by Vlad Cuc
The legislation pertaining Romanian micro companies has changed again few years ago, this time bringing excellent conditions for entrepreneurs. Our team of lawyers in Romania can assist local and foreign businessmen with in-depth legal advice regarding the registration of a Romanian micro business and can also advise on the set of the documents that have to be prepared during the incorporation of this type of company.
|Micro company in Romania – definition||
The micro company is a type of limited liability company that benefits from a special taxation system and which is required to have a revenue of maximum EUR 1 million in a financial year.
Minimum number of shareholders
|Corporate tax rate||Between 1% and 3% (taxes applied based on the number of employees)|
|Dividend tax rate||
– standard rate: 19%,
– reduced rates: 9%, 5% and 0%
|Double tax treaties (approximate number)||
|Residency requirements for directors||
Micro companies can be charged with the lower corporate tax (1%) if they hire at least one full-time employee.
|Tax exemptions||Such companies are exempted from paying the standard corporate tax rate (16%)|
|Business sectors forbidden for the micro company in Romania (if applicable)||
Yes, the micro company can’t operate in sectors such as: banking, gambling, insurance, etc.
|Obligation to set up a corporate bank account||
Yes, it is necessary.
|Statutory documents of the micro company in Romania||
Articles of Association
|Employment obligations||Not applicable (but having employees can qualify the company for the lower corproate tax rate).|
|Where to register the micro company||
National Trade Registry Office
Table of Contents
What are the steps regarding the registration of a micro company in Romania?
The Romanian micro company (or microenterprise) is registered following the same legal procedures that are prescribed for other types of legal entities available in this country. The steps regarding the registration of the micro company in Romania refer to the following, which can be further detailed by our team of Romanian lawyers:
- establish a suitable company name, that needs to follow the criteria imposed by the Romanian commercial law;
- draft and sign the company’s statutory documents (the articles of association);
- open a corporate bank account at a local commercial bank (it is used for paying the company’s minimum share capital, as well as for other corporate transactions);
- deposit the company’s minimum share capital (LEI 200) and register for tax purposes;
- obtain an official business address, which is a compulsory requirement for all businesses operating in Romania;
- complete the registration with the National Trade Registry Office, where the registration documents are submitted.
When selecting a trading name for the micro company, it is important to know that it has to be written in the Latin alphabet and that it must be unique at a national level. Investors can verify if the name that they are interested in is available for registration and if so, a reservation will be made, which will then be checked by the Romanian institutions, which have the responsibility of verifying if all the elements of the name follow the applicable law.
If the name respects the requirements, the founder will be able to register the said name. Along with this, the investor has to select the NACE codes that are suitable for the activities that will be carried out through the micro company in Romania. It is recommended to select as many NACE codes as possible, as if the investors will want to select other codes after the initial registration, a more complicated procedure will apply. Our team of Romanian lawyers can present more details regarding this. Our law firm can provide any additional information, as well as advice on registering with the local tax authorities.
What is the tax system available for Romanian micro companies in 2021?
Romanian micro companies benefit from advantageous taxes, applicable for companies with turnover below EUR 1 million, as follows: a corporate tax rate of 3% or even 1% in certain conditions and 5% dividend tax. The setup of a micro company might prove to be a very good idea for those investors looking to start their Romanian business at a smaller scale, at least at the beginning of their business activity.
The previous conditions which had been related to the number of employees have been abolished and now any Romanian SRL company can be registered as a micro company through the same procedure. Basically the current conditions apply to the micro company and its taxation is of 3% on its income (when the company is registered without any employees), or 1% tax rate if the company has at least one employee. You can find our more details on the tax rules applicable to this company type from our Romanian law firm. The Romania micro company tax regime is one of the most favorable regime for small companies registered in this region.
The Romanian micro company can be taxed with the 1% tax on income if the company’s employee(s) is/are hired on a full-time basis. Provided that the employment contract expires and the contractual relation with the respective employee is no longer continued, the company can still be taxed at the rate of 1% if it hires a new employee.
Companies that do not have any employees, but which will create job openings can also benefit from the lower tax threshold, once the employment contract commences; however, the employee must be hired for a period of minimum one year based on a full time contract, in order for the company to benefit from the lower tax rate.
The calculation and the payment of tax on profit is made on a quarterly basis to exceed any of the limits provided in this article, taking into account the revenues and expenditures from the beginning of the fiscal year. The tax due is the difference between the tax calculated at the beginning of the fiscal year to the end of the reporting period and enterprises’ income tax payable in that year.A novelty in the micro company law is that the tax base expands, ie any income from grants is taxable. In the old legal framework, only exploitation was mentioned. Also, income from exchange rate differences and subsequent billing of trade discounts received are taxable.
The corporate tax for Romanian micro companies is obligatory, thus those micro companies (per the conditions above) paying profit tax will have to pay 3% income tax, beginning with the next fiscal year. A newly-established Romanian legal entity is obliged to pay the Romanian micro-company tax starting with the first fiscal year, if the conditions presented above are met at the moment of its registration with the Trade Register.
