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Tax Minimization in Romania

Tax Minimization in Romania

Romania is one of the attractive European countries for doing business due to the low income tax and corporate tax (applied on profit) rates which are unique (16 percent). When comparing it to other European countries, foreign investors may find that they have an interesting opportunity for developing a business in Romania. The tax minimization method in Romania can be entirely explained by one of our Romanian accountants.

What is tax optimization?

The tax minimization method in Romania refers to any activity carried out by a company within the limits of the legislation, with the purpose of reducing the fiscal obligations. Here are some examples:

  1. A proper recovery of tax receivables or avoidance of tax receivables allowing to obtain low costs of financing tax responsibilities.
  2. The exemption, reduction, delay of tax obligations.
  3. Fructification of tax legislation to obtain the maximum tax deductions and minimize the conditions in which tax deductions are not accepted.
  4. Carrying out taxable operations in the fields where the level of taxation, costs, and fiscal risks are the lowest possible.
  5. The possibility to recover tax losses from subsequent tax results.

Tax system in Romania

The Romanian tax system applies to residents as well as to foreigners in Romania. Foreigners are liable to pay income tax, but only on income sourced in Romania, such as salary received from a foreign employer for the work carried in Romania, income paid by a Romanian company or individual that is employment related, or income from a source on the Romanian territory. When it comes to expatriates, Romania does not have a special income tax regime applied to them, but if double tax treaties exist, then they can overrule domestic legislation.

How to pay fewer taxes in Romania

An easy way to pay fewer taxes in Romania is to open a holding company. Since 2014, Romania has fiscal laws governing the holding companies, but it is a rather simple system. A holding company does not need to pay income tax on capital gains or dividends. In addition, liquidation proceeds obtained from the sale of the holding company’s shares in subsidiaries are also not subject to income tax. This fiscal relaxation can draw the attention to foreign investors, but also to Romanian investors that up until now kept looking for new jurisdictions where to open their business, countries such as Cyprus or Holland. These new fiscal measures are specific for strategic investments that have development as the main purpose. Romania has chosen to impose holding at least 10% of shares in a subsidiary from which they receive dividends and set a minimum holding period of one year. More about tax minimization in Romania can be discussed with our experts in the field.

Taxation of subsidiaries in Romania

With the new regime, Romanian subsidiary companies that pay dividends to shareholders or to associates who are Romanian legal persons, do not calculate and do not withhold taxes on dividends for the distributed dividends, if the dividend recipient holds, at the payment date, less than 10% of the units’ participation of other legal entities for a period of one year. From this point of view, equity above 10% in Romanian firms, held for a minimum of one year, benefits from tax exemption on dividends and tax, while less than 10% stakes are double taxed: the 16% dividend tax, withholding of subsidiary, and the income tax of 16% from the mother company. This is clearly a favorable tax treatment for minority stakes.

Keeping accounting in Romania is a rather difficult process, as such, we advise you to hire an Romanian accounting firm in order to help you with all the financial aspects. Our experienced Romanian accountants will provide assistance for all the fiscal procedures, including audit in Romania. You can also ask about tax minimization in Romania.

What other tax minimization methods are available in Romania?

Taxpayers in Romania can benefit from other tax minimization tools, tailored to the business direction and overseen by one of our Romanian accountants:

  • A fiscal optimization through the VAT.
  • Offshore companies can be established in specific countries.
  • Particular tax categories.

Not only the value of the taxes paid in a company is important, but also the fiscal competitiveness, the choice of accessible fiscal solutions to the clients or other third parties implicated directly in the process.

Our Romanian accountants recommend the use of tax minimization solutions at any time in a business, right from the beginning, during the current activities, or at the time the business is transferred. If you would like to know more about the tax minimization option, please feel free to address your inquiries to our team.

