Romania, an Attractive Business Destination for Foreign Investors

A governmental measure effective from January 1^st 2018 is doubling the ceiling up to which a legal entity may subscribe as a micro-enterprise, from EUR 500.000 to EUR 1 million.

The micro-enterprise is the friendliest company in terms of taxation, given a very low tax rate: the tax rate is 1% of the turnover, in case the company has at least one employee, or 3%, for companies with no employees. As final costs, whoever wants to set up his business in Romania, as a micro-enterprise, should consider a 5% percentage as dividend tax, which, added to the maximum of 3% tax rate, leads to a 8% percentage as final maximum taxation.

Romania benefits from a standard 19% VAT rate which applies to micro-enterprises with revenues over RON 222.000 (EUR 88.500 at the conversion rate on the day of its accession, i.e. lei 3.3817 for one Euro), but this ceiling it is estimated to increase to RON 300.000, according to a draft legislative act.

The last impediment in the way of those that want to benefit from reduced taxation has been removed with the latest legislative change. Thus, the Government has dropped the classical banning on certain areas of micro-enterprise activities, such as: consultancy and management, banking, insurance and reinsurance, capital markets, gambling, development and exploitation of oil reserves and natural gas.

Setting up a company in Romania has become very attractive to foreigners for a couple of reasons:

Low taxation rate – a maximum 8% in turnover and dividend tax, applicable including to more “touchy” areas such as consultancy and gambling and a standard 19% in VAT rate;

No typical off-shore problems – Romania is not a tax haven in a negative way and setting a company in Romania is not going to be accompanied by the fiscal problems of an off-shore company.

Minimum bureaucracy – a micro-enterprise is set up in 3 days and reporting the taxation to the turnover means that no expenses shall be justified, as in the situation of income taxpayer companies.

Cheap but qualified workforce with a good level of English; the labor cost is about 5 euro / hour, compared to an average of 25 euro in the EU; Consultancy, management, gaming and IT companies are the main winners – all are areas where the expenses that can be legally justified are small in relation to revenues, as there are no acquisitions of goods, so the tax on profit remains high. Taxation of 1 or 3% on turnover is an excellent opening for such companies, as well as for any kind of company whose activity is in the services field.