The Romanian micro companies will no longer apply this level of taxation starting with the fiscal year following the one during which they no longer fulfil one of the conditions foreseen and detailed above. The companies activating in sectors such as banking, insurance, capital market (with the exceptions of companies which activate as intermediaries in these areas), gambling, betting, casinos, cannot register as micro company, as per the Romanian law.
The new Fiscal Code, which entered into force in Romania starting with 1st of January 2021, has brought several modifications that are of interest for parties that carry out a business activity as a micro-company or those who want to register a micro-company. The new Tax Code has abolished several tax measures that could be seen as discriminatory for micro-companies, compared to the companies which are liable to the standard corporate tax (on matters related to paying taxes and social contributions, investments or dividends).
What are the main advantages of starting a Romania micro company?
Businessmen who want to start the procedure of company formation in Romania for a micro company (or micro-enterprise) can benefit from a set of advantages when registering this business structure. Even though the legislation regulating the tax requirements available for a Romanian micro company has been constantly modified, this type of enterprise can be an ideal way to start a small business in this country. Our team of lawyers in Romania can assist with in-depth legal assistance on any of the characteristics of the Romanian micro-enterprise, some of which are presented below:
- the shareholders benefit from limited liability, that is limited to the capital that they have participated with in the company;
- the required minimum share capital for a Romania micro company is RON 200;
- the company can enter the commercial activities prescribed by the Nomenclature of Economic Activities in Europe (NACE);
- tthis company type is ideal for those who want to enter the business market by opening a small business;
- in specific conditions, it can be used for starting a small and medium-sized business in Romania;
- from a taxation point of view, the micro company provides one of the most attractive systems in Europe, offering some of the smallest tax thresholds.
What are the main characteristics of a micro company in Romania?
Up until now, our team of lawyers in Romania have presented some of the key elements of the micro company. However, its characteristics are not limited to the data that has been presented in the first part of the article. Thus, besides the maximum revenue of EUR 1 million in a financial year, the micro company has to comply with additional requirements in order to maintain its regime and benefit from it accordingly.
Here, we mention that the company’s capital has to be owned by other parties than the state or other administrative unities of the country. This is a compulsory requirement in order to be able to benefit from the fiscal advantages that were created for this company type. A micro company in Romania can maintain its status for the next financial year if these two conditions are met, but it must also not be included in the dissolution procedure.
Are there any tax updates for Romanian micro-companies in 2021?
Yes, those who are interested to open a business in Romania as a micro-company must know that the latest version of the Fiscal Code, amended for 2021, provides a set of modifications that aim at improving the disadvantages that have been observed in the case of micro-companies, even though they benefit from a set of tax advantages.
Although micro companies in Romania benefit from a very attractive tax system, they were in a certain degree discriminated against large corporations that did pay the standard corporate tax, but which obtained various advantages. Thus, it is important to find out that the Fiscal Code for 2021 has eliminated a set of disadvantages.
The disadvantages refer to four main points, that have been corrected in the new legislation. These refer to procedures regarding mergers and acquisitions, participations held in other companies, eligible investments and the payment of social contributions.
In the previous law, micro-companies involved in mergers or divisions did not have the right to recover tax losses though deduction made through the newly created entity or the one that purchased the company, which is a right available for other companies. In the new Fiscal Code, this measure has been eliminated and micro companies are also entitled to this right.
Provided that the micro company in Romania held participations in other companies, and if the micro company received dividends, such dividends will then be taxed; this issue has also been eliminated. In the case in which the company made various investments throughout the financial year, the company will be then entitled to receive a tax exemption from the reinvested capital. In the previous law, this aspect has not been completely clear, but the new law is more clear in this sense.
Another issue that was observed in the daily practice of micro company refers to the right of employees in using various assets belonging to the company – here, we mention the right of using cars owned by the company in the personal benefit of the employee. In this particular case, the company risked paying additional taxes and social contributions, which is not the case of companies included into other categories. The new Fiscal Code also repelled this measure. You can learn more from our Romanian law firm.
What are the reporting requirements for a Romanian micro-company?
As a taxpayer in Romania, a micro company has the obligation of completing a set of accounting and tax documents, that have to be submitted with the local institutions. Thus, it needs to comply with specific reporting requirements. In this case, the micro company has to submit financial documents on a quarterly basis. This is necessary for the calculation of the profits tax. Our team of consultants in company registration in Romania may assist foreign investors with an in-depth presentation on the requirements addressed to this business structure.
The tax returns for the tax on profits of a Romanian micro company have to be submitted by 25th of April, 25th of July, 25th of October and 27th of January (these are the dates for the current financial year which, in Romania, corresponds with the calendar year). Our lawyers can also offer information on the tax requirements available for VAT registration in Romania.
Another important aspect is that, from a tax perspective, the owner of a Romanian micro company can benefit from a lower taxation system. These types of Romanian companies will pay 3% taxable income instead of the regular 16% profit tax. Romanian legal entities that have opted for this system of taxation until February 1, 2013 retain this tax regime for 2013. Our Romanian law firm can offer additional details on the characteristics of a micro company in Romania, and investors are invited to contact our Romanian attorneys for an extended presentation.