Advantages and legality of the process
The advantages: Creating a company in Romania offers a unique opportunity to maximize your profits thanks to advantageous taxation. While the French/Belgian State can take up to 80% of your profits, creating a Romanian company allows you to control your taxation, with legal rates ranging from 1% or 3% to 16%. Despite initial costs due to new European regulations, these companies offer significant savings that are quickly profitable.
Legality of the process: The creation of a company in Romania is perfectly legal, in accordance with French/Belgian law explicitly authorizing the creation of foreign companies. However, it is imperative to respect the rules set out in articles 123bis and 209b of the General Tax Code. In addition, there are tax conventions, treaties and other similar acts. These are superior to French rules and apply as a priority in the event of a conflict of standards.
To create a foreign company, it is therefore better to be accompanied by a professional. MGR guarantees the compliance of the creation of your entity.
Disadvantages and comparables with
a French company
or Belgian...
Disadvantages
Although the Romanian company is an effective tool to save taxes, it is essential to take into account the costs related to its creation, domiciliation, renewal, and other expenses. However, these costs can be easily offset by the substantial tax advantages.
Comparable
Even for modest turnovers, creating a company in Romania remains very interesting in comparison with a French or Belgian company, depending on the business model and the performance of your company, you will quickly find your account there.
The key steps in creating your company
1. Selection of company type
Determine the type of company that best suits your needs. Define the ownership structure, the number of shareholders and the distribution of shares, or shares. The most common form of company in Romania is the Limited Liability Company (LLC). The main characteristics of the Romanian LLC are: The number of partners cannot exceed 50; The partners can be Romanian or foreign, It is possible to create a Romanian LLC with a single partner, The minimum share capital is RON 1. At least 30% of the capital must be paid within 3 months of the company registration date.
3. Opening a Bank Account
Choose a bank in Romania and open a business account in the name of the company.
Deposit the required share capital into this account. In Romania, companies can be created with a minimum share capital.
2. Tax Identification Number - CIF
Our clients deserve the highest level of support. When you choose to work with our team, know that you are consistently opting for quality and excellence. Customer service is at the heart of everything we do. Choose a company name and check its availability with the Romanian Trade Register. Prepare the required documents, including the company statutes, the registered office address. And register the company with the National Trade Register Office (ONRC) and obtain the Registration Certificate, as well as the Tax Identification Number (CIF).
4. Registration with the Authorities
Register your business with the Tax Administration (ANAF) for corporate taxes and VAT, if applicable.
Possibly register with the National Social Insurance Agency (CASS) for social security contributions
The process of creating a Romanian company thus varies between 1 and 4 weeks, depending on whether the partners are Romanian or foreign, or whether or not they travel to Romania to create the company.
After the creation of the company
VAT registration
After the creation of the company, a specific procedure must be initiated with the Romanian Tax Administration so that the company is subject to VAT. Certain criteria must be met, in particular at the level of the office in which the company carries out its activity and a control in this sense of the administration at the head office is possibly possible.
Domiciliation of the head office
As we have said, registering a company with the Trade Register is only possible if the company has a registered office.
Registered office domiciliation is not a common service in Romania, but some business centers offer this service and at MGR Europe Business has its own business center.
Corporate tax
Corporate tax will take: Either the form of a turnover tax: 3% on turnover and income if the turnover is less than EUR 500,000 and employs at least one employee (and even for companies that make less than €60,000 in turnover). Or the form of a profit tax: 16% on profit when the turnover is greater than EUR 500,000 or if the company makes a turnover of less than EUR 500,000 and chooses to opt for this system
VAT
The current VAT rate is 19%.
The different types of companies in Romania:
THE MICRO-ENTERPRISE REGIME
Companies that have had an annual income of less than EUR 500,000 (equivalent to RON 2,500,000) have the possibility to opt for the micro-enterprise tax regime in place of corporate tax.
ELIGIBILITY CONDITIONS
The company can opt for the micro-enterprise regime provided that:
1. achieve a turnover of less than EUR 500,000
2. have at least one full-time employee (or part-time employees for the equivalent of at least one full-time employee)
3. Generate less than 20% of its turnover in the areas of consulting and management.
4. Not be held at more than 25% by a partner who also owns more than 2 companies subject to the micro-enterprise regime.
SMALL BUSINESS (MICRO-ENTERPRISES) INCOME TAX
Companies that have chosen the micro-enterprise regime will have to declare and pay, each quarter, a micro-enterprise tax equal to 1% or 3% of their income (and not their profit).
