Romania is a country which has attractive programmes and services for residents as well as for entrepreneurs. In 2017 however, Romanian tax regulation introduced tax-related changes in the country. In the European Union, different global projects help in closing certain channels that companies use when they want to optimize their taxes, such as BEPS which tries to prevent companies from transferring their profits to countries with little or no taxation. Consequently, countries can create appealing programmes to attract people or lower theirs directly.
Living in Romania
How to become a resident in Romania
If you are living in a European Union, you will not face any problem getting a residence in Romania. To get a proper residency in Romania you just have to find a rental flat and along with the rental contract, register yourself for obtaining a visa or residence permit.
For living in Romania, you have to prove that you have the necessary fund at least 50 euros a month. You do not need any other documents if you have a job or business, in some rare cases you just have to prove your health insurance.
It only depends upon which country you came and after that, you have to register at the consulate, they might be able to process your deregistration as a tax citizen in your country, or at least you are certifying that you live there in some way.
Getting a residency in Romania has several advantages like you do not have to follow any CFC rules which will directly help you in managing your companies abroad without any problem. Another advantage is the tax rate in Romania is only 16%, higher than Bulgaria 10% but less than the one in many other countries.
Apart from taxes, there are several other benefits which you can get by living in Romania, which are:
- Romania is a less expensive country in comparison with other European countries like Ireland, France and the UK.
- Living in Romania you will easily get the employ workers at very low cost.
- The food in Romania is delicious.
- The internet is quite cheap there in comparison to other countries it cost around €10 a month with 1Gbit speed and €12 for 15Gb of mobile data.
- The rent is very cheap there, it will be easy for you to find large flats in the centre of Bucharest for only 400 or 500 euros.
- The rates of flights are very cheap in Bucharest.
- It is a perfect place for staring your business and setting up a network of contacts because there are a lot of digital nomads and online entrepreneurs.
- The banks in Romania are very fast and modern so opening a bank account in their banks is very simple and fast.
- The commonly spoken language is English there.
But every place which holds advantages also comprises of some disadvantages like:
- Corruption is common in Romania
- The transport facilities are very bad there it is always recommended to take a plan instead of a road journey. Traffic jams are common there.
Set a company in Romania-the most liberal regulation in Europe for small entrepreneurs
If you are thinking to set a company in Romania then be prepared to pay 16% corporation tax rate, seemingly it is quite low as compared to the Western European countries, but it is much than the Eastern Europe countries.
Let’s get deeper about the details of corporation tax legislation in each country:
There was a special exception for small entrepreneurs a few years ago, according to which you have to pay only 3% tax generating revenue up to €100000, this rate is applied on the total volume of the amount and not on the profits made by an individual.
Lots of new changes had been made in 2018 to make the programme more attractive. The limit of turnover is extended up to €1000000. It makes Romania an attractive option for doing business, it is also an interesting option for online entrepreneurs with higher income.
From the fiscal point of view the juridical entity is the most advantageous form of organisation, to open a small company you have to follow the following:
- The subscribed capital needed to be owned by persons who are not the state or territorial administrative unities.
- In the preceding fiscal year, it did not exceed 1000000 euro in revenue.
- It is not finishing up, followed by liquidation, registered in the trade registry or courts.
If you want to open a new company there, then it is important for you to clear that a new entity cannot opt for a different registration regime than a small enterprise if at the registration date at the Trade registry the condition regarding the subscribed capital is met.
A newly established company opting for profit taxation needed a subscribed capital of minimum 45000 lei. The provisions that restrict the type of activities and the measure of incomes from management and consultancy were eliminated since 2018.
Small enterprises in Romania which are passed through several elucidations and general conditions for establishing a company were changed as a consequence of the predominantly shifty economic environment which is a characteristic feature for developing countries. To register a company in Romania you must have to have the idea about the subgenre of the limited liability sector indicating the special traits that are explained below.
The main features which seek attention in deciding to establish this type of company concern the origin of profits, annual income limits and the owners of the share capital. The small companies in Romania are legal entities which earn revenues of up to EUR 65000, which comes from performing activities performed in areas like banking area, insurance and reinsurance domain, capital markets field, consultancy, gambling and management. The other important property in these regards the owners of the share capital which should be persons other than the state or local authorities. There are no limitations regarding the number of employees since the new programme has come into existence.
