The New Year saw changes in relation to Romanian micro-companies that potential investors and companies need to take note of. These changes relate not only to profit tax paying companies but also micro companies.
The limitation of shareholders’ ownership of micro‐companies is modified. The new restriction limits ownership to one micro‐company in which the shareholder holds, directly or indirectly, more than 25% of the shares or voting rights, Thus the shareholder can only have one micro-company.
This condition is restrictive in respect of current tax planning as it will require shareholders to meet this condition, in respect of existing companies as well as companies in the future.
The associates/shareholders who currently hold, directly or indirectly, more than 25% of the shares including voting rights, in micro-companies which are currently taking advantage of this tax regime must establish by 31st of March of the following fiscal year one company to which the micro-company tax will apply. Companies which have not been established by shareholders by 1st of March are subject to corporate profit tax.
The failure to submit annual financial statements on time will also mean that the micro-company will lose the right to this tax regime and become a corporate profit taxpayer.
Further the condition of achieving revenues not exceeding the equivalent in RON of five hundred thousand EUR verified considering the income earned by the Romanian legal entity, cumulated with the income of companies linked to it, as defined according to the provisions of Law 346/2004.
According to Law 346/2004, art. 4, linked companies are companies between which there are any of the following relationships:
- an undertaking holds a majority of the shareholders’ voting rights in the other company.
- a company has the right to appoint or remove the majority of the members of the board of Directors, management or supervisory board of the other company.
- a company has the right to exercise a dominant influence over the other company by virtue of a contract concluded with that company or a clause in its statutes.
- a company is a shareholder of the other company and holds alone with the agreement with other shareholders of that company the majority of the shareholders’ voting rights in that company.
The relationship regarding linked companies can also be established through a common investor or group of investors.
The option for companies in the hospitality field to pay tax on the income of micro‐ companies is eliminated regardless of the volume of income obtained from hospitality field.
Secondary insurance and/or reinsurance intermediaries who have income from the insurance/reinsurance distribution activity of up to 15%, including of total revenues may apply the provisions referring to micro‐ companies.
Romanian legal entities may choose to apply the micro company tax rules starting with the fiscal year following the one in which they meet the micro-company conditions if they have not been subject to micro company taxation after 1st of January 2023.
Inactive companies registered with the Trade Register continue to apply the micro‐ companies’ regime during the period of inactivity, and also from the date of registration in the Trade Register the resumption of activity. To have the micro company tax regime the must meet the conditions related to the holding of the share capital, are not in dissolution, followed by liquidation, the revenues from consulting and management are below 20% of total revenues and they will have an employee within 30 days from the date of registration in the Trade Register.
The tax rates on micro-company income is 3% of the total income, subject to some exceptions. The exceptions apply to the income on the first 60,000 Euro where the tax rate is 1%. There is no longer a requirement for a minimum number of employees.
For the application of the microenterprise tax system in fiscal year 2024, the condition is met if the annual financial statements for 2023 are filed by March 31, 2024, inclusive.
The possibility of deducting from the microenterprise income tax the amounts representing sponsorships, private scholarships and the cost of cash registers is eliminated.
These changes may impact on new investors in Romania who saw micro-companies as a favorable tax regime. However, the use of a micro company will continue to be a benefit to a number of companies and foreign investors who wish to establish their business in Romania.
