Development of the Romanian economy
There can be two reasons for starting a company in Romania – either for the sole purpose of tax optimization or to actually develop your business there. If you think about the latter solution, statistics on economic development will be crucial. These, as it turns out, are very optimistic.
Looking only at the GDP growth rate, it is one of the 3 fastest developing EU countries in the last 10 years. In 2003, Romania’s GDP was only USD 76 billion – even less than, for example, Ukraine’s GDP before Russian invasion. After only 7 years, the indicator increased to USD 213 billion annually, and now it amounts to USD 239 billion. It is one of the highest increases in the entire EU at that time, which makes it worthwhile to reach out to Romanians.
Why is it worth opening a company in Romania?
Besides a dynamic economic development, truly low taxes deserve attention. They are the result of wide-ranging reforms aimed at accelerating the development of entrepreneurship. According to market data, the changes are good for Romania and its entrepreneurs. When opening your business in this country, you can expect much lower costs of doing business. The number of discounts that you will be entitled to is not without significance.
What are the taxes for companies in Romania?
The most popular and effective form of doing business in Romania is a limited liability company. With a small scale of business, i.e. up to EUR 0,5 million in turnover per year, the taxes for companies in Romania are as follows *:
- 1% of income, as long as you employ at least one employee – otherwise it is 16% CIT;
- 8% tax on dividends;
- 0% tax on contributed capital;
VAT and income tax settled quarterly by the 25th day of a given month. Larger companies may pay income tax once a year; no obligation to pay social security contributions for the President and other members of the management board; the minimum share capital is RON 200 – that is approximately 40 euro; free health insurance, as long as the amount of the dividend does not exceed RON 450,000 per year, i.e. approx. 88 500 euro
Tax scheme for large companies
Bearing in mind all these tax benefits, running a limited liability company in Romania with an income of EUR 0,5 million per year, compared to West and Middle Europe can save you even a few hundred thousands euro a year. There will be significant savings even if you run your business on a larger scale. When the annual turnover limit of EUR 1 million is exceeded, the following tax scheme applies to the company:
- still 1% revenue tax (if the limit is extended with our service)
- basically 16% of company income tax;
- 8% tax on dividends (our unique legal solution can drag it down to 0%);
- 0% tax on contributed capital.
Although this is slightly more than for a small business, it is one of the lowest taxes for companies in the entire European Union.
What is the VAT in Romania?
The issue of regulating VAT in Romania also remains an important issue. It is already one of the lowest in the entire EU, and if government plans are to be believed, it is to be reduced to 15% altogether in the future. Currently, however, the standard VAT rate is 19%. There are also two preferential rates – 9% and 5%. Importantly, the entrepreneur is obliged to become a VAT payer only after exceeding the turnover of EUR 88,500 per year.
An important issue is also the fact that many products and services are subject to preferential VAT rates. For example: a 5% rate applies for food. The rules themselves are also simpler than anywhere else in Europe. In addition, entrepreneurs can transfer the collected VAT to the Tax Office once a quarter. There is also no obligation to pay with the split payment mechanism. Unless you put your company in debt and you fail to meet your tax obligations on a regular basis. However, if you voluntarily use the split payment mechanism, then you get a discount on income tax (CIT).
How to form a company in Romania?
You can form a company in Romania with our all-inclusive service or try a lengthy procedure on your own which is a struggle for every foreigner. The most popular form of business in Romania is a limited liability company. A company must be established by at least one person (including foreigners) or one legal entity. Interestingly, Romanian law dictates that there can be no more than 50 partners of such a business. The registration of the company also requires the contribution of share capital, which is RON 200. This type of legal entity must be managed by at least one director who may not necessarily reside in Romania.
Step by step
In general, the process of registering a company in Romania can be divided into the following 6 stages.
- Check with the Commercial Registry (onrc.ro) that the name you want to use is free. If so, reserve it initially for 3 months, because you will use it in later stages.
- Register a company – most often they are limited liability companies (SRL), but they can also be joint-stock companies (SA), limited partnerships (SCS) registered companies (SNC) or partnerships.
- The choice of the type of company determines further actions. In the case of SRL, these will include a deed of incorporation prepared and certified by a notary, declarations of future partners, sworn translations of their identity cards, validation of the management board and other legally required documents.
- Establishment of initial capital that must be placed as a bank deposit in the company’s corporate account. At this stage, it is also worth considering the choice of the bank more seriously.
Submission of documents to the Commercial Register. After this, you will have to complete a number of other procedures, e.g. obtaining a decision on entry in the Commercial Register, obtaining a CUI number for tax purposes, registration for statistical purposes or registration for social security purposes. This stage can take up to 4 weeks. - Signing an employment contract with all employees and their registration with the relevant Labor Office. Remember that you must do this on the day the employee starts work at the latest. The basic rights of the employee are regulated by the Work Charter.
- Additionally, remember to submit a tax declaration to the Tax Office within the first 30 days of running your business.
- That is not the end. You will probably need a VAT registration, maybe tax certificates or VIES registration to fully operate your business.
We published the list of necessary documents for company formation in Romania, which can help you register a company.
How much does it cost to register a company in Romania?
The entire procedure for registering a company in Romania is not the most expensive. Mistakes in company registration process and especially company papers might turn out to be costly.
The cost should not exceed 800 RON as long as you are registering an SRL. You will pay the most for submitting all fields in the classification of activities, namely ca RON 400. However the cost does not include an array of necessary expenses e.g. preparation of the bilingual articles of incorporation, notarial confirmation of documents, announcement in the Monitor, tax stamps, the court fee and the cost of copies of certificates, virtual office, personal residency, Vat certificates, tax certificates, necessary translations etc. You will also have to hire a live translator for notary purposes if you are a foreigner. Cost of legal, tax, business and financial advice may make an overall cost much higher. If you add up your time spent on the process and cost of travel and accommodation a few thousands euro may be a realistic total cost of company formation on your own.
The cost of up and running company, including all services usually entrepreneur needs, and legal, financial and banking advice starts from 1700 euro with our service – order it now.
Is it worth registering a company in Romania?
Registering a company in Romania is quite time-consuming and troublesome if you try to do it on your own but you can get it done in a few days by us. Especially if you are serious about good tax optimization. The VAT rate itself is one of the lowest in Europe. You should consider a very low income tax and simple conditions for running a business. The market also remains very absorbent and there is still little competition in some industries. However, relocating a business will not be a good solution for everyone. You will feel the financial benefits provided that your annual income is about 50 000 euro per year. With a turnover below this amount, you will not feel the true benefits of lower taxes, and therefore the relocation might wait for a better time.
