Income Tax calculation for Micro-company in Romania 2023

Income 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:

1. Revenue tax rate of 1% (if at least 1 employee stays employed over a fiscal year). A limit is 0,5M euro of yearly revenue, however with our company formation service entrepreneurs can lift the limit up.
2. 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 2023 and here is the Profit and Loss statement of a Romanian micro company (LLC/LTD):

Revenue: 100000 RON
Costs: 5000 RON (other cost) + ca 15000 RON (social security contributions)
Head count: 1

Company revenue tax: 1% * 100000 = 1000 RON

Net profit of the company: 80000 RON – 1000 RON = 79 000 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 8% and corporate costs decrease the tax amount due. Social security contributions that are paid for hired owner in the company decrease directly the dividend tax amount due significantly. That’s a counterpart of CIT tax shield. Every company has some costs so the effective dividend tax rate is less than 8%.

Example of dividend tax calculation for a business owner

A business owner wants pay out 79 000 RON as a dividend for whole 2023 year. He is a tax resident of Romania.

Dividend tax: 79 000  RON * 8% = 6320 RON

Money in business owner’s pocket after all taxes:  72 680 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.

Summary

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.