Microenterprise tax regime – changes as of 1 January 2024

microenterprise tax regime-Romania

The start of 2024 has brought significant tax law changes in Romania, impacting the microenterprise tax regime. These changes significantly reshaped the taxation landscape for small and medium-sized enterprises (SMEs). As the Romanian government seeks to refine fiscal policies to create a more equitable and robust economic environment, these amendments demand attention and adaptation from business owners.

This article explains the nuances of the updated microenterprise tax regime, providing a comprehensive overview of what these changes entail and how they might affect your business operations.

Understanding the microenterprise tax regime

Before we dissect the recent amendments, it’s crucial to understand the essence of the Romanian microenterprise tax regime. Historically, this regime was designed to support the growth of SMEs by offering a simplified and reduced tax burden compared to the standard profit tax system.

Businesses qualifying as microenterprises could benefit from lower tax rates on their income, contingent on not exceeding certain revenue thresholds and other criteria. This approach not only incentivized entrepreneurship but also facilitated easier tax compliance for smaller entities.

Key changes as of 1 January 2024

The start of 2024 marks a pivotal shift in the microenterprise tax regime, with several key changes designed to refine and possibly restrict the eligibility and benefits under this tax framework. These changes are aimed at streamlining tax practices and ensuring that the benefits of the microenterprise regime are appropriately targeted.

1. Restriction on multiple microenterprise holdings

One of the most notable changes is the imposition of limits on individuals who own significant shares in multiple Romanian companies. Starting from January 1, 2024, an individual holding over 25% of the share capital in several entities can only benefit from the microenterprise tax regime for a single company.

This amendment targets the practice of spreading business activities (and revenue) across multiple entities to gain undue advantage of the regime’s lower tax rates.

2. Reevaluation of the microenterprise status

The revised microenterprise tax regime also tightens the criteria for qualifying as a microenterprise. Previously, companies could qualify based on their revenue not exceeding a certain threshold, specifically 500,000 euros.

The new legislation requires the cumulative revenues of related enterprises to be considered, potentially disqualifying many from the regime. This change aims to prevent businesses from artificially splitting operations to stay under the revenue threshold and enjoy lower taxes.

3. Elimination of sponsorship deductions

Another significant change is the removal of the eligibility for microenterprises to deduct sponsorships from their income tax. Until now, microenterprises could reduce their tax liability by sponsoring charitable causes or events, up to a certain percentage of their owed tax.

From 2024, this deduction will be exclusively available to entities paying profit tax, aligning the benefits of sponsorships with the broader fiscal responsibilities of larger corporations.

4. Adjustments to deductible expenses

The new rules also extend to the deductibility of certain expenses. Notably, the purchase of cash registers, a common expense for many businesses, will no longer be deductible under the microenterprise tax regime starting in 2024.

Additionally, expenses related to the maintenance of registered offices, particularly those not exclusively used for business purposes by the company, will see their deductibility limited. These adjustments are part of a broader effort to standardize tax deductions and ensure they reflect genuine business costs.

Implications for business owners

The modifications to the microenterprise tax regime signal the government’s intent to refine the Romanian fiscal environment and ensure that the benefits of the regime are judiciously applied. For business owners, these changes necessitate a thorough review of their current structures and practices. Compliance will not only involve adapting to the new tax rates and criteria, but also reevaluating business operations, investment strategies, and accounting practices.

Adapting to the new tax regime will require strategic planning, particularly for those holding shares in multiple companies or those close to the annual revenue threshold. Decisions on which entity to retain under the microenterprise status, how to manage sponsorships, and adjustments to expense accounting will need to be made promptly to ensure a smooth transition into the new fiscal year.

In these circumstances, engaging with a Romanian tax expert to understand the full scope of the tax law amendments and their impact on your specific situation is crucial.

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