Companies that have had an annual income of less than EUR 500,000 (equivalent to RON 2,500,000) have the opportunity for opting for the tax regime for micro-company tax in place and instead of corporation tax(1).
The company can opt for the micro-company regime provided that:
- 1. it achieves a turnover of less than 500,000 EUR
- 2. it has at least one full-time employee (or part-time employees for at least full-time equivalent)
- 3. it achieves less than 20% of its turnover in the areas of consulting and management.
- 4. Nomore than 25% of the company is owned by a partner who also owns more than 2 companies subject to the micro-enterprise regime.
Income tax for small businesses : micro-company tax
Companies having chosen this regime will have to declare and pay, each quarter, a tax equal to 1% of their income (and not of their profit).
The possibility of preferring the profit tax system
However, companies have the possibility of preferring the profit tax regime, at the rate of 16% of profit (and not of income).
Is the micro-enterprise regime fiscally more attractive than the profit tax regime?
That actually depends on the situation and on the profitability of the company: an unprofitable company is favored when it is subject to corporate tax, while a very profitable company is favored when it is subject to micro-company income tax.
Let us assume that:
CA is the turnover of the company
A is the company's rate of return
As the corporate tax rate on profit is 16% (of profits) while the micro-company tax rate is 1% (of income), the company that pays the tax on micro-enterprises will be favored if CA x 1% < CA x R * 16%.
By simplifying this equation, it gives 1 < R x 16 and therefore R > 1/16 or R > 6.25%.
This means that companies with a profitability higher than 6.25% are favored by the micro-company tax system.
(1) the threshold was EUR 1,000,000 until 31.12.2022