With a marketplace of nearly 20 million people, 37 million acres of arable land, breath-taking landscapes, an expanding economy, a well-educated workforce with more than 50,000 specialists in information technology, access to the Black Sea and Asia, Romania offers significant opportunities to foreign businesses.
After joining the European Union in January 2007, Romania went through a series of government reforms in order to satisfy the conditions of EU membership. Nowadays, the requirements of membership – including EU directives – are one of the driving forces in Romania’s program of reform, modernization and investment in infrastructure. More significantly, these directives are accompanied by funding from the EU in the form of Structural Adjustment Funds and other programs, which enable the new members to align their economies with the rest of the EU.
Romania is a market with excellent potential, a strategic location, and an increasingly solid business climate. While careful evaluation of the market is needed in order to seize business opportunities, exporting to or investing in Romania is gradually becoming less challenging than in previous years in terms of business environment predictability.
Its economy is among the EU’s fastest growing members, with an impressive 7% GDP growth in 2017, 5% for 2018 and 4% in 2019, primarily driven by consumption and investment.
We hope the new Tax Guideline will provide all necessary information for those who consider doing business in Romania, as well as for already existing businesses. Download our 2022 tax guideline for Romania or read more below:
Legal forms of business
General rules on purchasing of real estate
EU and EEA citizens can buy real estate properties (land and buildings) in the same conditions as Romanian citizens.
Non-UE/EEA citizens may acquire buildings in Romania, while land may be acquired only if there is an international agreement in place which also allows Romanian citizens to acquire land in the respective countries.
Legal forms of business
Before starting the investment in the Romanian market, the investors have to decide upon the legal form of business which will be used.
The types of business forms are stipulated by Law no. 31/1990 as republished and subsequently modified and completed, and there are compiled in the next table with specific information: the minimum share capital, the liability of the shareholders/stockholders, the minimum number of shareholders/stockholders.
The most common forms of business used in Romania are the Limited Liability Company along with the Joint Stock Company and Branches.
The form of business Minimum capital (approx. in EUR) Shareholders´ liability Number of shareholders English Romanian General Partnership Societate in nume colectiv (S.N.C.) N/A The shareholders have unlimited and joint liability for social contributions. No less than 2 Limited Partnership Societate in comandita simpla (S.C.S.) N/A The limited partners have no management authority and they are not responsible for the debts of the partnership. They respond in the limit of the subscribed shares.
The general partners have management control and they have joint and several liabilities.
At least one limited partner and at least one general partner. Limited Liability Company Societate cu raspundere limitata (S.R.L.) No less than RON 1 The shareholders respond in the limit of the contribution to the share capital. 1 – 50 Joint Stock Company Societate pe actiuni (S.A.) No less than EUR 25,000 The stockholders respond in the limit of the subscribed shares. No less than 2 Company limited by shares Societate in comandita pe actiuni (S.C.A.) No less than EUR 25,000 The limited partners have no management authority and they are not responsible for the debts of the partnership. They respond in the limit of the subscribed shares.
The general partners have management control and they have joint and several liabilities.
No less than 2 Branch Sucursala N/A The Mother Company is liable for its branch. N/A Sole entrepreneur Persoana fizica autorizata (P.F.A.) N/A The sole entrepreneur is also the sole responsible. N/A
Social and health securities
General social and health security
Social security and health insurance assessment base of an employee in Romania is derived from salary income.
Payrolls and Contribution Employee Employer Income tax 10% N/A Health insurance contribution 10% N/A Social (Pension) insurance contribution 25% N/A Work insurance contribution N/A 2.25% TOTAL 45% 2.25%
* For the construction field, starting with 2019, there are special provisions applied regarding due taxes and exemptions by case.
Residents of the EU are covered by the provisions of EC Regulation 883/2004 regulating social security and health insurance rules in case of cross-border activities.
