2022 Romania Tax Guide: Pay 1% tax & incorporate remotely
Pictured above is Arcul de Triumf in Bucharest, Romania
Region: Central & Eastern Europe
Population: 19 million
Capital: Bucharest
In this guide, we'll go through Romania's 1% revenue tax system for micro companies, with updated information based on Romania's most recent fiscal code changes in August 2022. Much of the information you read online is no longer relevant, due to significant changes in the tax code.
Region: Central & Eastern Europe
Population: 19 million
Capital: Bucharest
In this guide, we'll go through Romania's 1% revenue tax system for micro companies, with updated information based on Romania's most recent fiscal code changes in August 2022. Much of the information you read online is no longer relevant, due to significant changes in the tax code.
Who am I? I'm Jason, an investor and internationalisation enthusiast. I’ve lived in 6 countries, hold 4 citizenships and residencies, bought real estate in 3 countries and have hired in over 20 countries for my tech businesses. In the UK, I would pay an effective rate close to 40%, but I legally lowered it to an effective single digit tax rate by leaving and moving to Central & Eastern Europe. I know Romania fairly well, having set-up a tech business there in 2017 and also own real estate in Bucharest.
Romania’s 1% revenue tax for companies earning up to €500,000 / year in 2023
Tax rate: The main highlight of Romania’s tax system is its 1% revenue tax regime, for companies with ‘micro enterprise’ status. 'Micro enterprise' is defined as a limited liability company (known as 'SRL' in Romania) earning up to €1,000,000 / year in 2022. This revenue limit will be reduced to €500,000 in 2023. However, each individual can be the Director of up to 3 micro enterprises, thus in effect you can benefit from 1% taxation up to a limit of €1,500,000.
Following Romanian tax reforms in mid 2022, several new eligibility criteria have been introduced. The option to pay 3% micro company taxation and have no employees (thus paying no payroll tax) will be eliminated from 2023, with rare exceptions for particular industries like the hotel sector. Thus from 2023, in order to qualify for 1% micro company taxation, the SRL must:
VAT: In general, no VAT is charged if you do not sell to Romanian customers. If you sell to Romanian customers, the VAT rate is 19%.
8% dividend tax in Romania from 2023
When you withdraw funds from your micro company to yourself, you will trigger a 8% dividend tax from 2023. This is an increase from 5% in 2022, but is still low by EU standards.
Entry requirements to Romania
EU citizens can enter and work in Romania without any restrictions. It is moderately easy for citizens from non-EU countries to obtain a work visa in Romania, especially if you are from a developed country.
Constanța, one of Romania's charming seaside towns
Tax rate: The main highlight of Romania’s tax system is its 1% revenue tax regime, for companies with ‘micro enterprise’ status. 'Micro enterprise' is defined as a limited liability company (known as 'SRL' in Romania) earning up to €1,000,000 / year in 2022. This revenue limit will be reduced to €500,000 in 2023. However, each individual can be the Director of up to 3 micro enterprises, thus in effect you can benefit from 1% taxation up to a limit of €1,500,000.
Following Romanian tax reforms in mid 2022, several new eligibility criteria have been introduced. The option to pay 3% micro company taxation and have no employees (thus paying no payroll tax) will be eliminated from 2023, with rare exceptions for particular industries like the hotel sector. Thus from 2023, in order to qualify for 1% micro company taxation, the SRL must:
- Have at least one employee earning at least the minimum wage and paying payroll tax. The 2022 minimum wage in Romania is 2550 lei / month, which is about €525 / month. As a rough calculation, the payroll tax would be around 40% of the gross minimum wage amount.
- This employee can be yourself, which carries the additional benefit of allowing you to obtain residency in Romania. Alternatively if you are planning to incorporate the company remotely and operate it as an offshore company, you can hire a local Director. The local Director would also serve as part of your economic substance strategy to ensure you do not run into issues with CFC (controlled foreign company) rules in your home country.
