Corporate tax rates in Romania

by | Nov 9, 2022 | Uncategorized

The tax rates applicable to entrepreneurs with a registered business in Romania are among the lowest in the entire European Union. Taxation on micro businesses, i.e. companies with an annual revenue of less than €500 000, is only 1%. In contrast, larger companies are subject to CIT, whose effective income tax rate is only 16%. On top of this, there are also much more favourable (compared to Polish legal standards) regulations regarding, among other things, depreciation or deductible costs. 

Sales tax for companies up to EUR 500 000

Sales tax, which replaces corporate income tax, is mandatory for Romanian legal entities with revenues of up to €500 000 per year. The turnover tax rate is:

  • 1% income tax (min. 1 employee required)

Corporate income tax (CIT)

The group of taxpayers subject to CIT include:

  • Romanian legal entities (excluding taxpayers subject to the turnover tax for micro-companies or the special tax for tax transparent entities and distinguished in the code of other institutions)
  • non-Romanian legal entities, operating a business through a min. 1 establishment in Romania; deriving income from real estate rights in Romania; operating in Romania through min. 1 element construed as a permanent establishment
  • legal entities, established in Romania, whose status is governed by European legislation.

The corporate income tax rate is 16% and the tax year is determined according to the financial year that the taxpayer adopts – usually the tax year is combined with the calendar year.

Refunds and tax payments are made quarterly (for quarters 1-III by the 25th day of the month that follows the quarter in question) or annually:

  • by the 25th day of the third month after the end of the tax year that is after the calendar year
  • by the 25th day of the second month following the end of the tax year that follows the calendar year, if the taxpayer is a non-profit organisation or operates in the agricultural sector.

Ownership changes occurring in the organisation do not affect tax loss carryforwards. If the taxpayers have undergone corporate restructuring and cease to exist, the tax losses are transferred to the new taxpayers of the converted organisation. Tax losses can be carried forward for seven years.

Deductible costs

Deductible costs are expenses that have been incurred for the purpose of carrying out business activities. These expenses can be divided into:

  • social – up to 5% of total salary expenses
  • for vehicles – 50% for expenses covering the acquisition, maintenance, as well as leasing and renting of vehicles (if the vehicles are not used in the course of business)
  • protocol-related – covering up to 2% of gross accounting profit.

Provisions and allowances

Up to 5% of profit (gross) in the tax year is deducted for the cost of legal reserves, which is accrued until the reserves reach ⅕ of the share capital. 

Provisions for guarantees granted to customers in a given accounting period are regulated by provisions in the contracts concluded with the customers.

Allowances for doubtful receivables from 1 January 2022 are deductible when the receivables are uncollectible more than 270 days after the date on which payment is required. 

Impairment losses on property, plant and equipment are deductible in two cases:

  1. Fixed assets have been destroyed as a result of external events e.g. a natural disaster
  2. The situation has been taken into account in the insurance contract.

Depreciation

Tangible and intangible fixed assets are depreciated. The methods used include straight-line, declining balance or accelerated depreciation. For assets such as buildings, plant and equipment and other fixed assets, depreciation expense is calculated using the straight-line or declining balance method. Patents, licences or trademarks are depreciated using the straight-line method ( in some cases, patents may be depreciated using the accelerated or declining balance method. The value of software developed or acquired is amortised using the straight-line or declining balance method (over 3 years).

Taxation for business owners

The tax conditions for Romanian residents are more cost-effective compared to the rates for non-residents, so it is worth considering using a service to obtain residency. For non-residents, the tax rates are as follows:

  • 16% is the basic tax rate
  • 10% for income of residents in an EU Member State or in a country with which Romania has a double taxation treaty
  • 8% for dividends.

Interest, royalties, commissions, management fees, income from services rendered in Romania, income derived from sports or entertainment activities, prizes received in competitions and income which is the remuneration of foreign persons who act in the organisation of a Romanian resident are still subject to taxes.

However, the rates for residents are:

  • 8% for dividends
  • 10% rent, salary, freelance, pension and investments
  • 3% on the sale of real estate over a fixed threshold

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