General comments on labour law
Main features of employment relationship Applicable law Contract type Individual labour agreement for definite period, indefinite period, home-based work, part time work, temporary staffing Act No. 53/2003 Labour Code Contract must include Parties, duration of the contract if the contract is a definite type or if is concluded by means of temporary staffing agent, date of the contract conclusion, work and remuneration conditions, the place where the work is performed, evaluation criteria of the employee, the occupation, the risks of the job, number of vacation days, number of days applicable for the notice, number of working hours per day and per week, probationary period, the date of commencement of work
(The contract must be concluded in writing)
Working time Full time employees – 40 hours per week (8 hours/day)
Part time employees – the working time is determined by the daily norm thus weekly norm represents daily norm*no. of working days (5 days)
Holiday entitlement per year Minimum 20 working days per year Trial period For indefinite labour agreements depending on the nature of the position:
- Execution position: maximum trial period is 90 calendar days
- Management position: maximum trial period is 120 calendar days
For definite labour agreements:
- Depending on the period:
- < 3 months: maximum 5 working days
- 3 – 6 months: maximum 15 working days
- Depending on the nature of position:
- Execution position >6 months: maximum 30 working days
- Management position >6 months: maximum 45 working days
- Parties’ agreement: no notice period required
- Dismissal: Minimum 20 working days
- Resignation, depending on the nature of the position:
- Maximum 20 working days for execution position
- Maximum 45 working days for management position
Taxes on corporate income
Corporate income tax (CIT) – rates
The standard corporate income tax rate is 16%.
Taxpayers that are carrying on activities such as gambling and nightclubs are either subject to 5% rate of the revenue obtained from such activities or to 16% of the taxable profit, depending on which is higher.
Corporate income tax – general information
Resident companies are taxable on their worldwide income, unless a double tax treaty stipulates otherwise.
The taxable profit of a company is calculated as a difference between the revenues and expenses registered according to the applicable accounting regulations, adjusted by deducting non-taxable revenues and tax deductions and by adding non-deductible expenses. Also, elements similar to revenues and expenses are taken into account when calculating the taxable profit.
Non-resident companies that are carrying on activities in Romania through a permanent establishment are required to pay corporate income tax for the taxable profit attributable to the permanent establishment.
Tax returns and assessment
As a general rule, the corporate income tax is calculated quarterly. For the first three quarters the filing and the payment of the corporate income tax is performed quarterly, until 25th of the first month following the end of the quarters. The final computation and payment of the corporate income tax for the whole calendar year is to be performed until March 25th of the following year.
There are exemptions from the above general rule that apply to companies such as:
- Companies that have chosen the fiscal year different from the calendar year have to declare and pay the annual corporate income tax until 25th of third month after the ending of the fiscal year changed.
- Non-profit organizations, companies that obtain revenues mainly from agricultural activities, educational units, religious cults and other taxpayers specifically mentioned by law have to declare and pay the annual corporate income tax by February 25th of the following year.
- Credit institutions and branches of foreign credit institutions in Romania are required to apply the system of quarterly advance payments.
Taxpayers, except those who are specifically mentioned by law, may opt to declare and pay the annual corporate income tax by making quarterly advance payments. The anticipated quarterly advance payments are computed as ¼ of the previous annual corporate income tax updated by the consumer price index and are due by the 25th of the month following the end of the quarter. By exception, the quarterly advance payments related to fourth quarter are due by December 25th, respectively until the 25th of the last month of the changed fiscal year.
As a general rule, are considered deductible expenses those expenses which are incurred for the purpose of carrying on the business activity, unless they are specifically mentioned by law as limited deductibility expenses or non-deductible expenses.
Carry forward of losses
Companies are allowed to carry forward fiscal loses declared in the annual corporate income tax statement for a period of seven years. Recovery of the losses shall be performed in the sequence of their recording.
A new chapter is introduced regarding the fiscal consolidation and the fiscal group in the field of profit tax.
