How to launch a business in Romania Is it a good idea?
When the EU expanded its borders with subsequent countries, new attractive locations for managing a business appeared. Romania is one of the more interesting ones. It is currently one of the fastest developing European economies. Additionally, a number of reliefs and arrangements for entrepreneurs were introduced, which cannot be found anywhere else. Is it really a good idea to register a business in Romania? If so, how can this be done?
Growth of economy in Romania
There can be two reasons for opening a business in Romania – either for purposes related solely to tax optimisation or for actual business development purposes. If you are thinking about the latter solution, statistics regarding economy growth will be key. As it turns out, they are very optimistic.
When looking only at the GDP, it is one of the top 3 fastest developing countries of the EU in the last 10 years. In 2003, the GDP of Romania was just USD 76 billion, which is less than the current GDP of Ukraine. After 7 years, the GDP was raised to USD 213 billion, and currently it amounts to USD 239 billion. This is one of the biggest increases in the entire EU within the above period which is the reason why it is a good idea to enter the Romanian market with your offer.
Why is it worth opening a business in Romania?
Besides very dynamic growth of the economy, the fact of low taxes should also be noted. They are a result of broad reforms that aimed at speeding up the growth of entrepreneurship. Market data has shown that the reforms had a positive impact on Romania and entrepreneurs operating there. When you open a business in Romania you can expect significantly lower costs of managing a business. There are also some reliefs that you can benefit from.
What are the taxes applicable to companies in Romania?
The most popular and most effective form for managing a business in Romania is a type of a limited liability company. With small scale of the business, i.e. up to EUR 1 million in turnover per year, the taxes in Romania are as follows:
- 1% of the revenue if you employ at least one person, otherwise it is 3%;
- 5% of tax on dividend;
- 0% of tax from contributed capital;
- VAT and income tax settled on a quarterly-basis by the 25th day of a given month. Bigger companies can pay income tax once a year;
- No obligation of paying Social Insurance premiums for the company President and other board members;
- Minimum equity capital is RON 200, which is approximately USD 45;
- Free health insurance if the amount of dividend does not exceed RON 450,000 per year, which is approximately USD 102,000.
With the above tax benefits in mind, when managing a limited liability company in Romania with revenue at the level of EUR 1 million per year, you can save as much as PLN 858,710 per year, when compared to Poland. Savings can also occur even in the case of running a business on a bigger scale. When you exceed the limit of EUR 1 million per year, the following taxes will apply:
- 16% of income tax;
- 5% of tax on dividend;
- 0% of tax from contributed capital;
Despite the above being slightly more than in the case of a smaller business, those values are still some of the lowest tax rates for companies in the entire European Union.
What is the VAT rate applicable in Romania?
Another important issue is the aspect of paying VAT in Romania. The VAT rate in Romania is one of the lowest rates in the entire EU and the government plans to reduce it to 15%. However, the current VAT rate is 19%. Two preferential rates also apply: 9% and 5%. What should be noted is that the entrepreneur is obliged to become a VAT payer only after exceeding turnover of EUR 88,500 per year.
An important issue is also the fact that a big range of products and services is covered by preferential VAT rates. For example: the 5% rate applies for accommodation. The regulations are also simpler than anywhere else in Europe. Additionally, entrepreneurs can pay the collected VAT to the Revenue Office once every quarter. There is also no obligation of paying with the use of the split payment mechanism unless your company is in debt and you are not able to fulfil your tax-related obligations on an on-going basis. Nevertheless, you can apply the split payment mechanism voluntarily. In such a case, you will obtain a rebate for income tax.
How to open a company in Romania?
In order to benefit from the lowest tax rates, you have to register your company in Romania. Limited liability companies are the most popular form of managing business in this country. Such a company has to be established by at least one person (including foreigners) or one legal entity. It’s interesting to note that the Romanian law states that there cannot be more than 50 shareholders of such a business. Company registration requires equity capital contribution to be made which amounts to RON 200. This type of a legal entity must be managed by at least one director who does not necessarily have to live in Romania.
Generally, the process of registering a company in Romania can be divided into the following 6 stages:
- Check at the Commercial Register (onrc.ro) whether the name you want to use is available. If so, reserve it initially for 3 months because you will be using it during further stages.
- Register your company – usually a limited liability company (SRL) but it can also be a joint stock company (SA), limited partnership (SCS), registered partnership company (SNC) or general partnership.
- The choice of the company type determines further activities. In the case of SRL, the above will include company’s articles of association confirmed by a notary public, declarations of shareholders, sworn translation of their personal IDs, authorisation of the management board and other documents required by the law.
- Establishing founding capital which has to be submitted as a bank deposit to the company bank account. At this stage it is also worth seriously thinking about the choice of a bank.
- Submitting documents at the Commercial Register. After this activity, you will have to complete several other procedures, such as obtaining a decision regarding an entry to the Commercial Register, obtaining a CUI number for tax purposes, registration for statistical purposes or for social insurance purposes. This stage can take up to 4 weeks.
- Concluding employment contracts with all employees and their registration at the applicable Labour Office. Keep in mind that this has to be done on the day of the employee starting work at the latest. The work card is a standard document defining the rights of an employee.
Keep in mind that you will have to submit a tax declaration to the Revenue Office within 30 days from starting your business.
How much does it cost to register a company in Romania?
The entire registration procedure for a company in Romania is not too expensive. The cost should not exceed RON 653 if you are not registering an SRL company. You will pay the most for registering all fields of business in the classification, i.e. RON 377.50. This cost does not include expenses made for preparing the articles of association, confirmation of a notary public, announcement in the Business Bulletin, tax stamps, and additionally, the court fee and costs of certificates and other applicable documents.
Is it a good idea to register a business in Romania?
Despite the fact that company registration in Romania is quite time-consuming, it is worth doing. Specifically, if you are thinking about good tax optimisation. The VAT rate itself is one of the lowest rates in Europe. Very low income tax and simple conditions for managing a business activity are also advantageous. The market remains very consuming and there is still little competition in certain industries. However, business relocation to Romania is not the best idea for everyone. Financial savings will only be generated if your annual revenue amounts to approximately PLN 250,000. Any lower amounts will not generate benefits resulting from lower taxes so relocating your company will not be worth it.