- There are some limitations of the type of work which qualifies for 1% taxation. For example, if the company only engages in consulting work, it will not qualify. However, there are no limitations for software developers, product managers, designers, e-commerce store owners, SaaS companies etc. There is also quite a lot of nuance, which can be an advantage. E.g. an individual conducting marketing work on behalf of clients can be classified as a 'consultant' if he advertises his services and enters into client contracts in a specific way, but with correct structuring, this individual does not have to be a 'consultant' within the definition of the tax code.
VAT: In general, no VAT is charged if you do not sell to Romanian customers. If you sell to Romanian customers, the VAT rate is 19%.
8% dividend tax in Romania from 2023
When you withdraw funds from your micro company to yourself, you will trigger a 8% dividend tax from 2023. This is an increase from 5% in 2022, but is still low by EU standards.
Entry requirements to Romania
EU citizens can enter and work in Romania without any restrictions. It is moderately easy for citizens from non-EU countries to obtain a work visa in Romania, especially if you are from a developed country.
Constanța, one of Romania's charming seaside towns
Romania vs. other traditional tax havens
I believe Romania does not get the attention it deserves and is underrated not just for it's low corporate tax rates, but much more:
Would you like to see whether you or your business can legally pay less tax through offshoring? Schedule a 1-on1 strategy call with me, or check out services offered.
A small apartment I purchased near Bucharest 's Old Town at under €50,000 in 2022:
I believe Romania does not get the attention it deserves and is underrated not just for it's low corporate tax rates, but much more:
- Decent pool of high skilled, affordable local talent to hire from, with strong language skills. This includes technical talent - Romania has almost 140,000 software engineers. From personal experience of doing business in the region, out of all Central & Eastern European countries, I believe Romania ranks #1 in terms of English proficiency - as Romanian is the only language in the region which is Latin based. Many Romanians are also proficient to varying degrees in Italian, Spanish and French.
- I've worked with accountants, lawyers, banks, real estate agents in multiple countries. The speed of doing business in Romania is very comparable to what I experienced in developed, highly efficient Asian countries like Hong kong. There is a sense of urgency in the way people do business, which you do not get in many parts of Europe.
- The Romanian banking system is developed and efficient. Both my personal and business bank accounts were set up in one day, without minimum deposits and monthly fees. The banking app is one of the most modern ones I've interacted with.
- Romania's macro economic situation is looking rosier than many EU countries. It's GDP growth is one of the highest in the EU in 2022 and it's currency the Romanian leu has outperformed the Euro year-to-date. It is also the most energy independent country in the EU, meeting 80% of internal energy needs from its own oil, gas, hydro, coal and nuclear energy sources. ING think notes: 'Romania could get away without a technical recession throughout this soft landing phase.'
- Incorporating a Romanian company allows you to purchase real estate without restrictions and to apply for residency. Romania is also one of the most undervalued real estate market in the EU, with price per sqm starting at €1000 in the capital city and gross rental yields upwards of 6%. Being a personal Romanian tax resident also allows you to pay 1-3% capital gains tax on stocks and 10% capital gains tax on crypto, the later is capped at a maximum tax of €5000 / year.
Would you like to see whether you or your business can legally pay less tax through offshoring? Schedule a 1-on1 strategy call with me, or check out services offered.
A small apartment I purchased near Bucharest 's Old Town at under €50,000 in 2022:
See also
Jason Wong Founder, Flag Ventures I grew up in Hong Kong & the UK, having spent over 10 years in each country. I first visited Eastern Europe in 2015 and saw the contrast between a place where the best days are ahead vs. the ‘developed world’ which is in continuous decline. Over the past 7 years, I’ve lived in 4 different countries, worked on various tech ventures, and co-founded a VC backed startup with a 100+ headcount. I hold citizenships and residencies in 4 countries. In the UK, I would have been taxed at an effective rate of around 40%. By moving to lower tax countries, I lowered my effective tax rate to single digits. I've purchased real estate in 3 different countries and have done dozens of fix and flip real estate deals. I've built out my own high-yield rental real estate portfolio, check it out here. |