Thus, in order to set up a tax group eligible to apply for tax consolidation, the following conditions must be met cumulatively at the date of submission of the application:
- The 75% holding condition must be met for an uninterrupted period of one year;
- The members of the group are corporate taxpayers who apply the same corporate tax system;
- The members of the group have the same fiscal year;
- The members of the group are not part of another fiscal group in the field of profit tax;
- The members of the group are not payers of income tax on micro-enterprises or are not simultaneously payers of profit tax and payers of specific tax;
- The members of the group do not fall under the provisions regarding the activities of the nature of night bars, night clubs, discos, casinos;
- The members of the groups are not in dissolution/liquidation.
Research and Development (R&D)
Companies can benefit from an additional deduction of 50% of the eligible expenses for their Research and Development (R&D) activities. Furthermore, accelerated depreciation for devices and equipment used in the R&D activities may be applied.
The 50% additional deduction from the R&D expenses will not be recomputed in case the objectives of the project are not met.
In order to benefit from these incentives, the eligible R&D activities should be from the applicative research categories and/or technological development relevant to the company activity and the activities should be performed in Romania, as well as in the European Union or in other states – member states of the European Economic Area.
Incentives are granted separately for R&D activities of each project.
Tax exemptions for reinvested profit
The profit invested in new and specific technological equipment manufactured and/or purchased released for use is exempt from income tax. In order to benefit from this incentive, the technological equipment should be used by the company for the purpose of carrying on the business activity for more than half of its useful life, but for no longer than five years. The companies benefiting from this incentive cannot use the accelerated depreciation method for the respective technological equipment.
It is also exempt from corporate income tax, the profit invested in supporting vocational-dual education by ensuring the practical training and quality training of students.
Domestic dividend tax
As a general rule, dividends paid by a Romanian company to another Romanian company are subject to 5% tax. However, the dividends paid are non-taxable if the beneficiary of the dividend has held, at the time of the distribution, a minimum of 10% of the Romanian company for an uninterrupted period of at least one year.
WHT for non-resident companies
The applicable WHT rates in relation with non-resident companies are:
- 5% for the revenues obtained from dividends
- 10% for revenues from interest, royalties, commissions, sportive activities and entertainment, management or consulting services, services provided in Romania, excluding international transport, independent professions conducted in Romania, from awards, liquidation of a resident and from the transfer of the fiduciary patrimonial mass
- 50% for payments made by Romanian companies into non-resident companies bank accounts that are open in countries that do not have an information exchange agreement concluded with Romania and only if such payments result from artificial transactions
- 16% in case of any other revenues obtained from Romania
As a general rule, dividends paid to non-resident companies are subject to 5% withholding tax.
However, as Romania is an EU member state, the EU Parent-Subsidiary directive can be applied. Therefore, dividends paid by Romanian companies to resident companies in one of the EU member states are exempt from taxation if the beneficiary of the dividend has held, at the time of distribution, a minimum of 10% of the shares of the Romanian company for an uninterrupted period of at least one year.
As a general rule, the interest paid to non-resident companies is subject to 10% withholding tax.
However, as Romania is an EU member state, the EU Interest and Royalties Directive can be applied. Therefore, interest paid by Romanian companies to resident companies in one of the EU member states are exempt from taxation if the beneficiary of the interest has held, prior to the time of payment, at least 25% of the share capital of the Romanian company for an uninterrupted period of at least two years.
As a general rule, royalties paid to non-resident companies are subject to 10% withholding tax.
However, as Romania is an EU member state, the EU Interest and Royalties Directive can be applied. Therefore, royalties paid by Romanian companies to resident companies in one of the EU member states are exempt from taxation if the beneficiary of the interest has held, prior to payment time, at least 25% of the Romanian company´s share capital for an uninterrupted period of at least two years.
Thin capitalization applicable to deductibility of interest expenses rules have been repealed starting with 2018. Therefore, starting with January 1st, 2018, the Tax Code introduces a new concept – the excess debt cost – defined as the difference between the debt costs incurred and the interest revenues and other assimilated revenues incurred by the Company. The excess debt costs are deductible within a threshold of EUR 1,000,000/year.
