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This article is intended to give you an insight for whom a company is suitable? What advantages Romania really offers in 2023 in terms of location (company headquarters in Romania), personnel costs, requirements and taxes.
Since we deliberately focus on the tax aspects and their advantages, we would like to ask you to take a closer look at our video above. This includes everything about saving taxes when founding a company in Romania.(See also: TOP 5 examples of saving taxes in Romania) Therefore everything on the subject of taxes in the lower part of this report.
First of all, we want to explain the basic conditions, in order to explain at what income level it would make sense to open a company in Romania.
Since January 1st, 2018, the Romanian state has once again drastically reduced taxes for micro-enterprises and income taxes for natural persons. A micro company cannot be compared to a small company in Germany, since the "free allowances" or turnover limits are many times higher.
Let's go back in time and look at the country's tax development:
- In 2012, Romania set the corporate tax rate of "smaller companies" on EUR 100,000 turnover per year to below the 3% or 1% Falling taxation on sales. From an annual turnover of 100,001 EUR, 16% tax on the profit is due.
- In 2016, this regulation was significantly increased. There was no 100k EUR turnover/year as a limit for micro-enterprises, but 500,000€ turnover per year. In addition, again 16% tax on the profit.
- Since January 1st, 2018, the Romanian state has decided to make Romania so attractive as a location in order to attract companies to its business location worldwide and to prevent "large corporations" from moving away.
The limit of 0.5 million EUR turnover per year (non-Romanian LEI) applies to fall under the low taxation of just 1% tax burden on turnover! (No employee 3%)
Income tax on individuals has been reduced from 16% to 10%, dividends are taxed at 5% withholding tax, and the rule has been changed to only 20% of consulting and license fee income to be achieved completely abolished.
We are explicitly addressing micro-enterprises here, as they are only taxed at 1 or 3% on sales with up to EUR 0.5 million in sales per year. Above a turnover of EUR 0.5 million per year, it is certainly not disadvantageous to set up a company in Romania, since 16% taxes on profits are incurred here and this is still significantly cheaper than in Germany, where corporate taxes are around 30% accrue. (corporate income tax and trade tax)
The following company turnover is the ideal case:
a) Under 60,000 EUR (300,000 RON) turnover per year (small business regulation with VAT exemption - in Germany 22,000 EUR)
b) Up to EUR 0.5 million in sales per year (1% tax on sales with one employee, 3% as sole director)
For start-ups with a long-term return-on-investment plan or companies that only make losses in the first few years or very small profits, a founding is only worthwhile if the annual profit is foreseeable .
However, the small company (see point a above) with VAT exemption can be very interesting, especially for smaller startups.
The following company target group is most profitable: Companies that make profits - and not enough of the tax can deduct - to reduce the profit!
(The higher the profit, the more profitable such a construct is - since the turnover is taxed.)
The big advantage! You don't have to constantly worry about what else you can sell!
(Taking care of your business and not "for the finance mant" often produce unnecessary expenses - let profits run!)
The following entrepreneurs are most affected:
- Youtuber , Streamer, etc.
- Instagram, Facebook Influencer
- Content Creator
- Coaches, Consultants
- Digital service providers (SEO, advertising and social media agencies)
- Sellers of digital products
- Local service companies (craftsmen, car workshops, hairdressers, etc.)
- E-commerce (as well as Amazon FBA, dropshipping)
- Financial service providers
- Real estate business in general
- manufacturing industry
-and much more.
Romania, which is located in south-eastern Europe bordering on the Black Sea, has been one of the EU member states since January 1st, 2007.
With a population of over 20 million people, 37 million acres of farmland, breathtaking landscapes, an expanding economy, a highly educated workforce with more than 50,000 information technology specialists< /strong>, access to the Black Sea and Asia, Romania offers significant opportunities for foreign companies.
After joining the European Union in January 2007, Romania underwent a series of governmental reforms in order to meet the conditions of EU membership. Today, membership requirements - including EU directives - are one of the driving forces in Romania's reform program. Modernization and investments in infrastructure. More importantly, these policies are accompanied by EU funding in the form of Structural Adjustment Funds and other programs that allow the new members to adjust their economies to the rest of the EU.
Romania is a market with excellent potential , strategic location and an increasingly solid business climate. The economy is among the fastest growing members of the EU with GDP growth of 4.8% in 2016- an impressive 6.9% for 2017 and 4.1 % for 2018 - mainly driven by consumption and investments.
Income tax on income from salaries is governed by the Tax Code (Law 227/2015). Personal income tax is only 10%!
The assessment base for social security and health insurance of an employee in Romania is derived from the salary.
There are the following taxes on the employee side:
10% Income tax employee
10% Health insurance contribution
25% pension contribution
2.25% Unemployment insurance
-> Simplified, it is 35% duties plus 10% income tax (wage tax) for the employee which between the gross and net wages.
In Romania, a statutory gross minimum wage is a prerequisite according to EU specifications. From January 1, 2023, this will be RON 3,000 (approx. €600).
Below are the generally necessary documents for the establishment of an S.R.L. (GmbH):
- three different names for the company. After checking availability, a company name will be chosen.
