Romania is the largest country in South East of Europe, strategically located between Central and South region, with its Eastern border to the Black Seaside. The population was recently confirmed by the 2022 census at 19 million people, the sixth-most populous member state of the European Union, but half in comparison with Poland on the fifth. Almost 20 million consumers and a more entrepreneurial mindset provide significant investment potential and sales opportunities, ranking as the 8th in purchasing power of EU. Infrastructure investments are dynamic, the landscape is diverse, and the natural resources are rich, which are real engine to develop the emerging economy.

Currency is RON, equivalent as follows for USD = 4,4632 RON, Eur = 4,9024 RON, PLN = 1,0418 RON. GDP increased up to USD 300 billion with a stable 5% annual growth, based on services, tech and industrial contribution. High complexity of economy and specialized workforce are main drivers to high income evolution. Local startups attracted about EUR 100 million investments in 2022, ranking 5th in CEE after Estonia, Czech Republic, Croatia and Poland. Exports increased to USD 88 billion while imports decreased but still above exports with a trade balance deficit of USD 30 billion, FDI as well increased to USD 115 billion as per 2021 data. Public debt is at 50% of GDP as per May 2022 while the deficit was 5,7% of GDP at the end of 2022, but progress was made on undeclared work and income as digitalization is improving the transparency, limit the bureaucracy and diminishes the corruption.

Why Romania?

• democratic rule of law country with a market economy based on freedom of economic activity and private property;
• dynamic banking system, with surplus reserves, dominated by foreign investments;
• strategic location – sea access, border of EU to the East, between CEE and SEE;
• infrastructure is constantly developing and modernized;
• strong pool of skilled workers in many areas, highly adaptable and knowleadgeble;
• recommended to engage local personnel in management of a company held by a foreign investor to quickly adapt to local market and increase trust;
• no permits needed for employees from EU, options regarding legal employment of citizens from outside the EU, diversified ethnicity as crossroads for ME refugees & Asians workers;
• establishing a new company for an investment in Poland should not take longer than few weeks, it is also possible to acquire already established business to speed or consolidate the business.

Main types of business activity in Romania

Romanian law provides for free business activity for every entrepreneur which means that everyone has equal right to choose relevant type of business activity that suits to his/her business. Grants, financial programs, sectoral facilities, stock exchange listing facilities and European funds can be accessed as incentive for specific categories. The most common types of business activity are commercial companies, in particular the limited liability company (about 90% of all entities) and general partnership.

Forms of commercial activity

• collective name company “SNC” general partnership – individuals or commercial entities partnership, with at least one name upfront, unlimited liability, simple operation;
• simple limited partnership – partner name + ”societate în comandită”;
• joint-stock /public limited company – minimum 2 shareholders, liable for obligations, “Societate pe Acţiuni or SA”, minimum RON 90000 as shared capital subscribed, RON 0,1 minimum share amount”, 3 censors, 1 chartered accountant;
• joint-stock partnership/limited by shares – joint & unlimited liability, “societate în comandită pe acţiuni”, minimum RON 90000 as shared capital subscribed;
• private limited liability company “SRL”– will declaration needed if only one person, as exception;
  • it is the most facile form of doing business;
  • can be established by local and expats individuals;
  • minimum RON 200 as shared capital subscribed;
• others NGOs as non-profit entities, associations.

Forming a company

Company’s contract →establish the main office, choose a name →registration in the National Register (NCR) →obtaining the statistical number →electronical signature, stamp →Tax Identification Number →registering for VAT purposes →subscribe the share capital →open a transactional bank account

Fully electronic company’s registration procedure is available on Commerce Registry Portal.
Also, a legal and accounting consultancy is recommended, refer to Nexia ABS FS expertise.

The most important tax rules

Corporate Tax (CIT)

• newly introduced in 2023, for micro companies with no employees to 16%;
• standard CIT rate applies for Romanian companies, foreign companies operating through a permanent establishment (PE) in Romania and foreign companies that are tax resident in Romania due to place of effective management;

SME tax

• minimum 1 employee, a 1% on turnover;
• 16% when without employees, increased from 3% previously;

Witholding Tax (WHT)

• tax on distributed dividends just increased in 2023, from 5% to 8%;
• non-residents from Romania are exempt from WHT as follows:
  • interest income and income derived from the sale of debt instruments issued by the Romanian authorities (e.g. government bonds);
  • revenue from international transportation and derivate services;
  • prizes obtained by individual non-residents from artistic, cultural, or sport festivals/competitions paid from public funds;
  • income obtained from a partnership constituted in Romania by a non-resident company (the related profits are subject to CIT);
• specific provisions apply as follows:
  • 50% WHT applies to payments made by residents to non-residents in countries that do not have an exchange of information agreement concluded;
  • payments of interest and royalties made by a local company to a EU member state resident are tax exempt from WHT if the non-resident company held, for an uninterrupted period of at least two years, at least 25% of the share capital of the Romanian company prior to the time of payment;