The tax legislation in Romania is not less than an advantage for small enterprises. To open a company like this one needs to be aware of the beneficial taxation regime which states that a 3% income tax is to be paid for entities which follow the small company profile. There is a quarterly taxation evaluation, until the 25th of the month following the quarter that the tax in question is to fiscally justify. Around 65000 euro has been evaluated in considering gains from various sources excepting the associated costs for stock production, costs of developing services, gains obtained through tangible and intangible assets production, through operational subsidies, through reserves and adjustments for the for depreciation or value loss, through reimbursement or cancellation of interests or penalties which are considered non-deductible expenses, through recovery of damages.
As mentioned above, the small companies in Romania can be recognised as the safest mode of investing your money, but before doing this investment it is necessary to be aware of all the characteristics that occur at several points and will relate to different circumstances. For these, we have a team of professionals who will help you at every point in opening a company there.
Our companies will help you in evaluating the strategies for offering optimized approaches able to guarantee safe success and multiple alternatives.
There are 2 options available for small companies to opt the number of employees in case of the taxation regime:
- 1% for companies with at least one employee.
- 3% for companies with no employees
The companies which are newly established, and had at least one employee who is constituted from more than 48 months and who are associated with no participation titles in any juridical entities, are an exception, and they had to apply the 1% taxation rule for the first 24 months from the registration date. The company gets 1% taxation which is obliged to hire a full-time employee in 60 days from the registration date.
Apart from all this, the small companies can hire part-time employees if the fractions summed up will be the equivalent of a full-time norm. According to the law, the employee is needed to be hired with the administrative contractor mandates, in this case, their remuneration is at least equal to the minimum gross salary, it is also necessary to meet the guidelines for 1% taxation.
The taxation measures applied to the employees’ changes during the fiscal year, it starts with the trimester in which the change occurred. For small-enterprises with one employee that have fallen under 1% taxation rule, which have their contract expiring, if in case, in the same trimester a new employee is hired than the condition regarding the number of employees can be fulfilled. You have to hire an employee for the taxation measurement to change, you must hire a person full-time with a contract for at least 12 months.
If your company is receiving revenues of the limit 1000000 euro, the company will become a tax profit payer starting with the trimester in which the limit was exceeded. Also, the reverse of this is also valid, as a tax per profit payer will become small enterprise if the income is under 1000000 euro.
The formula for calculating the tax of small enterprises is total incomes x 1% or 3%. The calculation and payment of income taxes for small-enterprises are made every three months, until the 25th of the next month after calculation.
Corporate Tax and VAT regulations in Romania for small entrepreneurs
It is important to note that the small-enterprise programme only affects cooperation taxes, and it doesn’t have any effect on the VAT that the business charges its customers.
In other countries like Ireland or Germany, there are regulations for small entrepreneurs that exempt them charging VAT provided they do not exceed a certain volume of sales.
Romania consists of a regulation that exempts small business owners from charging VAT on their invoices.
There are several disadvantages of exemption from charging VAT, if you are cohering to these regulations for example, you will no longer have to deduct the VAT from your company’s purchases.
If you think to offer your own services or digital products and you don’t need to make purchases, it is same when you sell products or subcontract services, this regulation will help you in allowing you to sell your products or services 19% cheaper than your competition in Romania.
If you are thinking to recover your VAT by making the purchases, then you are always free to set up your company in any other country, like if you want to set up with a simple administration than you opt country like the UK, by setting up your company in Bulgaria you can enjoy advantages of the VAT MOOS and along with this you can opt for European tax identification number.
As discussed earlier, Romania does not have CFC rules, which will not lead to any problems for you in managing your foreign companies.
It depends upon you to obtain a community tax identification number without reaching the billing threshold, but for this, you have to go in person and inquire about it in advance with the relevant tax authorities.
So, for living in Romania the small business holders necessarily have to check all the above measures before taking any decision.
The options of a small-business in Romania
As discussed above, small businesses can invoice their business without charging VAT, it can be possible until monthly sales volume does not exceed €4000 per month.
The corporate tax includes only 3% of their sales every three months or they only have to pay 1% if they are hiring a Romanian worker.
The programme of paying the 1% to 3% of taxes are useful only if you have an annual billing volume of less than €1000000, there is regulation of paying 16% of tax in case you are starting half a million of euros.
There are various reasons for large companies to prefer being taxed according to the profits because there are multiple possibilities to reduce the tax. Large companies generally comprise of many expenses, and it leads to taxation problems.
So, the best option in Romania is the small-companies for online entrepreneurs, and for the business. Or digital nomads who do not allow any deduction of any expenses, in these cases, the difference between taxing the profit or the volume of sales is minimal.