Despite the current political turmoil in Romania it is still potentially one of the European Union’s most attractive countries for foreign investors. In the last years Romania had consecutive economic growth and the outlook is the same for 2019, according to the budget published by the Government and adopted by parliament.
As a Romanain law firm we are often asked to assit in the start up of a company in Romania. Starting a business in Romania is relatively easy, considering the duration and costs of founding a company. Any legal or natural person can be a shareholder and/or administrator in a Romanian company. The business can be started either by an individual or group of individuals or legal person (as sole shareholder and administrator). This is no restrictions. The company formation formalities should not last more than three business days once all the necessary documentation is submitted to the Trade Registry. The governmental costs for company formation are almost zero, as all the taxes required by the Trade Registry which have been eliminated since 2017.
From the fiscal perspective, Romania still is one of the EU countries with the lowest corporate taxes. Companies with an annual turnover up to one million (1.000.000) Euro (so-called micro-enterprises) must pay a tax of only one percent (1%) of the value of their turnover, if they have at least one employee. The tax for the micro-enterprises which do not have any employee is three percent (3%) of the annual turnover.
Companies with an annual turnover exceeding one million Euro must pay corporation tax of sixteen percent calculated on the taxable profit of the company. Companies which may not reach the threshold of one million Euro can if they desire opt for this taxation method if they have a share capital of at least forty-five thousand RON and have a minimum of two employees.
The company will have to withhold and pay a tax of five percent on the value of the dividends distributed to the shareholders (resident or non-resident, legal or natural persons). Profit retained in the company does not attract dividend tax.
The standard rate of Value Added Tax in Romania is currently nineteen percent. There are two reduced rates of nine percent and five percent respectively depending on the nature of the business. The nine percent rate is applicable to certain services and goods from the medical field, food production, and agriculture etc. The five percent rate is applicable to certain other services and goods, such as books, newspapers, magazines, certain real estate transactions, HoReCa, sport activities, and some tourist transportation etc.
A company in Romania will have to register as a VAT payer if its annual turnover exceeds three hundred thousand RON. It can choose to register as a VAT payer from the date of the formation or anytime within the fiscal year if it estimates a turnover that will exceed the threshold of three hundred thousand RON during that year. The main advantage of being registered as a VAT payer is represented by the fact that the company has the possibility to deduce the VAT paid from the VAT that it collects from it/s clients/customers.
A very welcomed fiscal measure is that since 1st February 2019 a company can obtain its VAT registration code in the same day of the submission of the request to the tax authority, without going through the preliminary hearing procedure.
Another favourable aspect of investing in Romania is represented by the skilled labour force and the reduced costs with the employees. With a population of over nineteen million (19.000.000) people, Romania has plenty of a well-educated workforce. The minimum legal gross salary in Romania is one of the lowest from the European Union. For 2019 the minimum gross salary is two thousand eighty (2.080) RON.
There are two special minimum gross salary rates namely, two thousand three hundred fifty (2.350) RON, for the employees who are required to have university education and have at least one-year experience in the domain of this degree and three thousand (3.000) RON for the employees hired in the construction sector.
In addition to the amount of the gross salary, the employer will have to pay to the tax authority a contribution of two-point two five percent (2,25%) applied to every gross salary (the so-called labour security contribution).
The employer has to retain and pay to the state other tax and social security payments which were included in the calculation of the gross salary of the employees at the following rates – twenty-five percent (25%) representing the social security contribute, ten percent (10%) representing health security contribution.
The taxable income of the employee is at the rate of ten percent (10%). The employees from the IT and construction sectors are in certain limited circumstances exempt from paying income tax. Moreover, employees from the construction sector are excepted from the payment of the health security contribution and they benefit of a preferential rate of twenty-one point two five percent (21,25%) for the social security contribution.
The labour security contribution owed by the employer is also reduced from two point two five percent (2,25%) to zero point three three seven five percent (0,3375%) within the construction sector.
Whether you decide to buy or rent a place for your business in Romania, both choices are available. According to the European and local legislation, any legal or natural person who is a member of the European Union or of the European Economic Area can own property in Romania. If you are not member of the EU or EEA but you do not want to pay rent for your business, you have the possibility to buy a property through a wholly owned Romanian company.
The purchase price of the property or the rent payable will depend on the location (city, positioning etc.), but again the prices are at the lowest level within the EU.
The information presented above shows only those major general features of establishing a business in Romania. More detailed information should always be requested and provided in accordance with the required.
Any foreign investors are encouraged to consider the Romanian market before starting a business as it is perhaps one of the most favourable and attractive countries to open a business in the EU.
This article was written by Narcis Bogoiu a senior associate with Hammond Partnership