Value Added Tax (VAT)

• standard rate is 19%;
• relief on tourism;
• from 5% to 9% for accommodation, restaurant, catering;
• from 9% to 19% on non-alcoholic drinks with sugar;
• 5% on the housing supplies, a single purchase, reduced from RON 700,000 to RON 600,000, on properties of no more than 120 square meters;

Tipping Tax

• newly introduced in 2023, as 10% applicable tax on receipt;

Tax exemptions

• IT sector – 10% exemption also extended to
  • students employed to the sector firms;
  • public sector IT staff;
• HoReCa tax;

Transfer Pricing (TP)

• Romanian companies have to keep Transfer Pricing documentation for both cross-border and domestic transactions. Fiscal inspections are focused on TP and parties have to prove the method applied for setting the prices of controlled transactions (domestic or cross-border) between related parties and keep a relevant documentation justifying this method;

Tax incentives:

• foreign tax credits – compensations to be applied on documentation and DTT;
• reinvested profits – in technology, equipment cannot be depreciated by using the accelerated method, also extended to assets used for production, processing, and refurbishment activities;
• R&D – deduction of 50% of the eligible expenses and accelerated depreciation may apply for devices and equipment used in the R&D activity;
• innovation – first 10 years are exempted of profit tax;
• reductions
  • 2% for positive accounting own equity and equal to at least half of the subscribed share capital;
  • 3% for increase (between 5% and 20%) in the adjusted own equity in the year for which the tax is owed, as compared to the one computed for 2020;
  • between 5% and 10% – increase between 5% and 25% in the adjusted own equity in the year for which the tax is owed as compared to the previous year;
• industrial parks – no property tax;

Personal Income Tax (PIT)

• 10% rate
  • exceptions – dividends, income from the transfer of immovable property, income from gambling activities;
• minimum gross wage increased from RON 2550 to RON 3000, respectively net RON 1863;
  • about 2 million people;
  • in construction sector gross wage is RON 4000 until 2028;

Property Tax

• increased rate for real estate;
• increased from 6% to 10%, no touristic scope;
• starting from 0.1% for residential buildings, 0.5% for non-residential;
• regardless of owner type or the nature of the building, the taxable value of a building is determined in “notary grids” adding the land value;

10 Recent business adjustments – legal & operational

• money laundering norms for charted accountants were issued by CECCAR;
• minimum payment amount for interns is RON 1500, on contract, applied for individuals over 16 years old;
• up to 10 extra wages benefits are offered for employees, limited to 33% non taxable from the base salary, as detailed in our article;
• new reporting D395 for cash transactions on postal deliveries to increase electronic payments and identification of undeclared amounts;
• D212 – single form for individuals to declare the income tax and social contributions for 2023;
• reduced archiving period from 10 to 5 years for accounting documents;
• issued list of goods with fiscal risk;
• fiscal record and risk categories are elaborated – any delay or data inconsistency has specific penalty, also a list with tax compliant firms is used for partnership validation;
• SAF-T reporting is implemented for medium tax payers, running already for large contributors;
• National Agency for Fiscal Administration (ANAF) regulated and implemented Desk Audit platform for remote verification of documents. This can also lead to further thematic on-site checks.

Why Nexia ABS Financial Services?

Nexia ABS FS is a local company providing comprehensive advice covering accounting, tax advisory and payroll outsourcing services, VAT compliance and corporate services. Through cooperating entities we offer as well legal and financial audit.

Our experience determines the scope of our advice, which covers in particular, but is not limited to:

• strategic tax advisory for infrastructure, construction, retail, FMCG, energy;
• accounting solutions for technology, innovation, manufacturing and trade sectors;
• tax advisory and compliance for investments, savings consultancy;
• transactional advisory, due diligence, restructurings, optimisations;
• accounting and payroll outsourcing;
• excise duty in trade and production;
• disputes with authorities (VAT reimbursement) and fiscal authority proceedings.

We provide our services in Romanian, English and Turkish.

Nexia ABS FS is associated with Nexia International, a leading worldwide network of independent, high quality accounting and consulting firms. It is also part of TotalSoft and Logo IT group.

For more information, please contact Mrs. Nicoleta Vrăjescu-Dobre (nicoleta.vrajescu@nexia-abs.com).