The excess debt costs above this EUR 1,000,000 threshold may benefit from an extra deduction limited to 30% of the accounting profit adjusted downwards with the non-taxable revenues and upwards with the corporate income tax expenses, the excess debt costs and deductible tax depreciation. If the base computed as described before is zero or negative, the excess debt costs are non-deductible in the current period, but they can be carried forward for unlimited period of time and they can be deducted in the next periods applying the same mechanism described above.
Interest expenses brought forward from 2017 or older periods will be deducted starting with 2018 under these new rules.
Controlled foreign company
An entity or a permanent establishment that is considered a foreign controlled company (holds a direct or indirect shareholding of more than 50% of the voting rights or directly or indirectly holds more than 50% of the entity’s capital or is entitled to receive 50% of the entity’s profits), applies the CFC rules if the corporate income tax actually paid for its profits by the entity or permanent establishment is less than the difference between the corporate income tax that would have been collected from the entity or permanent establishment, calculated in accordance with the provisions of the Fiscal Code, “Corporate income tax” title and the corporate income tax actually paid for its profits by the entity or by the permanent establishment.
If an entity or a permanent establishment is considered a controlled foreign company, the taxpayer paying the profit tax that controls it includes in the taxable base, corresponding to its fiscal period during which the fiscal period of the controlled entity/permanent establishment ends, proportionally with the taxpayer’s participation in the entity, the following undistributed income of the entity in proportion to the taxpayer’s participation in the entity:
- interest or any other income generated by financial assets;
- royalties or any other income generated by intellectual property rights;
- dividends and income from the transfer of participation titles;
- income from financial leasing;
- income from insurance activities, banking activities or other financial activities;
- income from companies that obtain them from goods and services purchased from associated enterprises and are sold to them without any economic value added or with little added value.
Tax losses recorded by a qualified permanent establishment, as a controlled foreign entity, are deducted only from the revenues obtained by the permanent establishment, separately, on each source of income.
Uncovered losses are carried forward and recovered for the next 5 consecutive fiscal years.
To avoid double taxation, if the entity distributes profit to the taxpayer and this distributed profit is already included in the taxpayer’s taxable income, the amount of income previously included in the taxpayer’s tax base is deducted in the tax period in which the amount of tax due for profit is calculated. distributed.
In order to avoid double taxation, if the taxpayer transfers his participation in a controlled entity or the economic activity carried out through a permanent establishment, and a part of the proceeds of the transfer was previously included in the taxpayer’s tax base, that amount is deducted in the fiscal period in which the amount of tax due for the respective receipts is calculated.
The taxpayer deducts from the corporate income tax due, according to the double taxation avoidance agreements, the tax paid to a foreign state by the controlled entity/its permanent establishment.
A legal entity is related with another legal entity if at least one of the cases below is applicable:
- The first legal entity holds, directly or indirectly, a minimum of 25% of the participation titles or voting rights at the other legal entity or if it effectively controls the legal entity.
- The second legal entity holds, directly or indirectly, a minimum of 25% of the participation titles or voting rights at the first legal entity.
- A third-party legal entity holds, directly or indirectly, a minimum of 25% of the participation titles or voting rights at both the first and the second legal entity.
Transactions between related parties should use the arm’s-length principle. In case the transfer prices are not set at arm’s length, the fiscal authorities have the right to adjust the amount of revenue and expense in order to reflect the market value.
International aspects-double tax treaties
In order to apply the provisions of the relevant Double Taxation Treaty (DTT), the non-resident recipient of the income should provide to the Romanian payer a tax residence certificate attesting its tax residency for the purpose of the DTT.
In case the tax rates mentioned in the domestic legislation differ from the rates mentioned in the applicable DTT, then the most favourable rate will apply.
Taxes on individual income
Personal income tax
Personal income tax regarding incomes from salaries is governed by the Fiscal Code (Law 227/2015).
At this moment, incomes obtained by individuals are taxed with 10%.
