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Taxation

Overview of the Tax System

Overview of the Tax System
Eurostat - Total tax revenue by member states, being a good estimate for corporate tax.

Romania's tax system is structured to accommodate various business needs. Here's a quick glance at the key taxes that might be relevant for entrepreneurs and businesses:

Tax Type Rate Notes
Corporate Tax 16% on profit or 1% on revenue 16% on profit for standard companies; 1% on revenue for micro-enterprises with revenue under €500,000
Dividend Tax 8% Applicable to dividends distributed to shareholders
VAT 19% (standard rate) Reduced rates (5% or 9%) for certain goods/services; exemptions for specific activities
Property Tax Varies Based on property value, location, and usage; specific rates for residential and commercial properties

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Chapter 1: Introduction to Romania's Tax Landscape

1.1 The Romanian Tax Environment

Corporate Taxation:

  • Standard Profit Tax: Companies in Romania are subject to a 16% tax on profit, a rate that aligns with many European nations.
  • Micro-Enterprise Tax: For businesses classified as micro-enterprises with revenue under €500,000, a special 1% tax on revenue applies. This rate aims to support and encourage small business growth.

Value-Added Tax (VAT):

  • Standard Rate: The general VAT rate in Romania is 19%.
  • Reduced Rates: Certain goods and services, such as food products or cultural events, benefit from reduced VAT rates of 5% or 9%, following specific guidelines.

Property Tax Considerations:

  • Variable Rates: Property taxes in Romania range from 0.08% to 1.5%, depending on factors such as the value, location, and function of the property. Residential properties often have lower tax rates compared to commercial properties.

1.2 Regulatory Compliance and Strategic Insights

  • Compliance Requirements: Romania's legal framework outlines specific compliance requirements, such as periodic filings and adherence to accounting standards.
  • R&D Incentives: Businesses engaged in research and development activities can benefit from a 50% additional deduction of eligible R&D expenses, encouraging innovation.

Economic Strategy:

  • Supporting Various Business Stages: The differentiated tax rates, such as the 1% revenue tax for micro-enterprises, are part of Romania's strategy to support businesses at different growth stages.

Chapter 2: Key Aspects of the Romanian Tax System

2.1 Corporate Taxation in Detail

Standard Profit Tax:

  • Rate: 16% tax on profit for standard companies.
  • Applicability: This rate applies to both resident and non-resident companies on their worldwide income, provided they meet specific criteria.
  • Filing Requirements: Corporate tax returns are generally due annually, by March 31 of the following year.

Micro-Enterprise Tax:

  • Rate: 1% tax on revenue for micro-enterprises with revenue under €500,000.
  • Eligibility: Companies with at least one employee and revenue below the threshold qualify.
  • Benefits: This simplified tax regime aims to reduce administrative burdens and foster small business growth.

2.2 Dividend Tax Insights

Dividend Tax Rate:

  • Rate: 8% on dividends distributed to shareholders.
  • Applicability: This rate applies to both individual and corporate recipients.
  • Reduction Opportunities: Double taxation treaties may lead to reduced rates for non-residents.

2.3 Understanding Value-Added Tax (VAT)

Standard VAT Rate:
  • Rate: 19% is the standard VAT rate in Romania.
  • Goods and Services: This rate applies to most goods and services sold in the country.

Reduced VAT Rates:

  • 5% Rate: Applies to specific goods like books, newspapers, and certain medical equipment.
  • 9% Rate: Applies to hotel accommodation, restaurant services, and certain medical and pharmaceutical products.

Exemptions:

  • Examples: Certain activities, such as education and healthcare services, are exempt from VAT in Romania.

2.4 Property Tax Considerations

Property Tax Rates:

  • Residential Property: Rates range from 0.08% to 0.2% based on the property's value.
  • Commercial Property: Rates range from 0.2% to 1.5%, varying by location and usage.
  • Local Regulations: Local authorities may implement specific regulations affecting property tax.

Chapter 3: Romania vs. The World - A Tax Comparison

3.1 Graphs and various other measures of Romanian business registration tax advantages.

3.2 Comparative Analysis with the UK, Delaware, and Bulgaria

Corporate Taxation:

  • Romania: 16% on profit or 1% on revenue for micro-enterprises with revenue under €500,000.
  • UK: 19% on profit, with plans to increase to 25% for profits over £250,000 by 2023.
  • Delaware (USA): No state corporate income tax on goods and services provided by Delaware corporations operating outside of Delaware.
  • Bulgaria: 10% on profit, one of the lowest in the European Union.

Dividend Taxation:

  • Romania: 8% on dividends.
  • UK: Ranges from 7.5% to 38.1% based on income level.
  • Delaware (USA)Subject to federal tax rates, ranging from 0% to 20%.
  • Bulgaria: 5% on dividends.

Value-Added Tax (VAT):

  • Romania: 19% standard rate, with reduced rates of 5% and 9% for specific goods/services.
  • UK: 20% standard rate, with reduced rates for certain categories.
  • Delaware (USA): No state-level sales tax.
  • Bulgaria: 20% standard rate, with reduced rates for specific categories.

Effective Tax Rate Comparison:

  • Yearly Revenue Thresholds:
  • Romania vs. UK: Romania becomes more advantageous when yearly revenue exceeds €8,286.
  • Romania vs. Delaware: Advantageous in Romania for yearly revenue exceeding €10,986. Businesses intending to reach the NYSE are recommended to choose Delaware once they grow over 1.000.000 yearly revenue.
  • Romania vs. Bulgaria: Advantageous in Romania for yearly revenue below €500,000 with higher profit margins, with companies making over €500.000 EUR being recommended to register in Bulgaria for a lower tax footprint or consider other jurisdictions that are more fit for growth (e.g., Delaware).

3.3 Insights into Bureaucracy and Other Factors

  • Romania: Moderate level of bureaucracy; business-friendly policies for small and medium enterprises.
  • UK: Relatively efficient bureaucracy; established legal and business framework.
  • Delaware (USA): Known for business-friendly regulations and an efficient legal system.
  • Bulgaria: Lower effective tax rate for high revenue companies but higher bureaucracy and administrative costs.