Overview on Tax law in Romania
Romania joined the European Union in 2007, has revised some of its standards and offers a comprehensive tax system compliant with the various EU directives in force.
Corporation tax
The corporate tax rate in force in 2016 is 16% (since January 1, 2005).
For the time being, there is no additional tax such as local tax or wealth tax undermine company profits.
Expenses such as restaurants, gifts to customers, etc. are deductible within the limit of 2% of the company's income.
VAT
The standard rate in force has been 19% since January 2017.
However, some activities are taxable at the rate of 9% (for example certain hotel services) or 5% (certain real estate sales).
As a member of the European Union, Romania applies the provisions resulting from the VAT Directive and in particular:
- Intra-Community deliveries of goods, as well as intra-Community services for the benefit of a taxable person located abroad, are not subject to VAT in Romania.
- Intra-community acquisitions of goods or services by Romanian taxable persons give rise to reverse charge of VAT.
Business tax obligations
Companies must draw up 2 balance sheets per year:
- The annual balance sheet itself, as of December 31 of each year;
- A half-yearly situation, on June 30 of each year.
The financial year should in principle match to the calendar year (exceptions are possible, but only in the case of companies belonging to an international group).
Personal income tax
Personal income is taxed at the rate of 10%.
Payroll tax
Companies that employ Romanian staff must deduct the amount of tax on wages (at the rate of 10%) and pay it directly to the competent services of the Romanian State (in the same way as social charges).
Dividend distributions
Dividend payments are in principle subject to a withholding tax at the rate of 8%.
The rate of this withholding tax may also be lowered by certain tax treaties when the beneficiary of the dividend is located abroad.
Dividend payments within the same group of companies are exempt from withholding tax, in Romania, in particular when the beneficiary of the dividend is a company resident in the European Union which holds at least 10% of the Romanian company which has been paying dividends for at least one year.
Distributions of dividends to beneficiaries who are not residents of a state that has signed a tax treaty with Romania are subject to a 50% withholding tax.
Small eneterprises (micro-enterprises regime)
It exists a tax scheme dedicated to very small company, i.e. the companies which achieve an overall turnover (including for the purposes of the assessment of this threshold all income, including financial income and asset disposals) lower to EUR 500,000 per year.
When a company falls under the very small company tax scheme, its income is taxed instead of its profit, at the rate of 1%.
To benefit from this advantageous derogatory regime, companies must also employ at least 1 full-time employee and achieve less than 20% of their turnover in consulting or management activities.