A Look into the Future: Romania's Groundbreaking Tax Reforms for Businesses by 2024
In the upcoming year of 2024, there will be notable changes in corporate taxation. The following are the main adjustments that will be put into effect.
Eligibility Criteria for Being Considered as a Micro-Enterprise in Romania
The most significant alterations pertain to the categorization of businesses as micro-enterprises.
Starting January 1, 2024, there will be a change in the ownership regulations for micro-enterprises. Previously, individuals were allowed to hold a maximum of 25% of the shares or voting rights in up to three micro-enterprises until 2023. However, this limit will now be reduced to only one micro-enterprise. This means that individuals can only have a direct or indirect ownership of more than 25% of the shares or voting rights in a single micro-enterprise. As a result, the remaining companies will be subject to profit tax.
To maintain its status as a micro-enterprise, it is crucial to avoid any delays in submitting the annual financial statements. This means that by March 31, 2024, all previous years' balance sheets must be submitted to avoid being categorized as a corporate tax payer.
The method of calculation for the micro ceiling has been altered. This implies that the 500,000 euro limit is now determined by combining the earnings of the micro-enterprise and the associated enterprises, as stated in Law no. 346/2004.
What other changes are occurring for small businesses in Romania?
The 3% rate will be reinstated, effective January 1, 2024. Companies with a turnover lower than 60,000 euros and/or not engaged in primary or secondary activities in IT, Horeca, legal activities, healthcare, or health industries will be subject to a 1% tax rate. On the other hand, companies with a turnover between 60,000 euros and 500,000 euros and/or involved in primary or secondary activities in the aforementioned fields will be charged a 3% tax rate.
The availability of HoReCa facilities is diminishing. This implies that in order for HoReCa businesses to be considered as micro, they must have either a full-time CIM employee or a mandate contract. Moreover, they must also adhere to the limit of 500,000 euros. Another drawback for this industry is the tax rate, which was previously mentioned to be 3%.
When establishing a company, it is important to note that the option to pay micro enterprise income tax is available for the first fiscal year, as long as the eligibility requirements are fulfilled during the registration process in the Trade Register. Within 30 days of establishment (date of registration in the Trade Register), the condition of having at least one employee must also be met.
If the company's employment contract is put on hold for a period exceeding 30 days, or has been suspended previously, it will be categorized as a profit tax contributor.
If a business has a single full-time employee and their contract is put on hold due to taking parental leave, the business will still be considered a micro-enterprise.
The maximum turnover limit for micro will be 500,000 euros, effective from January 1/2024.
In the event that a company fails to meet all of the criteria for being classified as a micro enterprise, it will be required to pay corporate taxes, regardless of whether its turnover falls below the specified limit.
What remains constant for businesses in Romania?
Despite the numerous alterations in taxes, there are still components that remain unaltered.
Taxation of Dividends in Romania
Currently, the calculation method remains unchanged from 2023, with an 8% rate being applied. Furthermore, there will be a 10% contribution towards health insurance (CASS) for any dividends received, as outlined below:
- If the dividends received are between 6 and 12 gross minimum wages per country, the level will be equivalent to 6 gross minimum wages per country.
- the threshold of 12 times the gross minimum wage per country, in case the received dividends fall within the range of 12 to 24 times the gross minimum wage per country.
- If the dividends received are higher than 24 gross minimum wages per country, the threshold is set at 24 gross minimum wages per country.
Tax on Profits in Romania
The 16% rate is still applied by companies that pay corporate income tax. This group consists of companies that do not choose the micro regime and those that no longer meet the criteria for being classified as micro.
By the end of December 31, 2023, it is required that you employ at least one individual on a full-time basis.
The majority of the turnover, at least 80%, is generated from activities other than consulting and management.
As of December 31, 2023, your turnover was below the limit of 500,000 euros.
What is the outcome when your company is suspended in 2023, but then resumes operations in 2024?
In order to maintain its status as a micro-enterprise, it is necessary to comply with the conditions applicable to micro-enterprises on January 1, 2024 when resuming business activities. Failure to do so will result in being classified as a corporate taxpayer. This means that there is a 30-day window to hire an employee.
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