Romania’s Fiscal System

Since 2015, Romania has implemented a series of measures aimed at making the national tax system particularly attractive for foreign investors. In particular, it refers to the "flat tax" which introduced a single rate on business income equal to 16% (a value that drastically decreases with the reference to the so-called "micro enterprises"). Following the VAT cut, the country has become the "favorite destination" of foreign entrepreneurs, especially European ones, with the intent of relocating their economic activities.

In a relatively short time, the benefit of this fiscal intervention was confirmed, since it favored an exponential economic growth of the country. In fact, the data released by the Romanian National Institute of Statistics (so-called INS), denotes that in the first six months of 2019, the country's economic growth recorded an increase in GDP equal to 4.7% compared to the same period of the year. last year. The growth projections prepared by the Romanian National Strategy and Forecasting Commission foresee a 4.1% increase in GDP in 2020, a figure that is in line with the estimates of the European Commission.As early as the end of 2018, Italy is among the most important trading partners of the Romanian Republic. As much as 10.5% of Romanian foreign trade is due to Italian-Romanian trade.

The law firm de Capoa & Partners, thanks to its more than thirty years of experience in the field of international law as well as the close collaborative relationships it maintains with qualified local professionals and internal native speakers, can offer interested entrepreneurs a quick, efficient and perfectly aware consultancy. the complexity of the Romanian legal-economic reality.

First of all, it should be noted that the Romanian fiscal year coincides with the solar calendar, therefore it is calculated starting from January 1 and up to December 31 of each year. To be considered taxable persons or residents, at least one of these conditions must be met:

• be domiciled in Romania;
• arrange one’s center of interests in Romania;
• the individual concerned must have resided in Romania for a period exceeding 183 days within 12 months.

In the Romanian tax system, residence is of crucial importance, as residents are subject to taxation on all income produced wherever they are. Otherwise, non-resident subjects pay taxes limited to Romanian source income, or to those produced or received on Romanian territory.

Furthermore, it should be noted that in relation to specific categories of income, including for example those derived from self-employment or investment income, the rate remains invariably set at 10% (previously it was set at 16%) regardless of the actual income.

The decrease in the rate is the result of a change made to Romanian Tax Code by the implementation, within Budget Law of the "Ordonanță de urgență" of October 26, 2018, strongly politically suported by the Governments of Traian Basescu and Kaus Joannis.

The decrease in the rate results in a decrease in the compulsory social security contribution. For the reasons indicated above, the entrepreneurial choice to relocate the business in Romania is undoubtedly a winning one, as the fixed rate payable by legal entities is 16% on the profit. The data in question, added to the general cost of living, much lower than those recorded in neighboring Western countries, consequently brings the state to the top of those chosen for the opening of a commercial / entrepreneurial activity.

The peculiarity of the Romanian tax system can be seen in the distinction drawn between Enterprises and Micro Enterprises. The former are identified in those companies whose annual turnover exceeds 1,000,000 euros, regardless of the activity carried out; therefore, profits of 5% received by them are also subject to taxation. However, it should be specified that if the dividends are distributed to European or Romanian legal persons who hold at least 10% of the share capital, such profits are exempt from taxation. Royalties and interest received by European legal persons who hold 25% of the share capital for at least 2 consecutive years are also subtracted from taxation. Furthermore, the deductibility can reach almost 100%, if supported by proven written documents that prove its actual existence and use for the purpose of pursuing the final purpose of the company itself.

The "micro enterprises", on the other hand, are those economic entities whose annual turnover, calculated by subtraction, does not exceed one million euros, with the consequence that the tax is applied on revenues and its amount varies from ’1% to 3%. As you can see, a taxation system based on the minimum tax burden represents a strong incentive for all those companies that intend to transfer their activities abroad. This phenomenon is also supported by an extremely streamlined bureaucracy, where the procedure for setting up a commercial company requires a few simple steps, such as choosing the name and registering it with a Romanian Business Register. In fact, according to Law no. 31/1990, for the purpose of setting up the company, the preparation of the deed of incorporation, the bylaws, as well as an affidavit are required. These documents, translated into Romanian, must be sent to the Business Register.

The widespread phenomenon of the internalization of industries and the progressive corporate migration to Romania have not, however, excluded the use of classic contractual instruments aimed at regulating commercial relations. A brief analysis of the most significant institutions is proposed below.