Companies with a turnover of less than €60,000 (and which do not operate in areas of activity such as software programming, hotels and restaurants or health) will even pay a tax equal to 1% of their income (instead of 3%).
THE POSSIBILITY OF PREFERRING THE PROFIT TAX SYSTEM
Companies, however, retain the option of preferring the profit tax regime, at a rate of 16% of profit (and not of income).
IS THE MICRO-ENTERPRISE REGIME (3% OF INCOME) MORE TAX-ADVANTAGEOUS THAN THE PROFIT TAX REGIME (16% OF PROFIT)?
In reality, it all depends on the situation and profitability of the company: a less profitable company is at an advantage when it is subject to income tax while a very profitable company is at an advantage when it is subject to micro-enterprise income tax.
EXAMPLE:
CA: the company's turnover
A: The company's rate of profitability
The profit tax rate is 16% (of profit) and the micro-enterprise tax rate is 3% (of income).
The company that pays the micro-enterprise tax will be advantaged if CA x 3% < CA x R * 16%. By simplifying this equation, this gives 3 < R x 16 and therefore R > 3/16 or R > 18.75%.
This means that companies with a profitability higher than 18.75% are favored by the micro-enterprise tax system.
Account opening
Romanian banks generally only accept to open a bank account for companies whose activity they consider profitable and whose partners and managers are worthy of seriousness. Banks also verify that the activity is actually linked to Romania before agreeing to establish the banking relationship. MGR Europe Business is still present in this step to facilitate these procedures for you thanks to our experience and our reputation.
Additional information
Sales Tax : Currently, there are 2 applicable sales taxes, a 1% tax and a 3% tax on sales. Sales taxation is considered special taxation. Companies wishing to trigger this taxation must meet the following conditions:
- The 1% sales tax applies to companies with an annual turnover of up to 60,000 euros. Some business activities (e.g., related to IT, hotels, restaurants, medical assistance, etc.) are not eligible for the 1% tax, but the 3% tax can be triggered.
- The 3% sales tax applies to companies with an annual turnover of more than 60,000 euros but limited to 500,000 euros.
The company must have at least 1 employee, or the director must enter into a management agreement with the company for the minimum gross monthly salary of 660 euros. Therefore, the monthly salary taxes to be paid amount to approximately 260 euros.
Revenues related to consulting and management activities must NOT exceed 20% of the total turnover.
Annual financial statements must be submitted adequately and on time, no later than March 31 for the previous financial year. To do so, the services of an accountant are necessary. A shareholder (natural person) can only own one company benefiting from sales taxation. If the above conditions (i-v) are not met, the company becomes a beneficiary taxpayer (16% tax on profits) and cannot return to sales taxation.
**Profit Tax:** Corporate tax is 16% on profits (profits meaning turnover minus professional expenses). There are no conditions to trigger profit taxation. Any company not eligible for the 1% or 3% sales tax will be subject to the 16% profit tax.
**VAT in Romania:** VAT is 19%. A lower VAT rate applies only in certain cases. Before reaching an annual turnover of about 60,000 euros, a company can become VAT-registered only upon explicit request. After reaching an annual turnover of about 60,000 euros in a given year, a company automatically becomes VAT-registered, and the accountant will file a specific request to obtain the corresponding certificate.
**Dividend Tax:** If the company generates profits, the shareholder has the option (not the obligation) to withdraw the profits as dividends. Before dividends are withdrawn, the company must pay the 8% dividend tax on behalf of the shareholder.
**Health Insurance Tax:** Only when dividends are withdrawn and only for shareholders residing in Romania. If the shareholder residing in Romania receives dividends, they must pay a health insurance tax:
- Fixed at 400 euros per year, if the annual dividends are between 4,000 and 8,000 euros (approximately);
- Fixed at 800 euros per year, if the annual dividends are between 8,000 and 16,000 euros (approximately);
- Fixed at 1,600 euros per year, if the annual dividends exceed 16,000 euros (approximately).
The above health insurance tax is not paid if the shareholder does not reside in Romania. This tax is calculated per shareholder.
**Other Taxes:** There are special taxes applicable to companies with high annual turnover and operating in various sectors (e.g., oil and gas, financial sector, etc.).
**Important Note:** To properly organize business activities and meet all tax and accounting obligations, the company must use the services of a Romanian accountant.