Exemption from the taxation
Romanian State established as income tax free several categories of employees:
The gross monthly income for personal deduction is RON 1,950. The personal deduction levels have been established between RON 510 (for persons who do not have dependents) and RON 1,310 (for persons with four or more dependents). Personal deductions are applicable for persons obtaining gross monthly income up to RON 3,600.
Other deductible amounts
The voluntary health insurance and private pension premiums incurred by employees will be deductible for salary tax purposes within the limit of EUR 400 annually per each category.
Using daily allowance for employees makes reimbursement of personal employee meal no longer acceptable. Daily allowance is granted when employees are travelling outside their hometown or country, on a distance exceeding 5 KM from the city where the permanent working place is established. Permanent working place should be mentioned in employee´s individual labour agreement.
Limits for daily allowance
The maximum deductible limit applicable for daily allowances granted by the Company, inside Romania or abroad represents 2.5* daily allowance value. Values that exceed the maximum limit mentioned above are considered to be benefit in kind and will be included in the payroll income category (liable for income tax and social contributions, for both Company and employee).
Daily allowance in EU countries (with some exceptions) Interval Minimum Maximum tax deductible up to 01.12.2012 – present EUR 35 EUR 87.50 Daily allowance in Romania Interval Minimum Maximum tax deductible up to 01.01.2019 – present RON 20 RON 50
International aspects ̶ residence
Individuals, who have their permanent residence or habitual residence in Romania, are treated as Romanian tax residents. An individual is considered to be tax resident in Romania if he/she is present in the Romania for at least 183 days (in aggregate) in a calendar year.
All other individuals are treated as Romanian tax non-residents. Residents of the EU are covered by the provisions of EC Regulation 883/2004 regulating social security and health insurance rules in case of cross-border activities.
Value added tax
Value added tax ̶ rates
The standard VAT rate in Romania is 19%.
A reduced rate of 9% applies to water, food & beverage industry, medical treatments and prosthesis, accommodation etc.
Extra-reduced rate of 5% applies to supplies of social housing under certain conditions and to schoolbooks, hotel accommodation, restaurant and catering services, newspapers, magazines, admission fees to castles, museums, sport events, cinemas etc.
Value added tax – general information
VAT rules are based on the principles of the Council Directive 2006/112/EC on the Common System of Value Added Tax. The Directive is implemented in the Romanian law by Law No 227/2015 and related Methodological Norms.
Legal entities and individuals that carry on independently an economic activity.
- The supply of goods and services in relation with an economic activity within the territory of Romania
- The intra-Community acquisition of goods/services having the place of supply within the territory of Romania
- The import of goods into Romania
Total consideration charged for the supply, excluding VAT but including any excise duties or other taxes and fees. In some cases, between related parties, the taxable amount consists of the market value.
For taxable persons whose previous year-end turnover is lower than EUR 100,000 and did not perform intra-Community acquisitions of goods, the fiscal period is the calendar quarter.
Periodical VAT returns (monthly or quarterly, by the 25th day of the following month) and the Local Sales and Purchases List (monthly, by the 25th day of the following month). The payable VAT liability consists of the output VAT, due on supply of goods and services carried out, less the input VAT of the same period (monthly or quarterly, by the 25th day of the following month). The refundable VAT (when input VAT is higher than output VAT) can be requested for refund or carried forward until the statute of limitation period expires (5 years).
In addition, taxable persons carrying out intra-Community operations with goods or services with the place of supply according to the basic rule for “business to business” services have to file an EC Sales List (that shows the VAT identification numbers of his business partners and the total value of all the supplies of goods and services performed by the entrepreneur) on a monthly basis depending on the situation.
Submission through electronic means is available.
All above tax statements are to be prepared based on the information presented in the VAT Sales and Purchase Ledgers.
Reverse charge applies for the intra-Community acquisitions, where both parties are registered for VAT purposes. Local reverse charge is applicable in some cases between two Romanian VAT payers, for example:
- Corn and industrial crops, including oilseeds and sugar beets
- Certain waste and recyclable materials
- Wood and alike materials
- Gas emission and “green” certificates
- Electric energy to traders
- Land and buildings
- Investment gold, under certain conditions
- Mobile phones
- Integrated circuits such as microprocessors and central processing units
- Portable automatic data processing devices (such as laptops, tablets etc.)
