Foreign investors who want to open a company in Romania can choose between several business forms that suit their needs according to size, number of shareholders, number of employees and other criteria. As far as corporate taxation is concerned, Romania has a standard corporate income tax that is lower compared to other West European countries. The country also has one of the lowest income taxes for a legal entity compared to many other jurisdictions, when that legal entity is a Romania micro company.
Find out more about this type of company below and feel free to reach out to us as needed for incorporation assistance.
What is a micro-company?
A micro company is the most advantageous forms of organization of a juridical entity from a fiscal point of view, but it must comply with certain conditions and meet certain criteria. In order to become a micro company you must comply with the following:
- The subscribed capital must be owned by persons who are not the state or territorial-administrative unities
- In the precedent fiscal year did not exceed 1.000.000 euro in revenue
- It is not in dissolution, followed by liquidation, registered in the trade registry or courts
A new entity cannot opt for a different registration regime than micro enterprises if at the registration date at the Trade Registry the condition regarding the subscribed capital is met. According to the Fiscal Code, in order for a new established company to opt for profit taxation it should have a subscribed capital of minimum 45.000 lei. starting with 2018 the provisions that restricted the type of activities and the measure of incomes from management and consultancy were also eliminated.
What are the characteristics of the Romania micro company?
Microenterprises in Romania passed through several interpretations and the general conditions for establishing such a company were frequently changed as a consequence of the predominantly shifty economic environment which is a characteristic feature for intensively developing countries. First thing to understand about this concept concerns its definition within a familiar set of terms. In order to register micro company in Romania individuals must realize that this is a subgenre of the limited liability sector indicating several specific traits that we will explain below.
The main characteristics that are brought into attention when deciding to establish this type of company concern the origin of profits, annual income limits and the owners of the share capital. So micro companies in Romania are legal entities which have revenues of up to EUR 65,000, coming from activities performed in areas different from: banking area, insurance and reinsurance domain, capital markets field (excepting those performing intermediary activities between entities involved in this specific area), consultancy, gambling and management. Another important trait regards the owners of the share capital which should be persons other than the state or local authorities. Even if before an extra condition had to be fulfilled, nowadays there are no limitations regarding the number of employees.
In 2021, the Romanian authorities have brought a set of clarifications to the regime, namely the manner in which the vehicles owned by micro-companies may be used for personal gain by the employees. This is a distinct advantage for this business form and the law now clarifies the following: this particular advantage is not subject to the income tax or social contributions. Previously, this could have been interpreted otherwise and micro-company owners could have been subject to paying income tax and social contributions for this advantage. Our team of experts can provide you with more details and clarifications.
Two other aspects of interest have been clarified in the recent legal updates:
a Romania micro company can deduct the cost of purchasing electronic journal cash registers starting with the fourth quarter 2020, for those devices that were purchased and put into operation in 2018, 2019 and until July 26, 2020, provided that , at the date of purchase of the devices, the taxpayers were micro-companies for taxation purposes. At the same time, starting with August 2020, micro-companies can permanently deduct the new devices purchased and put into operation from the tax costs. In both situations, the amounts not fully recovered can be carried forward to the following years (Law 153/2020);
starting with the first quarter of 2021, micro-companies that sponsor the state also benefit from deductions of up to 20% of the micro tax, based on the sponsorship contract.
Furthermore, the recent 2021 updated to the micro-company laws concern the semestrial accounting reporting: starting with this year, the companies subject to the micro regime are exempt from these reports (once again, the semestrial accounting reporting exemption applies to companies with a maximum turnover of 1 million euros).
Temporary micro tax reductions apply to companies that increase their own capital during 2021-2025. Moreover, the law has temporarily changed the submission deadline for the filing and payment of the micro tax for the fourth quarter for 2021-2035 (the term is now June 25th).
Our team can provide those interested with more details about the Romania micro company regime and the changes introduced by the National Agency for Fiscal Administration (NAFA), the Ministry of Finance and other Romanian authorities of interest.
We invite you to watch a video about the Romanian micro-company:
How are micro-companies taxed?
One of the most generally known characteristics for microenterprises in Romania regards the tax legislation. If willing to open such a company in our country individuals should be aware of the rather beneficial taxation regime which states that a 3% income tax is to be paid for entities which follow the micro company profile. The taxes are to be evaluated quarterly, up until the 25th of the month following the quarter that the tax in question is to fiscally justify. The EUR 65,000 threshold shall be evaluated considering gains from various sources excepting those associated with costs for stock production, costs of developing services, gains obtained through tangible and intangible assets production, through operational subsidies, through reserves and adjustments for depreciation or value loss, through reimbursement or cancellation of interests or penalties which are to be considered non-deductible expenses, through recovery of damages.
As shown above, micro companies in Romania can be easily understood as a safe method for a successful investment but it is highly important to be aware of all specific characteristics that might occur at certain points and related to precise circumstances. That is why our team delivers the necessary professional help for all our customers interested to open a company of this type. Given the fact that this particular group of business entities continuously changes at various levels, we engaged in constantly reevaluating our strategies for offering optimized approaches able to guarantee safe success and multiple alternatives.
Regarding the taxation regime, there are 2 options for a Romania micro company, depending on the number of employees:
- 1% for companies with at least one employee
- 3% for companies with no employees
Newly established companies, with at least one employee that are constituted for more than 48 months and have whose associates have no participation titles in other juridical entities, are an exception, applying the 1% taxation rule for the first 24 months from the registration date. In order for the company to benefit from the 1% taxation it is obliged to hire a full-time employee (8h per day) within 60 days from the registration date.
On the other hand, the micro company could have employees hired part-time if the fractions summed up will be the equivalent of a full-time norm. Also, if the employee is hired with administrative contract or mandates, according to the law, in the case of which their remuneration is at least equal to the minimal gross salary, it can also meet the guidelines for 1% taxation.
