“Romania has offered, in the last years, a steady growth in terms of macroeconomic indicators. For example, the economic growth in 2017 reached 7%, one the highest in the European Union. Even if Romania is not part of the Euro Zone yet, the national currency (Romanian LEU) is stable, without any major fluctuations since Romania’s accession to the European Union in 2007. Romania has seen higher and more diversified foreign direct investments on a yearly basis aiming IT, automotive, textile industry, as well as retail and real estate.” says Mihaela Iacob, Tax Manager – Acacce Romania in her last interview for the Taxlinked.net community.
Find out below more about the tax benefits, advantages and disadvantages that Romanian environmental business has to offer.
How does one go about setting up a start-up company in your jurisdiction and what sorts of benefits are available to them? What sort of tax and legal considerations should be kept in mind when exiting a start-up?
As all important things, setting up a company starts with planning and with the good partners to assist along the way. In the planning phase, one should consider the shareholding structure to allow for reasonable taxation of outflows from the company, flexibility in the financing of the company and easy exit, if the case. Also, one should consider the main transactions the company will perform in Romania to be aware of the main legal and tax implications and reduce surprises along the way.
The company set-up process in Romania is rather paper intensive, but once all the proper documents are prepared and submitted with the National Trade Register Office, it takes less than one week for the company to be registered. Also, the company set-up process is not very expensive when it comes to lawyers’ fees and Trade Register taxes and the paid in share capital can be as low as RON 200 (~ EUR 45).
The physical presence of the shareholders and/or administrators is not required in Romania during the set-up process, as documents can be signed remotely and provided in original hard copies towards the lawyer handling the registration process, who will submit them with the Romanian Trade Register (full online company set-up is not available yet in Romania).
The tax environment for small companies (obtaining an annual turnover below EUR 1 million) is very attractive due to a low tax on revenues of 1% (if the company has at least 1 employee) or 3% (if the company has no employees). Companies obtaining revenues above EUR 1 million are subject to corporate income tax standing at 16% applicable to the profit. Also, dividends distributed by Romanian companies are taxed with only 5% irrespective of the residency of the shareholder or they can be even exempt if the shareholder is another EU company, under certain conditions.
Good planning in setting up the company may also allow for an easy exit, as Romania has a wide network of double tax treaties available, so capital gains may be exempt in Romania in many circumstances. From a legal perspective, a well-drafted sale purchase agreement should protect the parties from unexpected outcomes.
How has VAT compliance in your jurisdiction affected local businesses?
Obtaining a VAT code in Romania can be a rather long and cumbersome process as tax authorities have introduced a lot of restrictive conditions in this process to diminish VAT fraud, but, again, having a good partner along the way can significantly decrease the pressure from the administrative process. During the VAT registration process, the tax authorities’ main objective is to assess whether the company has a ”real” presence and activity in Romania and that the VAT code is not obtained for ”artificial” purposes.
Depending on the type of transactions carried out by the company, the ongoing VAT compliance can include up to 3 recurrent returns which aim to gather as much information as possible about the company’s transactions for the benefit of the tax authorities and their internal checks focused on identifying frauds.
How does taxation specifically affect the IT sector in your jurisdiction? Any specific advantages or disadvantages that need to be highlighted?
The IT sector is the ”star” of the Romanian economic environment for some years. The IT sector is flourishing due to a combination of both well-prepared work force, competitive salary costs and tax incentives.
Individuals working as IT specialists or in the Research & Development field may benefit from an exemption from the standard 10% income tax, under certain conditions expressly mentioned in the Romanian domestic legislation.
Also, companies operating in the IT sector in Romania could benefit from tax facilities regarding R&D expenses consisting of an extra 50% tax depreciation for the eligible R&D expenses and may also apply the accelerated depreciation for these expenses. Also, Romanian companies may benefit from tax exemption on reinvested profit, which refers to the exemption of corporate tax of the profit reinvested in certain types of assets.
Is there anything else you would like to share with our members?
Romania has offered, in the last years, a steady growth in terms of macroeconomic indicators. For example, the economic growth in 2017 reached 7%, one the highest in the European Union. Even if Romania is not part of the Euro Zone yet, the national currency (Romanian Leu) is stable, without any major fluctuations since Romania’s accession to the European Union in 2007. Romania has seen higher and more diversified foreign direct investments on a yearly basis aiming IT, automotive, textile industry, as well as retail and real estate.
If planning to start a company in Romania, we recommend finding a reliable partner who has a solid local and international background and can help you keep your internal processes under one single online platform. An unique combination of services (tax, legal, corporate, accounting, payroll) and extensive expertise should address all your needs and deliver effective solutions for your business – to minimize risks and maintain your local compliance.