ncome tax calculation for companies in Romania might be a bit confusing for western Europeans who are used to high CIT rates with a maze of tax deductions. Romania offers simple and more liberal tax environment for ambitious entrepreneurs who look to save more money on taxes.
Income tax rate for Micro-companies in Romania
In Romania there are two income tax schemes for companies under commercial law:
- Revenue tax rate of 1% (if at least 1 employee stays employed over a fiscal year) or 3% if company does not hire any employees. A limit is 1 M euro of yearly revenue, however with our company formation service entrepreneurs can lift the limit up.
- Standard CIT rate of 16% which is calculated against corporate profit.
Company must choose one of them or is obliged to follow the second scheme if the yearly turnover is over 1M euro.
Example of income tax calculation for a micro company
The following exemplary calculation of micro-company income tax will let you understand the details.
Imagine this is year 2022 and here is the Profit and Loss statement of a Romanian micro company (LLC/LTD):
Revenue: 10000 RON
Costs: 5000 RON
Head count: 0
Company revenue tax: 3% * 10000 = 300 RON
Net profit of the company: 5000 RON – 300 RON = 4700 RON
Calculation is simple as that!
Nevertheless there is also another nice surprise for business owners who hold personal residence of Romania. Romanian Residents’ dividend tax is just 5% and corporate costs decrease the tax amount due. That’s a counterpart of CIT tax shield. Every company has some costs so the effective dividend tax rate is less than 5%.
Example of dividend tax calculation for a business owner
A business owner wants pay out 4700 RON as a dividend. He is a tax resident of Romania.
Dividend tax: 4700 RON *5% = 235 RON
Money in business owner’s pocket after all taxes: 4700 – 235 = 4465 RON
Standard CIT scheme
A CIT rate in Romania is 16%. For a large company with tens of millions euro yearly turnover the tax scheme based on CIT might be preferred. You can choose to pay income tax with CIT scheme but you must fulfill some requirements i.a. hire at least 2 employees.
In conclusion, an income tax calculation for a micro-company in Romania and its owner is very simple. As a result, simplicity of tax calculation is well appreciated especially by foreign small European business owners. They are used to heavy taxation and misty tax law with a range of tax deductions in western Europe countries.