My name is Paulina Igorov and I am interested in starting a business in Romania, but don’t know how to do it, or what is the legislation.
It is important to know that anyone can open a company in Romania, no matter where they reside, however, it is required to meet certain conditions and know what laws will regulate your business. Due to the fast-growing economic environment and the optimal taxation system, a lot of investors and entrepreneurs started to become more in more interested in developing their businesses in Romania.
In the first place, having a 16% corporation tax rate was not very attractive for investors to invest their money in Romania, but it is actually significantly lower than taxes in Western Europe. On the other hand, a few years ago, when the legislation changed and the 3% tax for micro-companies was introduced (for turnovers lower than €100.000), and when the turnover changed to €1.000.000, Romania became the number 1 attraction for entrepreneurs. In addition to this, if the investor will hire a Romanian resident into his company, it will pay only 1% tax per income. Moreover, Romanians have good English skills and the salaries are lower than in other countries, so hiring a virtual or physical assistant from Romania is a very good option.
If you opt for a Romanian micro-company, having to pay taxes on incomes and not based on profits has more advantages than you would believe, bookkeeping is one of them, as it is mandatory to submit your statements once at three months in order to report the sales you made. The accounting is very simple and will cost you less since there are no deducted expenses on the company.
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Taxes and VAT regulations Romania
If you decide to open a micro-company then you need to know that the program will only take effect over the corporation taxes and not over the VAT charged to the customers. There is a law that exempts small businesses from charging VAT up until €49.000. On the other hand, when you are exempt from VAT, you also won’t be able to deduct VAT for purchases from the company. Still, the main advantage is that you will be able to charge for your products at 19% lower prices than your competitors that are VAT payers. If you will want to administrate your business in Romania remotely and not travel too often here, you need to have in mind that in order to get a community tax identification number (without reaching the limit amount) you will need to come in person to make the inquire at the relevant authorities.
You are able to not charge VAT if your monthly sales volume will not exceed €4.000 per month. Your taxes will be 3% of your income every three months, or 1% of your income if you have a Romanian employee and less than €1.000.000 per year income (approximately €42.000 monthly). Once you have exceeded this limit you will get on the 16% profits taxation. Moreover, the share capital must be at least 45.000 Ron for the company that will pay 16% on profits. Still, for larger companies, it is more efficient to pay taxes based on profits rather than incomes, since there are a lot of possibilities to reduce taxes.
Micro-companies in Romania are a good option for online entrepreneurs, businesses, and digital nomads that won’t have too many expenses to deduct. Still, you need to know that micro-companies cannot have as an object of activity: insurance, stock exchange, banking, oil or gas, gambling. In conclusion, it is not an option for a trading company, but there is a wide range of domains that will be a good fit.
If you still have questions about the process of starting your business in Romania, it might be a good idea to contact our Law Firm in Cluj Napoca. Our lawyers have great experience in setting up companies and help you fall under the regulations of Romanian law without a long stay in the country. Do not hesitate to contact us!