By Kooshila Takoordyal, 28.10.2020
Starting a company in Romania is one of Europe’s most promising locations for foreign investors. Romanian companies generally pay tax based on corporate profits, similar to most onshore companies in other jurisdictions. The uniform taxation is just 16% on profits and there is costs for company incorporation and maintenance. The minimum share capital for a limited liability capital (SRL) is just 50 EURO, however, a company may have more flexibility with larger paid-up capital. In this article, we will identify several benefits to foreign investors who are looking to setup a company in Romania.
Romania’s Micro-Business Tax Regime
Once the Romanian company is registered, you will be eligible to take advantage of near-zero corporate tax rates with a “micro business”. The criteria are rather simple: turnover of 1,000,000 ERUOS or less in the previous tax year.
Up until recently, this was capped at a far lower 100,000 EUROS, basically reserving the low-tax, Romania’s micro-business tax regime for truly small businesses and not location independent entrepreneurs running serious international businesses.
However, the rules were changed to attract entrepreneurs to start a company in Romania and stimulate employment.
The result for you is that the company’s Gross Sales – Net Profits are below 1,000,000 EUROS, you can enjoy greatly reduced taxation as a micro-enterprise, with tax rates ranging from 1% to 3%:
- 1% if you officially employ at least one Romanian employee, including proper payment of social taxes
- 3% if you do not employ anyone (this requirement used to be stricter, but was eased). You will also pay a small dividend tax of 5%.
In some ways, Romania’s low-tax company regime is similar to that of Labuan in Malaysia, where businesses have access to dual tax treaties and can choose to be audited and pay a low profits tax or pay a rather low flat tax and be left alone.
That makes Romania far more attractive than other jurisdictions where businesses pay zero tax only until they distribute the money, and then pay 14% to 20%.
Because Romania’s micro-business tax regime is based on turnover, you will need to file one tax return each quarter declaring your revenues, but that is about it. You can base things on turnover or involve tax deductions.
The friendly laws have continually been evolving, largely in the favour of the business owner, entrepreneurs, and foreign investors.
For doing business, Romania is home to one of the world’s best workforces for everything from virtual assistants to editors to web developers. People here are highly skilled, and the level of English spoken is excellent.
Limitations on Tax Exemption
There are two big exceptions that limit the use of Romanian companies with low tax rates to be aware of:
- No more than 20% of the annual turnover can come from management or consulting income. This means you cannot do a bunch of service work for another company.
- You cannot be involved in the banking, reassurance, capital markets, gambling, or oil and gas businesses. The best type of business to use this structure is a products business with healthy margins and a desire to hire someone in Romania.
- The key to tax reduction with a Romanian company is using a “micro company”. This can be done with the Trade Registry in Bucharest; the process is not that straightforward for non-residents, as one of the steps is indicating you are not in “fiscal debt” in Romania.
Basically, you are forming a Romanian SRL and opting for a special tax regime based on being a small business.
For more information on starting a business in Romania, please do not hesitate to contact our expert team on +353 1646 1627 or complete our contact us form. One of our agents would be happy to assist you in registering a company to advantage of all benefits the country has to offer.Contact US