- Articles of association drawn up by a lawyer / notary
- Company headquarters - Rental agreement via company address
- Signature sample of the managing director created by a notary or directly at the commercial register
- Criminal record register or submission of a statement in writing that there are no previous convictions < br>- ID card / passport copy of the managing director / the shareholders
- proof of the deposit of the share capital - in this sense, a share capital account is opened before the registration of your company. The share capital for an S.R.L. is currently 200 lei accountant/tax office by a notary
In this video I would like to show you which taxes are incurred for natural and legal persons, i.e. companies - and how to set up a company in Romania.
There are 2 options:
Within the EU, moving to Romania is easy due to the Agreement on the Free Movement of Persons. The EU makes it possible to live and work in any EU country. When relocating or moving the center of life to Romania, the tax and regulatory advantages can be fully exploited.
Did you know that more than 90% of so-called "offshore companies" start up again after a year via agencies and providers that can be found in abundance in Google?
The founders are not aware of the legal situation or the non-recognition of the tax office from home. The incorporation agencies like to claim the opposite and a company in Hong Kong, Cyprus, Seychelles, etc. is incorporated.
Most people ignore the fact that taxes and accounting are also incurred there. It almost always turns out, as long as personal residence does not move to these countries, that in almost all cases these schemes constitute tax evasion and are not legal.
Of course, I do not give legal or tax advice with any guarantees or promises - this is decided by other instances - this would be unserious.
However, there are countless cases in which a Romanian company branch was established "with substance" and thus was fully recognized by the tax office in Germany, Austria or Switzerland was fully recognized.
Now to the corporate income tax for companies in Romania. A trade tax does not exist or falls with this with 0€ already times away.
From an annual turnover of one million euros, a tax of 16% is payable on the profit, the so-called profit tax. This type of taxation can also be chosen voluntarily if the turnover is less than EUR 1 million. This can make sense for very small wins.
The other variant is - and this is where it gets interesting - as follows:
3% tax on sales up to €1 million per year if there is no employee.
1% tax on sales up to €0.5 million per year for 1 or more employees.
1% taxes! Very many offshore models can no longer keep up - and this in the EU and without having to hide!
In fact, the current tax situation in Romania is so low that it prevents local companies from leaving and attracts investors.
As discussed earlier, you can either migrate to Romania or build a company with substance.
Now comes the double advantage:
If you hire permanent employees in Romania, have your own office location, i.e. no virtual or shared office, and a real infrastructure (e.g. telephone connection, fax, internet, etc.), you have real substance and have very good chances of being recognized by the tax office - the second advantage is to fall into taxation of only 1%. 2 birds with one stone!
Here's an example:
If your own company has an annual turnover of €300,000, you pay 1% on the turnover at the end of the year - this corresponds to €3,000 - which is hardly significant.
Since the taxes on the turnover there is the worry of what "you can still sell everything" or making unnecessary purchases in order to reduce the profit, completely unnecessary!
With a turnover of 300,000 and a huge profit, you only have to pay 1% or €3,000 in taxes.
Since January 1st, 2018, the tax for private persons has been further reduced. Income tax is 10% Flat Tax. This means that if you, as a natural person living in Romania, want to realize or pay out profits from your company so that the amounts are available and I can spend them privately, they must be taxed at 10% income tax. For so-called profit withdrawals (dividends), natural and legal persons are subject to a dividend tax of 5%. For natural persons who are not domiciled or tax resident in Romania, an additional 10% income tax only applies to sales made in Romania.
New blog article from us: Overall overview of all applicable taxes and duties for the year 2023
However, founding a company is not possible without effort. There are start-up agencies that promise to complete the process in a few days, completely remotely, i.e. without ever entering Romania. This may also be correct in terms of the approach - however, setting up a company in Romania requires two appointments with a notary. Of course, this can also be done in Germany, Austria or Switzerland, but a state-approved interpreter is required for the notary appointment - who accompanies the foundation.
Once this hurdle has been overcome and the notarial documents are in Germany, Austria or Switzerland, they still have to be provided with an apostille.
Notary, interpreter, apostille requires a greater effort, is associated with significant additional costs and can take a long time. Therefore, we advise against founding a company from afar - as described, this is not possible without a complex effort.
1.) There are almost no local banks that allow you to open an account remotely or by appointing an authorized representative.
In short: A bank account should be a prerequisite for founding a company - but this is supported by the local Banks only opened if you are personally present in Romania.
2) Almost all start-up agencies offer the establishment of a company - but without an own company address or even the possibility to operate under a certain address in Romania. This should be done by "the founder" himself and rent a virtual office and so on.
This is just an excerpt of "possible complications" when founding a company in Romania. The country is very liberal in certain things, the taxes and personnel costs are very low, but also very bureaucratic - which may have been from the old communist era and has not been modernized to this day. In short: The paperwork is not without!
The best and easiest way is to plan a 2-day stay in Romania - during this stay, to keep all appointments for the foundation at the offices, notary, banks and agency through scheduled - and to leave with a clear conscience with a turnkey company including a bank account and registered company address.
I hope you enjoyed this article - if you are interested in founding a company, in taxes or in real estate in Romania... we look forward to hearing from you.