Romania is highly rated European Union country to look at from business, and personal perspective likewise. Holistically speaking Romania is offering an unbeatable tax regime within EU, with a tax on income starting from 1%.
Romania is also the house of Advice Accounting, a team of highly skilled, with international experience professionals, specialized in corporate law, tax and accounting services. Wise…to advise in your business ideas was born out of the energy and desire to give another connotation to professionalism, to succeed in imposing the fact that each client becomes in fact our business partner as standard of the local professional services industry.
In the below lines our team is proposing a comparison in respect to taxes and fiscal conditions between Romania and Poland. This is a useful introduction to all interested parties looking at Romania as a potential place of setting up a company. As this is a general presentation, for a tailor-made consultancy and further details, you can contact our team at firstname.lastname@example.org.
|Micro-company tax regime|
1% applied on total revenues (subject to company having registered 1 full-time employee)
3% applied on total revenues (subject to company having registered no full-time employee)
The revenue limit for the current tax year entitling a company to benefit from the reduced Tax on income rate is EUR 1 million.
Newly established companies are required to follow the micro-company tax regime starting with the first fiscal year.
Micro-companies can opt once for applying CIT if they fulfil both of the following conditions:
There is only Corporate Income Tax (CIT) rate applicable to companies in Poland.
|Corporate income tax (CIT)|
Unique 16% rate without any revenue threshold.
Usually, companies exceeding the EUR 1 million total revenue threshold are becoming subject to CIT in Romania (certain object of activity exceptions apply – like banking or gambling activities).
Corporate income tax is levied at a rate of 19% (standard rate) or 9% (reduced rate for small taxpayers and new companies in the first year of business activity).
Dividends paid out of profits are taxed at 5% rate. Exemptions from the EU Parent-Subsidiary Directive apply.
Dividends can be paid on interim basis – quarterly, subject to shareholders decision.
Dividends paid out of profits are taxed at 19% rate. However, exemptions from the EU Parent-Subsidiary Directive apply.
|VAT||5% VAT rate|
● Textbooks, magazines, publications in general, except advertising ones;
● Hotel services and accommodation in specific units, including land used for camping accommodation;
● Entrance fees to museums, memorial houses, archaeological or cultural sites, sports events and other services of this type;
● Houses built for social purposes, including the land on which they are built;
● Houses with areas smaller than 120 sq m and whose value is less than 450 thousand lei (including land);
● Construction of buildings for town halls that will be used for social purposes;
● Eco-friendly, traditional and mountain products
9% VAT rate
● Prostheses and accessories;
● Delivery of medicines (for human and veterinary use);
● Marketing of food and beverages for animal and human consumption, including ingredients used in food preparation;
● Catering and restaurant services, less alcoholic beverages;
● Distribution of drinking water and irrigation water;
● Sale of pesticides and fertilizers.
19% VAT rate
● All the others services and goods not highlighted above
A newly incorporated company is not subject to VAT immediately in Romania and it can remain not registered as a VAT entrepreneur until total revenue of EUR 88.500.
|Polish VAT applies to the following activities:|
Supplies of goods and services within the territory of Poland.Exports of goods outside the territory of the European Union.Imports of goods from countries that do not belong to the European Union.Intra-Community acquisitions of goods (imports from countries belonging to the European Union).Intra-Community supplies of goods (exports to the countries belonging to the European Union).VAT ratesThe VAT rates are 23% (standard rate), 8%, 5%, 0%, and exemption.
The standard 23% VAT rate generally applies to the supply of all goods and services, except for those that are covered by special VAT provisions that provide other rates or treatments.
Supplies covered by a reduced rate of 8% include, among others, supplies of pharmaceutical products and passenger transport services and also supply of goods for the Social Housing Programme (no greater than 150 square metres).
Supplies covered by a reduced rate of 5% include books and journals, unprocessed food, and basic food.
Zero-rated activities include, among others, exports of goods to countries outside the European Union.
VAT-exempt supplies include, among others, certain financial, insurance, and educational services
|Income determination||Inventory valuation|
The methods permitted for inventory valuation under Romanian law are standard cost, detailed sale price, average (weighted) cost, first in first out (FIFO), and last in first out (LIFO). The accounting method is also recognised for tax purposes.
Assets are generally valued at their acquisition cost, production cost, or market value. Fixed assets may be re-valued at certain points in time for various purposes.
Capital gains earned by a Romanian resident company are included in its ordinary profits and are taxed at the 16% CIT rate. Participation exemption applies for income derived by a Romanian legal entity from the sale of shares held in a Romanian legal entity or in a foreign legal entity resident in a state with which Romania has a DTT, in case of participations of at least 10% held for a minimum period of one year.
Interest and royalty income
Interest and royalty income obtained by Romanian legal entities should be treated as taxable for CIT purposes.
Romanian-sourced interest and royalty payments of an affiliated company, resident in an EU member state, are exempt from withholding tax (WHT), provided that certain conditions are met, e.g.:
25% minimum direct holding of the share capital (i.e. one company has a direct minimum holding of 25% in the share capital of the other company or a third company has a direct minimum holding of 25% in the share capital of both companies involved in the payment of the interest and royalties).The holding period must be maintained for an uninterrupted period of at least two years prior to the payment of the interest and royalties.
Generally, the value of inventory shortages may be included as a tax-deductible cost. Other write-offs in the value of inventory are not recognised for tax purposes until the inventory in question is sold.
When inventory is lost or sold, a tax deduction is allowed for the costs incurred when the inventory was purchased. The methods acceptable for inventory valuation for tax (and accounting) purposes are standard cost, average (weighted) cost, first in first out (FIFO), and last in first out (LIFO).
There is no separate capital gains tax. Capital gains or losses are aggregated with an entity’s other taxable income or losses. Capital losses are tax-deductible.
Interest income and royalty income
Interest income is aggregated with an entity’s other taxable income.
A 20% WHT is imposed on royalties paid to non-residents. Royalties paid to resident companies are taxed as ordinary income at the level of the beneficiaries of the royalties. There is no WHT on royalties if the conditions for the application of the EU Interests & Royalties Directive are met.
Only a beneficial owner is able to apply exemption from WHT on royalties.
|Fiscal administration||Taxable period|
The fiscal year is the calendar year or the period during which the entity existed if it was set up or ceased to exist during that calendar year.
Taxpayers (except for non-profit organisations and taxpayers deriving most of their income from agriculture) should submit the quarterly CIT returns by the 25th day of the first month following the first, second, and third quarters. The annual CIT return is due by 25 March of the following year for which the CIT is due (if the fiscal years equals the calendar year); for the cases where the fiscal year is different than the calendar year, the annual CIT return is due by 25th day of the third month after the end of the company’s fiscal year.
For the period 2021 – 2025, the deadline for submitting the annual CIT returns and for paying the related CIT is 25 June of the following year, or the 25th day of the sixth month following the end of the amended fiscal year.
The taxable period is the calendar year (between 1 January and 31 December). Companies are entitled to choose another (than calendar) fiscal year (e.g. between 1 April and 31 March).
The annual CIT return should be submitted to the tax office within three months following the end of the tax year.
Provided that having read the above determined your consideration for the Romanian fiscal environment, don’t hesitate to reach us out! Our experienced professionals will manage the entire process, from detailed consultancy to establishing a company, while keeping you in the loop for each step, after the decision to set up a Romanian LLC.