Romania is located in South-East Europe, ideally located in terms of access to markets in the EU, the Commonwealth of Independent States and the Middle East. Counting about 20,000,000 residents of Romania is sixth the largest EU country.
There are several reasons that make investing in Romania an attractive proposal. It is especially the country itself and the quality of its skilled and well-educated people, as well as an established network of lawyers, accountants and consultants.
In this article, we will look at some tax issues that should be taken into account if you are considering investing in Romania.
Taxation of legal persons
Romanian law provides that a company established in Romania, whether resident or foreign nationals, is regarded as a legal person. Corporate income tax is due at 16% profits. Foreign companies operating through a Romanian company pay tax of 10% profits from Romanian economic activity. These gains are determined on the basis of revenues and expenses resulting from business.
Tax on micro-enterprises
Trading companies below 1,000,000 EUR (approximately 4,500,000 RON) pay tax on micro-enterprises based on turnover rather than profit. Tax is due 1% turnover for hiring companies one or more employees, or 3% for companies without employees. When the company issues share capital 10,000 EUR or 45,000 RON and has at least two employees, can instead choose a corporate income tax based on profits.
Remuneration and associated taxes
Romania provides for a minimum monthly remuneration of 2,230 RON (approximately 465 EUR) or 2,350 RON (approximately 490 EUR) for people with higher education. Workers pay income tax of 10% salaries and social security contributions of 35% (25% social security and 10% Health insurance). Employers also pay an insurance premium of 2.25% salaries.
Construction is subject to a higher minimum wage of 3,000 RON (approximately 625 EUR). Upon compliance with certain conditions, construction workers are exempt from income tax and pay social security contributions at a lower rate 21.25%. Employers also pay a lower insurance premium of 0.3375%. Other categories of workers entitled to preferential income tax treatment include persons:
- with disabilities,
- employed in the IT sector,
- employed in research and development.
Dividends
The remaining net profit after payment of corporate income tax or micro-enterprise tax is available as a dividend. From 2018 dividend can be paid on the basis of quarterly accounts.
Dividends paid by one Romanian company other Romanian company is normally subject to 5% withholding tax; dividends may, however, be exempt if the recipient held at least 10% issued share capital by at least 12 months.
Dividends paid by Romanian company to a non-resident company are also subject to 5% tax at source. However, where the recipient is resident in an EU Member State, dividends may be exempt if the recipient has at least 10% issued share capital by at least 12 months.
Capital gains
The capital gains realised by the Romanian company shall be taken into account in the profits and taxed accordingly. This includes profits resulting from the transfer, rental or disposal of immovable property located in Romania, unless exempted under a double taxation agreement. The capital gains realised by non-resident shareholders of the Romanian company shall also be taxed unless they are exempt under the double taxation agreement.
Looking to the Future
Although it is not possible to indicate future changes in taxes - the Romanian government does not announce this much in advance - private sector lobbying has always put enough pressure on governments to maintain low taxes. Although tax incentives that once existed to encourage investment in unemployment areas are currently not available, there are still many reasons to invest in Romania.
About the author, Andrea Badiu, Bucharest, Romania
Andrei is partner of Romanian company Russell Bedford, 3B Expert Audit, where he is responsible for special audits.