Company formation Romania

Is it worth setting up a company in Romania, and who would benefit from it?

First of all, we want to outline the framework conditions to determine at what income level it would be beneficial to establish a branch in Romania.
Since 01.01.2018, the Romanian government has once again drastically reduced taxes for micro-enterprises and income tax for natural persons. A micro-enterprise cannot be compared with a small business in other European countries, as the "exemptions" or sales limits are many times higher.

Let's go back in time and look at the country's tax development:
- In 2012, Romania set the corporate tax for "smaller companies" at 100,000 EUR in turnover per year in order to fall below the 3% or 1% tax on turnover. From an annual turnover of 100,001 EUR, 16% tax on profits is payable.
- In 2016, this regulation was further increased significantly. The limit for micro-companies was no longer 100k EUR in turnover per year, but 500,000 EUR in turnover per year. Above that, 16% tax on profits.
- Since January 1, 2018, the Romanian government has made a strategic decision to enhance Romania’s attractiveness as a business hub. This initiative aims to attract companies worldwide while preventing large corporations from relocating elsewhere.
The limit of 250,000 EUR turnover per year (not Romanian LEI) applies in order to fall under the low taxation of just 1-3% tax burden on turnover!
The income tax of natural persons was reduced from 16% to 10%, dividends are taxed at 10% withholding tax.

For which income level is it beneficial?

We are specifically addressing micro-enterprises here, as these are taxed at only 1-3% on turnover with a turnover of up to 250.000 euros per year. If turnover exceeds 250.000 euros per year, it is certainly not disadvantageous to set up a company in Romania, as 16% tax is levied on profits here and this is still significantly cheaper than in Western European countries, where corporate tax is around 30% (corporation tax and trade tax).

The following company turnover is the ideal case:
a) Less than 60,000 EUR (300,000 RON) turnover per year (Small business regulation with VAT exemption)
b) Up to 250.000 EURO turnover per year (1-3% tax on turnover with one employee)

Which types of businesses benefit the most?

For startups with a long-term return-on-investment plan or companies that incur losses or generate very small profits in their early years, setting up a business is only worthwhile if annual profits are foreseeable.
However, for smaller startups, the small business model (see point A above) with VAT exemption can be particularly attractive.

It is most profitable for the following target groups: Companies that make profits - and cannot deduct enough from taxes - to reduce the profit!
(The higher the profit, the more profitable such a structure is - since the turnover is taxed.)

The huge advantage! You don't have to constantly think about what else you can deduct!
(Take care of your business and don't produce unnecessary expenses "for the tax office" - let profits run!)

The following entrepreneurs are most affected:

- Youtuber, Streamer, etc.
- Instagram, Facebook Influencer
- Content Creator
- Freelancer
- Coaches, Consultants
- Digital service companies (SEO, advertising and social media agencies)
- Sellers of digital products
- local service companies (craftsmen, car repair shops, hairdressers, etc.)
- E-Commerce (as well as Amazon FBA, Dropshipping)
- Financial service providers
- Real estate business in general
- Recruiters
- Manufacturing industry
- etc.

Setting Up a Business in Romania

Romania, which lies in the southeast of Europe and borders the Black Sea, has been an EU member state since January 1, 2007.

With a population of over 20 million people, 37 million acres of farmland, breathtaking landscapes, an expanding economy, a well-educated workforce with more than 50,000 specialists in information technology, with access to the Black Sea and Asia, Romania offers significant opportunities for foreign companies.

After joining the European Union in January 2007, Romania underwent a series of governmental reforms to meet the conditions of EU membership. Today, these membership requirements—including EU directives —remain one of the key driving forces behind Romania’s reform program, focusing on modernization and infrastructure investment. More importantly, these directives are supported by EU funding, including structural adjustment funds and various programs that help new member states 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. With a GDP growth of 4.8% in 2016, the economy is among the fastest-growing in the EU - an impressive 6.9% for 2017 and 4.1% for 2018 - mainly driven by consumption and investment.

Employment costs

Income tax on income from salaries is governed by the Tax Code (Law 227/2015). Income tax for natural persons is only 10%!

The assessment basis for social security and health insurance of an employee in Romania is derived from the amount of the salary.
The following taxes apply on the employee side:

10% income tax for employees
10% health insurance contribution
25% pension contribution

Employer share:

2.25% unemployment insurance

-> Simply put, there are 35% in contributions plus a 10% income tax (wage tax) for employees, which are deducted between gross and net wages.

In Romania, a statutory gross minimum wage is required according to EU regulations. From January 1, 2025, this will be 4,050 RON (approx. €800).

Requirements for establishing a Romanian SRL

Below are the generally necessary documents for the establishment of an S.R.L. (LLC):

- three different names for the company. After checking availability, a company name will be chosen.
- Articles of association drafted by a lawyer/notary
- Company headquarters – rental agreement for company address
- Signature sample of the managing director created by a notary or directly at the commercial register
- Criminal record or submission of a written declaration that there are no criminal records
- ID / passport copy of the managing director / shareholders
- Proof of deposit of share capital – in this sense, a share capital account is opened before the company is registered. The share capital for an S.R.L. is currently 200 lei
- Affidavit of the managing director prepared by a lawyer / notary
- Application for company registration
- Application for VAT registration
- optional: Open a bank account
- optional: Authorization of an accountant/tax office by a notary

Taxes in Romania

In this video I would like to show you which taxes apply to natural and legal persons, i.e. companies – and how to set up a company in Romania.

