis: Tax is 10% of a predetermined annual amount set by tax authorities. This method doesn’t consider actual expenses.
Business Entities in Romania
Sole Proprietorship (PFA): Simple setup for individuals, liable for all business debts personally. Income is taxed as personal income.
Limited Liability Company (SRL): Common for small to medium-sized enterprises, offers limited liability protection. Profits are taxed at the corporate level, and dividends are taxed at the personal level.
Joint Stock Company (SA): Used by larger businesses to raise capital through shares. Shareholders’ liability is limited to their shares. Complex regulations apply.
Partnership: This can be general (equal liability among partners) or limited (mixed liability). Profits are taxed at the partner level. Registration may be required.
How to Register a Company in Romania?
- Choose the Business Structure: Select an appropriate business structure, as given above. It is typically a limited liability company for local and foreign entrepreneurs seeking asset protection.
- Register the Company Name: Choose and register a unique company name with the local Trade Registry that reflects the business concept effectively.
- Compile Incorporation Documents: Gather and submit required documentation like Articles of Association and shareholder/director affidavits to the Trade Register Office.
- Formally Register the Company: Complete the registration process to establish the company as a micro-enterprise under Romanian regulations, typically taking up to ten working days.
- Engage an Accountant: Hire a qualified accountant to manage financial records and ensure compliance with fiscal regulations such as TaxMove experts.
Cost of Registering a Company in Romania:
Initial setup costs approximately EUR 3,850 in the first year, covering incorporation, local bank account setup, and government fees, with no ongoing annual fees.
How Can TaxMove Help You?
Undoubtedly, Romania offers a business-friendly environment for businesses, especially for Micro-enterprises. The overall tax ratio is set very low, providing an opportunity for new startups and offering tax incentives to businesses running in Romania.
In light of the above, the Micro-company regime is currently the most competitive one in the European Union for these kinds of companies due to its low tax rates.
However, you need to get expert guidance for the new company registration and dealing with tax-related business affairs in Romania.
At this stage, TaxMove, the leading business setup and tax firm, helps you register your business and manage your tax-related affairs in compliance with the legislation of relevant authorities in Romania.
Submit the form to get tailored advice from our experts
What are the key tax rates and incentives for companies operating in Romania?
- Corporate Income Tax: 16%.
- Micro-Company Tax: 1% for turnover below EUR 60,000; 3% for higher turnover.
- Dividend Tax: 8%, with exemptions for large shareholdings.
- Double Tax Treaties: 90 treaties to prevent double taxation.
What is the cost of a company in Romania?
Setting up a business in Romania typically involves costs ranging from €1,500 to €3,000.
This amount can vary based on the type of company, the legal services needed, and other factors related to the incorporation process.
How can foreign investors benefit from Romania’s micro-company tax regime?
What is the process for registering a business in Romania?
The process for registering a business in Romania involves selecting a business structure, registering a unique name with the Trade Registry, compiling necessary documents like Articles of Association, and completing formal registration, typically within ten working days.
