With taxes ranging from 1% to 16%, a differentiated VAT depending on the type and field of activity, an accessible incorporation process of a company in Romania, as well as the possibility to access qualified labor force, among others, foreign investors have put Romania on the map of business hubs in Europe. In this context, investors benefit from a simplified process of incorporating a company and a favorable tax regime that is beneficial to the development of a business.
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If in the past, foreign investors hesitated about the idea of setting-up a business in Romania, for several years now, Romania has come to be considered by many foreign investors the right environment to register a business due to the relatively low costs of setting up a Romanian company, the tax regime through which they benefit from a very good tax treatment compared to other European countries and the simplification of the incorporation process, according to Law no. 102/2020 for the amendment and supplementation of the Companies Law No. 31/1990. In addition, there is the possibility, for example, of setting up a limited liability company, benefiting from the advantage offered by the choice of several objects of activity, a specific tax regime and the possibility of incorporating the company at the Romanian Trade Registry in only a few days, with the help of a specialized lawyer.
In order to have an overview of the process of setting up a company, according to Romanian Companies Law No. 31/1990, as well as the types of taxes, Pavel, Margarit and Associates` specialized lawyers in Corporate, Commercial and M&A present in the following, the steps to take for the registration of a company in Romania and understanding the types of taxes identified according to Law No. 227/2015 on the Fiscal Code, with subsequent amendments and completions.
According to Romanian Companies Law No. 31/1990, there are five types of companies, in which the associates/shareholders can be natural or legal persons, Romanian or foreign, among which the most advantageous and usual form is the Limited Liability Company (LLC).
The documents necessary to start the registration procedure of a company in Romania include the following:
- Reservation the name of the company at the Romanian Trade Registry;
- The Articles of Association;
- Identification of a space for the registered office;
- The lease/sublease/loan/sale-purchase/usufruct/real estate leasing contract for the establishment of the registered office;
- Copy of the identity card or passport of the associates/administrators;
- Authenticated sworn statements according to which the associates/shareholders can fulfill the legal conditions in order to be able to hold the respective positions;
- Signature specimen of the associates/ shareholders;
- Proof of the deposit of the share capital at a bank (at the associate/ shareholders`s choice) in Romania (minimum 50 euros);
- Authorization of commercial activities to be carried out by the company.
Therefore, in order to be able to register an LLC in Romania, a first step is to choose a name, which will then be reserved at the Trade Register. It should be noted that you must decide on at least 3 possible names for the company, bearing in mind that in the event you want a name that contains the word “Romania”, the procedure of admissibility of the name may take longer as it requires the approval of the General Secretariat of the Government.
Regarding the registered office, according to Companies Law no. 31/1990, it can also be established with the law firm for a period of up to one year, thus, a lawyer specialized in setting up companies can assist you in the process of registration of the company and the establishment of the registered office in Romanian, within the law firm.
A second step is to choose the object of activity according to the NACE codes, with the possibility of choosing a main object of activity and several secondary objects, offering thus a greater degree of flexibility in terms of areas of activity, prior to which the process of preparing the necessary documentation for setting up the company to follow. This is also the advantage of choosing the LLC type company: the possibility to operate in any field of activity.
When the documentation is ready, it must be submitted to the Trade Register in order to have the Registration Certificate issued, followed by obtaining the fiscal identification code and the VAT number. A final step is to obtain permits and/or operating licenses, which are issued by the ministries or agencies related to the field in which the company will operate. After the conclusion of the registration procedure, the company will have been registered with the Ministry of Finance, being issued a Unique Registration Code.
After the opening of the company, as a result of carrying out the commercial activity, there are to be applied different direct taxation regimes: profit tax, the income tax of the micro-enterprises and the specific tax.
Profit Tax
First of all, there is the tax rate that applies to the profit tax, which represents 16% of the annual income obtained, applying to companies that have obtained in the previous year, incomes of at least 1,000,000 euros. According to the Fiscal Code, Title II, Chapter I, Art. 13, the following taxpayers are obliged to pay the profit tax:
- Romanian legal entities, with the exceptions provided in par. (2);
- foreign legal entities that carry out activity through a permanent establishment/several permanent establishments in Romania;
- foreign legal entities that have the place of exercising the effective management in Romania;
- foreign legal entities that generate income as provided in art. 12 lit. h);
- legal entities with registered office in Romania, established according to European legislation;
- foreign legal entities resident in a third country that carry out activity in Romania through one or more elements treated as permanent establishments, regarding the situations that imply the existence of non-uniform treatments of the hybrid elements or non-uniform treatments of the fiscal residence.
Micro-enterprise Income Tax
In the case of micro-enterprises, the tax is calculated on the basis of their income and not on the basis of profit, as is the case with the abovementioned situations. Therefore, if by December 31 of the previous year, the company obtains taxable income that does not exceed in lei the equivalent of the amount of 1,000,000 euros (according to Art. 47 of the Fiscal Code), the tax payable is of 1% for companies with the at least one employee and 3% for companies that do not have any employees.
Specific tax
In addition to the types of taxpayers mentioned above, there is also the specific tax, the tax rate being variable and the calculation methods determined according to the company’s activity. According to Law No. 170/2016 regarding the specific tax of some activities, Art. 3, the taxpayers obliged to pay this type of tax are the Romanian legal entities that on December 31 of the previous year fulfilled, cumulatively, the following conditions:
a) had registered in the Articles of Incorporation, according to the law, as main or secondary activity, one of the activities corresponding to the NACE codes:
5510 – “Hotels and similar accommodation”,
5520 – “Accommodation facilities for holidays and short periods”,
5530 – “Caravan parks, campsites and camps”,
5590 – “Other accommodation”,
5610 – “Restaurant”,
5621 – “Activities of food (catering) for events”
5629 – “Other food services n.c.a.”,
5630 – “Bars and other beverage service activities”.
b) is not in the liquidation process.
In addition to the above, it should be noted that companies operating in the category of gambling or nightclubs pay a lower tax, calculated at 5% of the profit, or 16% of the annual taxable profit (depending on which one is larger).
It should be noted that exception from the 10% income tax is made by IT specialists, employees in the field of research/development and people with disabilities, who are exempt from paying the tax.
Regarding the standard VAT rate in Romania, it is 19%, derogating from this quota water supply services, food, beverages, medical services by 9% and catering services, accommodation, textbooks, books, magazines, access to museums, cultural/sports events with 5%.
Of interest for those who want to set up a company in Romania is the fact that an amount of 2.25% represents the social contributions due by the employer, while the employee must contribute 45%.
In the event that legal entities also own buildings, they must pay a tax of 0.08% – 0.2% of the value of residential buildings and 0.2% – 1.3% of the value of commercial buildings.
According to the upward trend in recent years in the business environment, as well as the large number company incorporation in Romania, more and more investors choose to set up companies and conduct business here benefiting from both the tax system and the easy company registration process. With over 15 years of experience, Pavel, Margarit and Associates Romanian law firm assists in cross-border financing transactions and complex commercial contracts, mergers, acquisitions and joint venture agreements. The lawyers specializing in mergers, acquisitions and international financing have over time represented investors, investment funds, listed companies, banks and multinational companies, in carrying out its operations in Romania. Our team of lawyers within the Commercial, Corporate and M&A departments assist with Company Law, the services ranging from establishments, dissolution, mergers, acquisitions, of commercial companies in Romania, acquisitions of companies, assignments of shares or mergers.