Societate cu raspundere limitata (S.R.L.), or limited liability company, is the most common form of business in Romania. In an S.R.L, the number of founding partners can be as high as 50 and their liability for the company, as defined in the definition of a limited liability company, is limited to the amount of their own contribution.
An important factor contributing to the prevalence of this form of business is the entrepreneur-friendly legislation on S.R.L. taxation.
Taxes rates for companies in Romania
If a company maintains an annual turnover of less than €500,000, then it belongs to the group of micro companies, which are subject to the following tax rates:
- 0% tax on contributed capital, the amount of which must be min. RON 1
- 1% tax on revenue (regardless of the number of employees)
- 8% on dividends.
In contrast, the tax rates for companies with revenues of more than €500,000 per year are as follows:
- 0% tax on contributed capital
- 8% tax on dividends
- 16% tax on company’s profits
Social security contributions, VAT and CIT are settled quarterly by the entrepreneur by the 25th of a given month.
Income tax
From 2023, the threshold of €100,000 from which taxpayers determine net income on the basis of income standards is reduced to €25,000.
The minimum wage is increased from RON 2,550 to RON 3,000 per month.
Taking into account the latest changes in Romanian tax law, an example of the taxation of the salary of an employee who earns RON 3,500 per month is:
- Total employee taxes – RON 1,408 (25% social insurance, 10% health insurance, 10% income tax)
- Total company taxes – RON 79 (2,25% work insurance contribution).
Property tax
According to the new legislation, the following minimum tax rates will be applied to calculate the tax on buildings (from 2023 there is no maximum rate):
- 0.1% for residential buildings;
- 0.5% for non-residential buildings;
- 0.4% for buildings used in agriculture.
The tax is calculated on the basis of the price of the property. Local authorities may apply higher tax rates, but not exceeding the 50% of the aforementioned minimum rate.
Rental income tax
From the beginning of 2023, the 40% flat rate on expenses used to calculate the tax base of rental income has been abolished. The tax base is now gross income.
VAT in Romania
The standard rate of VAT in Romania is 19%. An important note for entrepreneurs is the provision that stipulates that a legal entity must become a VAT payer once its turnover exceeds €88,500 (per year).
In addition to the standard VAT rate, there are two reduced rates of 5% and 9%, which cover a wide range of products and services:
- 5% – social housing, books, residential property, supply of wood for use of firewood (in certain conditions)
- 9% – hotel accommodation, restaurants, catering services, equipment for the disabled, some pharmaceutical products, some food products, hotels, some agricultural products.