Skip to main content

Should I register my business in Romania?

β€” Stefan-Lucian Deleanu

With more and more businesses going digital, there are fewer reasons for individuals to choose a local jurisdiction, if it doesn't benefit them. In this article, we'll analyze the benefits and disadvantages of running a digital business, such as an e-commerce, development, or marketing agency, with an offshore headquartered in Romania.

Why Registering a Digital Business in a favorable jurisdiction matters

Choosing the right jurisdiction to register your business in might sound as an easy job. Registering in your own country often means simplicity, less time wasted, and less time researching information regarding other business environments. However, more times than not, the local jurisdiction may not be the best for running a digital business. Unfavorable tax laws, very restrictive laws, or a less predictable business space, may make it harder for new entrepreneurs to differentiate themselves from their competition and grow.

Choosing the right jurisdiction means removing all of that, and allowing you more time to focus on matters next: not regulations, finding accountants, dealing with banks, etc; but actually growing your business revenue and margins, instead of with your head stuck in hundreds of papers and documents.

In our opinion, Romania does serve as a great jurisdiction for SMEs and is one if not the best jurisdiction to register a business in the European Union, if not worldwide.

Should I register my business in Romania?

Exploring the Fiscal Advantages of Romania

The fiscal (dis)advantages provided by a country often mean the difference between a scalable and well-functioning business, and a business stuck trying to find loopholes not to lose gigantic sums to tax: From companies tax to dividend tax, to income tax, all of these often mean an entrepreneur is left with dimes, even though his company is highly profitable. According to Eurostat, Romania is the lowest-taxed country (corporate tax) in the EU, as a percentage of GDP paid, closely followed by Bulgaria.

Low 1% income tax for companies with at least 1 employee or contractor paid the minimum wage (~3000 RON as of 2023)

One of the most significant advantages of registering a business in Romania is the low-income tax, which is just 1% for companies with at least one employee or contractor paid the minimum wage (approximately 3000 RON as of 2023). This tax rate is one of the lowest in Europe, making it an attractive option for entrepreneurs.

So, if for example, your company generates 300.000 EUR in revenue, with a profit margin of 80%, your company will only have to pay 3.000 EUR, out of the 240.000 EUR of profit they generated, a measly 1.25% equivalent company tax. While this may not be ideal for all businesses, it's a great option for entrepreneurs that provide services, where margins are high.

In summary, a 1% income tax is preferable to a profit tax for businesses with profit margins exceeding 6.25% of their revenue, which likely includes most, if not all, SMEs.

16% profit tax as an alternative to the 1% micro-company income tax

Another option available to businesses in Romania is the 16% profit tax. While this rate is higher than the 1% income tax, it may be more advantageous for companies with very low-profit margins

Significantly lower tax rates compared to the average OECD rate of 21.5% and the worldwide average of 23.4% in 2022

Romania's low tax rates are not just favorable compared to other European countries, but also to worldwide averages. According to KPMG, Romania's corporate income tax rate of 16% is significantly lower than the 21.5% average of the Organization for Economic Cooperation and Development (OECD) and the 23.4% worldwide average in 2022. This low tax rate makes it an ideal location for companies looking to reduce their tax burden, while still headquartering their enterprise in a high-trust, first world market.

Considered a safe country for business due to the low prevalence of money laundering

Another advantage of starting a business in Romania is the country's reputation as a safe haven for businesses. According to Transparency International, Romania has made strides in recent years to combat corruption and money laundering, making it an attractive location for companies seeking a secure and transparent operating environment.

Proceduri simplificate pentru deschiderea de conturi bancare pentru persoane juridice, inclusiv pentru străini

Opening a corporate bank account in Romania is straightforward, even for foreigners. The country boasts a sophisticated banking sector with numerous international banks operating within its borders. Romanian banks typically offer competitive interest rates and fees, making it an appealing destination for entrepreneurs seeking advantageous banking options.

With most banks charging less than 10 EUR / month plans that include several SEPA transfers, good exchange rates, affordable credit options, and easy-to-use online platforms, we believe banking is one of the most streamlined aspects Romania offers.

