If you have just set up a microenterprise company in Romania or intend to do so in the future, you would surely want to know how such type of Romanian company works. It is very important to understand what your tax obligations are, as shareholder or representative of such company, what is the level of tax burden for your company, how to determine the taxes due, when to file tax returns, and other related important matters for setting up such a company.
In this article, we explain in detail how a microenterprise company works in Romania, offering useful information for you as entrepreneur.
A microenterprise company in Romania is a regular limited liability company (“LLC”), established as per the Romanian companies law, and operating under a special tax regime in Romania. From a legal perspective, a microenterprise is no different from any other limited liability company established in Romania. The main difference consists in the taxation system applicable to it.
Such company is generally part of the small and mid-size category, as it has an annual revenue limitation of 500,000 euros as part of the conditions to benefit of the special microenterprise tax regime.
More exactly, according to art. 47 of the Romanian Tax Code, a microenterprise company in Romania is a legal entity which fulfills, on December 31 of the previous tax year (calendar year), the following conditions, cumulatively:
As a general rule, any newly established limited liability company in Romania that fulfills all of the conditions listed above can apply the microenterprise taxation regime. Therefore, if you establish a new company in Romania, you don’t have to do anything special if you want it to qualify under the microenterprise tax regime. It will qualify for this taxation system assuming it fulfils all the applicable conditions.
The income tax rates applicable to revenues of microenterprises are either 1% or 3%, applicable on total gross revenue cashed-in.
The tax rate of 1% applies to microenterprises generating annual revenues not exceeding EUR 60,000, and with the condition not to engage in the economic activities listed below:
The 3% tax rate will apply to microenterprises that generate annual revenues exceeding EUR 60,000 and up to EUR 500,000, or which carry out at least one of the economic activities listed above.
The taxable base is the income generated from any source, excluding: income from changes in inventories, income related to costs of services in progress, income from production of tangible or intangible assets, income from state grants, supplies or income from compensation or cancellation of debts.
So, basically, the difference for a microenterprise is that it can apply a simpler taxation system: it pays 1% tax on its entire business revenues, and cannot apply taxation at 16% only on its business profits (entire revenue minus business related expenses).
Although a microenterprise is not taxable on its business profit, but on its entire revenue generated, the obligation to keep the accounting records still applies. Therefore, you still need a dully authorized accountant for keeping the accounting records and preparing the annual financial statements of the company.
You also need to keep track of all revenue and business expenses invoices, as every transaction (be it a cash in and cash out of the company’s accounts) must be documented.
Any payment of dividends to the shareholder of the company will be taxable as dividend income. This taxation applies in addition to the company income tax of 1% or 3%.
Dividends are subject to an income tax rate of 8% (as of 1 January 2023), applicable to the gross amount paid to the shareholder. Tax withholding must be applied by the company on all dividend payments.
In addition to the 8% income tax, health insurance contribution is also due on dividend income, but only if the level of the annual income derived from dividends, cumulated with other types of personal income (rental income, capital gains, interest, income from freelancing activities, etc.) reaches a minimum threshold. For 2024, this threshold is established at the level of 6 minimum national gross salaries, which is 19,800 lei.
If the level of income reaches this threshold, then, in addition to income tax, the shareholder of a microenterprise will also have to pay health insurance. The health insurance contribution due is capped at 10% out of the above mentioned threshold.
More exactly, for 2024 income, the health insurance contribution (10%) will be calculated to the following thresholds, depending on the level of income:
The calculation and payment of the income tax due by microenterprises must be done on a quarterly basis, until the 25th of the month following the quarter for which the tax is calculated. For example, for the first quarter of 2024 (Jan – Mar 2024), the tax reporting deadline is April 25th 2024.
The tax declaration through which a microenterprise’s taxable income must be reported in Romania is tax form 100.
As for the dividend income, the reporting for paying the health insurance contribution must be done by each shareholder individually. The reporting obligation must be fulfilled through the annual tax return (Declarația Unică).
Since there is no special legal regime applicable for a microenterprise compared to other companies, a microenterprise can be registered in Romania by following the regular set up procedure applicable for any limited liability company.
The registration of the microenterprise is done by completing and submitting the application for registration, together with all the necessary documents, at the Romanian Trade Register Office within the territory where the microenterprise will have its headquarters. For example, if your company will have headquarters in Cluj-Napoca, then the registration must be done at the local Trade Registry in Cluj county.
Following its registration, the company will be assigned an unique registration code and will be issued the registration certificate. In the Trade Register, the registrations are made on the basis of a decision of the delegated judge.
Here’s the list of the main documents you will have to prepare for submission to the Romanian Trade Register, for the purpose of the company registration application:
For the tax part, at the time of the initial registration, the box “Microenterprise income tax payer” must be ticked in the registration application.
Applications for registration and all accompanying documents may also be sent by correspondence, with proof of payment of legal fees and charges.
The microenterprise company acquires the quality of legal personality as per the Romanian applicable law starting with the date of registration in the Trade Register. Upon registration, the registration certificate and other documents provided by law will be issued, within approximately 3 days from the date of registration of the application.
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