Changing the taxation regime
Entrepreneurs who open a company in Romania have two options for the manner in which their legal entity will be taxed: the profits tax and the tax on the micro company’s income, as stated above. As previously mentioned, a precondition for determining the tax type is to evaluate the company’s overall income amount. Companies that have an income of less than one million euros are taxed as a micro company while others are subject to the profits tax. The exchange rate used for this purpose is the one that was valid at the end of the 2020 tax period.
The profits tax value in Romania is 16%, compared to the 1% or 3% applicable in case of the Romania micro company. This is an important difference and investors should know that they can change the taxation method if they comply with the conditions.
Changing the taxation regime of the Romanian company is performed by changing the fiscal vector by submitting two different forms (depending on the chosen method of submission, either in person or online) no later than the 31st of March the year the micro regime enters into force.
In some cases, companies can opt to change from the micro-company tax to the profits tax only when the business has a minimum share capital of 45,000 lei and at least two employees. In these cases, the change can only be implemented from one trimester to the next.
For the purpose of the taxation regime change, the Romanian authorities define the fiscal vector as the sum of taxes and fees declared to NAFA and paid by the taxpayer during the performance of its activities. Apart from the standard corporate profits tax and/or the micro companies tax, the fiscal vector also includes the excise tax, the value-added tax, the gambling fee, the special constructions tax, the tax on crude oil and gas derived from domestic production, mining royalties, oil royalties, revenue from concession and rent. Our team can give you more information on the fiscal vector and how the changes are implemented.
Certain limitations or differences are in place for companies in selected business fields. For example, investors should know that companies subject to the profit tax which carry out activities in the tourism and/or catering sector are required to comply with a mixed tax regime (which includes the profits tax and the specific tax) according to law 170/2016. This change is also due not later that March 31 the year the specific tax is due.
What are other issues to take into consideration about the Romania micro company?
If during the fiscal year, the number of employees changes, the taxation measures will be applied accordingly, starting with the trimester in which the change occurred. For micro enterprises with one employee that have fallen under 1% taxation rule, which have their contract expiring, the condition regarding the number of employees is still met if in the same trimester a new employee is hired. For those who have no employee, in the case in which they hire one, in order for the taxation measurement to be change, must hire a person full-time with a contract for at least 12 months.
In the case in which the limit of 1.000.000 euro in revenues has been exceeded, the company will become a tax profit payer starting with the trimester in which the limit was exceeded. Also, the vice versa is valid, as a tax per profit payer will become micro enterprise if the income is under 1.000.000 euro.
Business owners who fail to observe the requirement to report that the threshold of 1,000.000 euros has been exceeded are subject to fines. This is done by submitting a special form to the National Agency for Fiscal Administration (NAFA) and not observing this obligation is a contravention according to law. The fines can be the following:
1.000 lei the minimum fine for legal persons that are considered medium and large taxpayers;
5.000 lei the maximum fine for medium and large taxpayers;
500 to 1.000 lei for other legal entities, for example, small taxpayers.
This situation can be avoided by those who choose to work with our team of agents. We can provide detailed information on the submission, we can handle the submission in your name through a power of attorney and, in general, when working with our consultants you will rest assured that you will observe the Romania micro company regime in its entirety, including when the taxation threshold changes and the legal entity is moved into a different taxation bracket.
The taxes for micro enterprises are calculated like this = total incomes x 1% or 3%. The calculation and payment of income taxes for micro enterprises are made at every three months, until the 25th of the next month after the calculation. Also, form 100 must be submitted every three months at the same date.
The Romania micro company can be incorporated by foreign nationals as there are no restrictions in this sense (a foreign national satisfies the condition for the micro regime according to which the company’s capital needs to be owned by natural or legal persons, other than the state and territorial administrative units). The requirements are essentially those that apply in case of the SRL (the Romanian private limited liability company) in the sense that the micro-company needs to have a unique name, a bank account as well as to be duly registered with the authorities.
Micro company incorporation – relevant steps
Preparing the company’s constitutive documents, as well as any other needed documents such as the director’s statement and specimen signature is an essential step, one during which our team can help you of you wish to open a micro company. Apart from the documents, the founder(s) will also need to fill forms. As mentioned above, opening a bank account is a mandatory step, however, this takes place after the registration of the new business with the authorities, as the company’s business registration certificate, the national trade register number, and the unique identification code will be communicated to the chosen bank branch for the purpose of opening a corporate bank account.
Investors who wish to open a micro-company in Romania can perform a preliminary name check with the National Trade Register. They can do this by filling in a form that includes three name choices, in the preferred order. When the name of the company was previously used, the applicant must submit the previous name owner’s agreement to allow the company to continue under the chosen name. Our team of company formation experts can act in your name through a power of attorney to reserve the chosen name.
Some guidelines for the company name include the following:
it is written in classical Latin alphabet and must not be confused with other registered companies or names;
once the name is reserved, it will be checked for compliance and the authorities will verify if it is available and if it is different from the ones that are already registered or also reserved for registration;
the reservation is valid for 3 months from its issue date and can be extended before its expiry date.
All companies in Romania have one main NACE code that corresponds to their primary object of activity. The micro-company can have an unlimited number of secondary objects of activity. When investors first incorporate the company, they are advised to choose as many secondary objects of activity as possible or relevant for their industry. Any subsequent changes are only possible through an addendum to the company’s articles of association and need to be duly registered with the National Trade Register Office.
Our team can assist anyone interested in opening a micro company in Romania. We provide complete assistance during all the formation steps and we are able to answer any questions on the post-registration phase, any special permits or licenses that need to be obtained for functioning as well as the steps for hiring employees.