Ease-of-Business-Registration-and-Management-in-Romania

Ease of Business Registration and Management in Romania

In recent years, Romania has made significant strides in automating the business registration process. As of 2021, company registration can be done entirely online through the National Trade Register Office (ONRC) website. All that is required is to fill out an online application form, submit it electronically, and make the necessary payments. The process typically takes only a few days. According to data from the World Bank's Doing Business report, it takes an average of 5 days to start a business in Romania, which is faster than the regional average of 9 days in Europe and Central Asia.

Online Management Tools

Romania has implemented various online tools to facilitate the management of business operations. For instance, businesses can manage their tax liabilities through the ANAF Public Services portal, which also allows for the electronic filing of tax returns and payment of taxes. The portal is easy to use and businesses can also access their tax history online. Additionally, companies can open bank accounts online through a number of banks that offer this service without requiring a visit to a physical branch.

Many government institutions have also implemented digital platforms which enable companies to interact with them electronically. For instance, ANAF provides an electronic system for issuing electronic invoices and tax receipts, which saves both time and money for businesses.

Delegation of Certain Tasks

Entrepreneurs who prefer not to deal with bureaucracy can delegate specific tasks to third-party service providers for a fee. These providers handle all the necessary paperwork for registering a company in Romania, enabling entrepreneurs to concentrate on other areas of their business. Incorpo.ro is one such service, offering low-cost business incorporation with a quick 15-minute form. They also provide additional services, including virtual offices, accounting support, and tax consultancy.

The-Growing-Startup-Ecosystem-in-Romania

The Growing Startup Ecosystem in Romania

The startup ecosystem in Romania is rapidly expanding, with increased funding options and resources available for new businesses. In this section, we will discuss the opportunities presented by this growing ecosystem and how digital entrepreneurs can benefit from it.

Increased Allocation of Funds for Startups in Romania

Access to financing is particularly difficult for Romanian entrepreneurs. However, public grants play an extremely important role in the business growth of the Romanian startup ecosystem, and the government has taken steps to increase funding options. According to Core.ac.uk, public funding for startups in Romania is on the rise, with initiatives such as Startup Plus and StartUp Nation providing financing options. In addition, venture capital firms have also increased their investments in Romanian startups, highlighting the potential of this emerging market.

Despite these developments, the process of obtaining public funding for startups in Romania is still challenging. The grant application process can be difficult to navigate, with burdensome bureaucracy and uncertainties surrounding funding decisions. However, it is important to note that with increased funding comes increased scrutiny and expectations for return on investment. Thus, startups that are able to secure these funds must also demonstrate their ability to effectively use them to generate significant growth.

Low Competition for Funding Resources

Another advantage of the growing startup ecosystem in Romania is the low competition for funding resources. According to Ziarul Financiar, while there are over 3,000 registered startups in Romania, the majority are still in their early stages and not yet eligible for public funding or venture capital investments. This presents an opportunity for startups with scalable business models to stand out and secure investment.

However, as the ecosystem continues to grow, competition is likely to increase. Therefore, startups must focus on building strong networks and developing unique value propositions to differentiate themselves from the competition and attract potential investors.

Alternative Funding Options

In addition to conventional bank loans, accelerators, and business incubators are emerging as popular funding avenues for Romanian startups. These entities offer mentorship, networking platforms, and financial access to foster startup growth and success.

According to Seedblink, there are currently 20 accelerators and incubators operating in Romania. These organizations offer a wide range of programs focusing on different industries, including fintech, e-commerce, and healthcare. By participating in these programs, startups can gain access to resources and expertise that can help them accelerate their growth and secure investment.

Potential for Scaling Startups with Low Risk

Finally, the growing startup ecosystem in Romania presents a unique opportunity for startups looking to scale with low risk. The cost of living in Romania is significantly lower than in Western European countries, meaning that startups can operate with lower costs and overhead expenses. In addition, the Romanian government offers tax incentives and other benefits to companies operating in the country.

Scaling a business in Romania also offers access to a talented pool of employees. As per The Paypers, Romania boasts a highly educated workforce with a strong emphasis on technical education. This is advantageous for startups seeking skilled talent in areas like software development and engineering.

Access-to-International-Markets

Access to International Markets

As a member of the European Union, Romania offers digital entrepreneurs access to a wide range of international markets. This section will explore the benefits of conducting business from Romania and its impact on global sales opportunities.