- Video game consoles
VAT cash accounting system
The system is optional for taxpayers with a previous year turnover lower than RON 4,500,000and for the newly set-up companies. The right to deduct the input VAT for the acquisitions of goods/services from companies applying the system is deferred until the payment is performed.
Normal VAT registration
The mandatory VAT registration for taxable persons having the place of business activity in Romania should be performed when the annual turnover of EUR 88,500 (RON 300,000) is exceeded. Voluntary VAT registration before the threshold is exceeded is also possible.
Non-resident taxable persons established in Romania through fixed establishments and non-residents having no actual presence in Romania can register without observing the above threshold. However, a VAT number must be in place before the commencement of the economic activity.
A foreign taxable person that makes long-distance sales (mail order business) to any non-taxable person or that is not registered for VAT in Romania must register for VAT in Romania if the total annual value of the goods/supplies reaches EUR 35,000 (RON 118,000).
Taxable person not registered for normal VAT purposes in Romania and not required to register are liable to register as an identified person (special VAT registration) in the following situations:
- Purchase of services from persons established outside Romania having the place of supply in Romania
- Supply of services with place of supply in another EU Member State
- Intra-Community acquisitions of goods from another EU Member State cumulatively exceeding the annual threshold of EUR 10,000.
VAT group registration
Companies that are legally independent but are closely related financially, economically and from an organisational point of view may form a tax group, if administered by the same tax office and having the same tax period. Transactions between the members of the group will still fall within the scope of VAT.
The microenterprise tax is mandatory for all companies obtaining revenues below the threshold of EUR 1,000,000 computed at the NBR exchange rate valid for the last day of the financial year.
Companies have the possibility to opt to be corporate income taxpayers if the share capital is at least RON 45,000 and have minimum two (2) employees.
Newly set-up companies are required to follow the micro-enterprise tax regime starting with the first fiscal year.
Tax returns and assessment
Payment of the tax and filing of the returns is made quarterly, by the 25th day of the month following the end of the quarter for which the tax is calculated.
Micro-enterprise tax rates
- 1% for micro-enterprises with at least one employee
- 3% for micro-enterprises with no employees
- Between 0.08% and 0.2% of the buildings tax value for residential buildings
- Between 0.2% and 1.3% of the buildings tax value for non-residential buildings
- 5% in case the building owner has not updated the taxable value of the building in the last 3 previous years
Building tax is paid annually in two equal instalments, until March 31st and September 30th.
The building tax is due for the entire tax year by the person who owns the building as of December 31st of the prior tax year.
Land tax is paid annually in two equal instalments, until March 31st and September 30th.
The land tax is due for the entire tax year by the person who owns the land as of December 31st of the prior tax year.
Tax on transportation means
The tax rate varies from RON 8 to RON 290 depending on the cylindrical capacity of each vehicle, for each 200 cm3 or a fraction thereof.
The tax on transportation means is paid annually in two equal instalments, until March 31st and September 30th.
The tax on transportation means is due for the entire tax year by the person who owns the mean of transportation as of December 31st of the prior tax year.
Other business-related taxes
The following products are subject to excise duties: alcohol and alcoholic beverages, manufactured tobacco products, energy products and electricity.
Individuals working as IT specialists or in the Research & Development field may benefit from an exemption from the standard 10% income tax, under certain conditions expressly mentioned in the Romanian domestic legislation.
Companies doing business in Romania could benefit from the following incentives:
- Tax facilities regarding R&D expenses
Companies may benefit of an extra 50% tax depreciation for the eligible R&D expenses and may also apply the accelerated depreciation for these expenses.
- Tax exemption on reinvested profit
The facility refers to the exemption of corporate tax of the profit re-invested in certain types of assets.
- Tax facilities regarding R&D expenses