There are two options for this:

1.) Emigrate to Romania.

Within the EU, moving to Romania is easy thanks to the freedom of movement agreement. The EU makes it possible to live and work in any EU country. If you move or relocate your place of residence to Romania, you can take full advantage of the tax and regulatory benefits.

2.) The second option is to set up a company in Romania from your country of residence and to "build it up with substance" for the local tax office.

Did you know that over 90% of so-called "offshore companies" set up through agencies and providers, which can be easily found on Google, are shut down within a year?

Founders are often unaware of the legal situation or the fact that their home country’s tax office may not recognize the company. Incorporation agencies frequently claim the opposite, leading to companies being set up in places like Hong Kong, Cyprus, or the Seychelles.

Most people overlook the fact that taxes and accounting obligations also apply in these countries. In nearly all cases, unless one’s personal residence is relocated there, these setups amount to tax evasion and are not legally compliant.

Of course, I am not providing legal or tax advice, nor offering any guarantees or promises—such matters are decided by the relevant authorities. Anything else would be unprofessional.

However, there are countless cases in which a Romanian company branch was established "with substance" and was thus fully recognized by the tax authorities in the home country.

Now let’s look at corporate tax for companies in Romania. There is no trade tax or it is waived at €0.

If the turnover is over 250.000 euros per year, a tax of 16% must be paid on the profit, the so-called profit tax. This type of taxation can also be chosen voluntarily if the turnover is less than 250.000 euros. This can make sense for very small profits.

The other option—and this is where it gets interesting—is as follows:

1-3% tax on turnover up to 250.000 euros per year with 1 or more employees.

1% tax! Many offshore models can't even keep up with that - and this in the EU and without having to hide!

Romania’s current tax rates are intentionally kept low to prevent local companies from relocating and to attract investors.

As discussed earlier, you can either emigrate to Romania or build a company with substance.

Now comes the double advantage::

By employing permanent staff in Romania, having your own office location (not a virtual or shared office), and having real infrastructure (for example, telephone connection, fax, internet, etc.), you demonstrate real substance and have a very good chance of being recognized by the tax office - the second advantage is that you will only be taxed at 1-3%. Killing two birds with one stone!

Here is an example:

If your company has an annual turnover of €250,000, you pay 3% of the turnover at the end of the year - this corresponds to €7,500 - which is hardly significant.

Since taxes are incurred on turnover, worrying about what "you can still deduct" or making unnecessary purchases in order to reduce profits is completely unnecessary!

With a turnover of 250,000 and a huge profit, you still only have to pay 3% or 7,500€ in taxes.

Since January 1, 2018, the tax for natural persons has been reduced even further. The income tax is 10% flat tax. This means that if you, as a natural person living in Romania, want to realize or pay out profits from your sole proprietorship so that the amounts are available and can be spent privately, you must tax them at 10% income tax. For so-called profit withdrawals (dividends), legal entities (corporations) are subject to a dividend tax of 10%.

New blog article from us: Overview of all applicable taxes and duties for the year

However, founding a company is not entirely effortless. There are indeed founding agencies that promise to complete the process in a few days, completely remotely, i.e. without ever setting foot in Romania. This may be correct in principle - but founding a company in Romania requires two appointments with a notary. These can of course also be made in the country of residence, but a state-approved interpreter is required for the notary appointment - who accompanies the founding.

Once this hurdle has been overcome and the notarial documents have been completed, they still need to be provided with an apostille.

Notaries, interpreters and apostilles require a lot of effort, are associated with considerable additional costs and can take a long time. We therefore advise against setting up a company remotely - as described, this is not possible without extensive intervention.

Two additional challenges now come into play:

1.) There are almost no local banks that allow you to open an account remotely or by appointing an authorized representative.

In short: A bank account is a requirement for setting up a company. However, local banks will only open one if you visit Romania in person.

2.) Almost all start-up agencies offer the establishment of a company - but without their own company address or even the possibility of operating under a certain address in Romania. "The founder" should take this into his own hands and rent a virtual office and so on.

This is just an excerpt of the "possible complications" when starting a company in Romania. The country is very liberal in certain respects, taxes and personnel costs are very low, but it is also very bureaucratic - which may have been a legacy from the old communist era and has not been modernized to this day. In short: the paperwork is not easy!

The best and easiest way is to plan a 2-day stay in Romania – during this stay, attend all scheduled appointments for company formation with the authorities, notary, banks, and agency – and depart with peace of mind, having a fully established company complete with a bank account and registered business address.

I hope you enjoyed this article – if you are interested in starting a company, the topic of taxes or real estate in Romania...we look forward to hearing from you.