Access to the CIS (Commonwealth of Independent States), EU, US, and Middle East markets

Romania's location offers businesses easy access to both Eastern and Western markets. The country borders Bulgaria, Hungary, Serbia, Moldova, and Ukraine, making it an attractive base for companies seeking to expand into Central and Eastern European markets. Additionally, Romania boasts strong trade partnerships with the US and the EU, providing an ideal gateway for businesses aiming to enter those markets. World Bank data from 2019 shows Romania's exports as 31.7% of GDP, with key trading partners including Germany (20.1%), Italy (10.9%), France (7.9%), Hungary (6.3%), and Turkey (4.8%). Romania's strategic location and robust trading links make it an excellent choice for companies looking to expand internationally.

VAT exemption when selling to non-EEA countries

As a member of the European Union, Romania adheres to EU tax legislation. Consequently, Romanian businesses are exempt from VAT when trading goods or services with non-EEA countries, which can result in significant cost savings for companies aiming to expand internationally. According to VATGlobal, this exemption is applicable to tangible products delivered outside the EU and services provided to customers outside the EU. This provision can be a crucial benefit for digital enterprises seeking global expansion while minimizing costs.

Almost global ability to sell, with few industry and country restrictions

Romania's liberal economy allows businesses to operate with minimal red tape. The country also has few industry and country restrictions, which makes it an attractive location for businesses seeking to expand into new markets. According to the Global Innovation Index, Romania ranks 44th in the world for "Ease of Starting a Business" and 39th for "Ease of Doing Business". These rankings indicate that Romania provides a supportive environment for entrepreneurs and is an attractive location for businesses looking to expand their global footprint.

Ideal for digital nomads seeking fiscal advantages without major downsides

Romania is an attractive location for digital nomads seeking fiscal advantages without major downsides. It offers a low cost of living compared to other European countries, making it an excellent location for entrepreneurs seeking to work remotely. According to Numbeo, consumer prices in Romania are 48.76% lower than in the United States, making it an affordable location for business owners. Additionally, Romania's tax system is relatively simple, with a flat income tax rate of 16%. This provides digital nomads with opportunities to save money while operating their businesses from Romania.

Challenges-and-Limitations-of-Business-Registration-in-Romania

Challenges and Limitations of Business Registration in Romania

While Romania offers many benefits for digital entrepreneurs, it is important to acknowledge the challenges and limitations that may arise when registering a business in the country. In this section, we will discuss these potential drawbacks and how they can be mitigated.

Slow adoption of technology by public institutions

One key challenge when registering a business in Romania is the slow adoption of technology within public institutions. According to a report by the European Commission on the Digital Economy and Society, Romania ranks 24th out of 28 EU countries in terms of digital integration in the public sector.^1. This can lead to longer waiting times for registration and other bureaucratic procedures, delaying the start of a new business.

To overcome this challenge, entrepreneurs can rely on trusted third-party service providers that have experience navigating the Romanian bureaucracy. Additionally, it is important to stay informed about any changes or updates to registration processes to ensure timely completion.

Reliance on private companies to automate tasks

Another challenge associated with registering a business in Romania is the reliance on private companies to automate tasks and act as intermediaries between businesses and government institutions. These private companies, known as "fiscal intermediaries," offer online services that allow businesses to communicate with government institutions for tasks such as tax registration and filing. While these services can be helpful, they also come at an additional cost and can add an extra layer of bureaucracy.

To mitigate this challenge, entrepreneurs should carefully consider the costs and benefits of using a fiscal intermediary. It may also be helpful to research and compare different providers to ensure the best value for money.

Lower trust in comparison to other types of companies

Compared to Delaware C Corporations, Estonian or UK companies, Romanian companies may face lower levels of trust due to lack of promotion and stigma associated with high emigration rates (highest in the world except for Syria). This can make it more difficult for entrepreneurs to attract investment and partners.

Weighing the benefits against the challenges

While we believe that Romania is a great option for registering companies, it might not be for everyone. However, if you are interested in learning more, incorpo.ro provides business registration services, headquarters hosting, and more in Romania, for under 300 EUR, allowing you to focus on the business side while we deal with the red tape.