When setting up a business in Romania, one of the key concerns for entrepreneurs and investors is understanding the tax system. Specifically, many ask, „What is the tax rate for Romanian companies?” Knowing the tax obligations a company faces is crucial for making informed business decisions and for proper financial planning. This article will cover the main aspects of the corporate tax system in Romania, including the standard corporate tax rate, the microenterprise tax regime, and other relevant taxes that companies may encounter.
The Standard Corporate Tax Rate in Romania
Romania applies a corporate income tax (CIT) on both domestic and foreign companies that operate within its jurisdiction. The standard corporate tax rate for Romanian companies is 16%. This rate is applied to the taxable profits of the company, which are calculated based on the financial accounting rules, adjusted for tax purposes. This rate is relatively competitive compared to other European Union (EU) member states, making Romania an attractive destination for businesses looking to expand in the region.
For Romanian companies, taxable income includes all forms of income, such as operational revenues, financial gains, and other earnings, minus allowable deductions. These deductions can include business-related expenses, depreciation, and certain tax credits that may be available.
Microenterprise Tax in Romania
One of the most unique aspects of the Romanian tax system is the microenterprise tax regime. This system applies to small companies that meet specific criteria and offers a simplified way of taxation. Under this regime, instead of the standard corporate tax rate of 16%, microenterprises are subject to a tax rate on their turnover, which can be more advantageous for smaller businesses.
To qualify as a microenterprise in Romania, a company must meet the following criteria:
- The company’s annual turnover must be below 500,000 EUR.
- The company must have no more than 20% of its revenues from consulting or management services.
- The company must not be involved in certain sectors, such as banking, insurance, or oil extraction.
If a company qualifies as a microenterprise, the tax rates are as follows:
- 1% tax on turnover if the company has at least one employee.
- 3% tax on turnover if the company has no employees.
This regime is highly beneficial for small businesses and startups, as it simplifies tax reporting and reduces the overall tax burden, especially in the early stages of the business.
Dividend Tax in Romania
In addition to corporate income tax, Romanian companies must also consider the dividend tax. When a company distributes profits to its shareholders in the form of dividends, a 5% tax is applied to the distributed amount. This rate is applicable for both resident and non-resident shareholders.
It is also important to note that Romania has an extensive network of double taxation treaties with various countries, which may allow foreign shareholders to benefit from reduced tax rates on dividends. In such cases, the reduced tax rate would depend on the specific treaty between Romania and the shareholder’s home country.
Social Contributions and Payroll Taxes
Another important aspect of the Romanian tax system that companies must consider is the obligation to pay social contributions and other payroll taxes for their employees. These taxes apply to both the employer and the employee and are calculated based on the employee’s gross salary.
The main payroll taxes in Romania are as follows:
- Social security contribution (CAS): 25% of the employee’s gross salary, paid by the employee.
- Health insurance contribution (CASS): 10% of the employee’s gross salary, paid by the employee.
- Work insurance contribution: 2.25% of the gross salary, paid by the employer.
Employers are responsible for withholding and paying these taxes on behalf of their employees, as well as making their contributions. It’s important to budget for these costs when hiring staff, as they represent a significant portion of the total compensation package.
Value-Added Tax (VAT) in Romania
In addition to corporate and payroll taxes, companies in Romania are also subject to Value-Added Tax (VAT) on the goods and services they sell. The standard VAT rate in Romania is 19%, although reduced rates of 9% and 5% apply to specific goods and services, such as pharmaceuticals, food, and certain real estate transactions.
Companies that engage in VAT-able activities must register for VAT purposes with the Romanian tax authorities. Once registered, companies are required to file VAT returns and pay any VAT due on a regular basis, typically on a quarterly basis.
It’s worth noting that VAT is a pass-through tax, meaning that companies can generally deduct the VAT they pay on their business expenses from the VAT they collect on their sales. This system ensures that the final consumer bears the burden of the tax, while businesses act as intermediaries in the collection process.
Tax Incentives for Romanian Companies
While Romania’s corporate tax system is relatively straightforward, there are several tax incentives that companies can take advantage of, depending on their industry and activities. Some of the most notable tax incentives include:
- Research and Development (R&D) Deduction: Companies that engage in research and development activities can benefit from a 200% deduction for eligible R&D expenses. This incentive is designed to encourage innovation and technological development within the country.
- Exemptions for IT Workers: Companies in the IT sector may benefit from tax exemptions on income earned by software developers. This exemption is part of Romania’s strategy to boost its tech industry and attract skilled talent.
- Incentives for Reinvested Profits: Romanian companies can also benefit from a tax exemption on profits that are reinvested in specific types of assets, such as machinery and equipment.
These incentives can significantly reduce the overall tax burden for businesses and encourage investment in strategic sectors.
Filing Requirements for Romanian Companies
Romanian companies are required to file annual tax returns, usually by March 25 of the year following the tax year. In addition, companies must also make advance payments of corporate income tax throughout the year, based on their projected profits. These advance payments are typically made on a quarterly basis.
Microenterprises, on the other hand, benefit from a simplified filing regime, as they only need to submit their tax returns and pay their taxes on a quarterly basis, based on their turnover.
Companies that fail to comply with their tax filing obligations can face penalties and interest on unpaid taxes, so it’s crucial to stay up-to-date with the filing deadlines and requirements.
Navigating the Romanian Tax System
In conclusion, the answer to the question „What is the tax rate for Romanian companies?” depends largely on the size and structure of the business. The standard corporate income tax rate is 16%, but small businesses that qualify as microenterprises can benefit from reduced rates of 1% or 3% on turnover. Additionally, companies must also consider other taxes, such as dividend tax, VAT, and payroll taxes, as well as take advantage of available tax incentives.
For businesses looking to establish a presence in Romania, understanding the tax system is critical for long-term success. Consulting with a specialized law firm like Buju, Stanciu & Asociatii can help ensure that your company is compliant with Romanian tax laws while taking advantage of any available benefits. Their team of experienced lawyers can provide comprehensive guidance on all aspects of corporate taxation, ensuring that your business is set up for success from day one.