What you cannot consider tax minimization options in Romania

Any activity carried outside the legislation with the purpose of avoiding the payment of taxation is not permitted in Romania. Therefore, the following matters do not apply as tax minimization solutions and are against the laws in Romania:

  1. Making transactions without specific documents and reports.
  2. Hiding the tax base and taxable persons.
  3. The abusive interpretation of tax legislation only in favor of the taxpayer in Romania.
  4. The lack of transparency and/or reduced or partial reporting of the financial transactions in a firm that is subject to transaction, tax base, etc.
  5. Obtaining false credits, refunds of tax receivables, and tax exemptions.

It is important to know the tax legislation from the beginning and create a company with respect to the applicable laws in Romania. An accounting firm is extremely useful to foreign entrepreneurs who want to develop their activities in this country and who need to know the base of taxation. You can discuss all the terms with one of our accounting specialists in Romania.

New tax policies in Romania

The government in Romania is interested in changing the tax policies and to improve the tax system as much as possible, in order to collect taxes and grow the GDP (Gross Domestic Product). Here are some examples of tax measures that address companies in Romania:

  • The simplification of rules and regulations related to taxation, in order to ease compliance and administration. 
  • The elimination of distortions and gaps from the tax system in order to offer to taxpayers the possibility to minimize the tax burden, in complete fairness.
  • Streamlining the way in which the system guarantees a correct distribution of the tax burden.

These are a few of the fiscal policies destined for company owners and taxpayers in Romania. For a better understanding of the fiscal system in Romania, do not hesitate to talk to our Romanian accountants.

Purchasing equipment comes with benefits in the company

Profit tax companies that want to reinvest in equipment, software, and computers benefit from a tax facility of up to 16% of the value of these goods. In other words, there is a tax benefit of up to 16%, but after the distribution in reserves of the value of the tax-exempt profit. This is another tax minimization in Romania, according to article 22 of the Fiscal Code.

Establishment of the fiscal group for the optimization of VAT payments

Another method of tax optimization in a company is to set up a tax group that involves VAT. Thus, several companies registered with the same tax authority can form a tax group to help both companies that have to pay VAT, but also those that have to recover this tax. Therefore, this is the optimization of VAT payments, as a method of minimizing taxes, according to the Fiscal Code, art. 269.

Advance payment of tax as a method of minimizing taxes

Companies that record annual profit increases could adopt advance tax payments as a method of minimizing taxes. Thus, a team of accountants can prepare the necessary documents in this direction, if the decision to pay the tax in advance has been accepted.

Why choose outsourced accounting services

Start-up companies should consider the advantages of an accounting firm instead of creating an entire department. Outsourcing such services is extremely beneficial because this way, you can have the guarantee that everything related to company accounting is fully covered. A team of accounting specialists will keep records of the registers in the company and will provide all the necessary support from a financial accounting point of view. Do not hesitate to get in touch with our team of accountants in Romania and find out as many details as possible about the right accounting services for the owned company. You can also solicit information about tax minimization in Romania.

Romania, an interesting investment destination

In 2014, Romania has entered the international fiscal market with the new holding regime, as such United States and United Kingdom had shown a great deal of interest due to this change. As such, Romania was placed on the investors’ map. The business environment in Romania continues to change and improve, allowing foreign entreprenuers to easily opening companies in this country and benefit from a wide range of encouragements, business solutions and many more. Here are some facts and figures about the economy and business in Romania:

  1. Around USD 97 billion was the total FDI stock for Romania in 2019.
  2. Germany, Italy, Austria, and Cyprus are the main investors of Romania.
  3. According to the 2020 Doing Business report issued by the World Bank, Romania ranks 55th out of 190 economies in the world.
  4. Around USD 6 billion was the total value of the greenfield investments in Romania in 2019.

FAQ about tax minimization

Why is tax minimization needed in a company?

Tax minimization is a proper method adopted in most companies in Romania to reduce the amount of taxes. There are several options that can be explained by an accountant in Romania who has experience in this area.

Is a holding company a method to pay fewer taxes in Romania?

Yes, holding companies in Romania are subject to a simplified taxation system and for this reason, a great way to pay fewer taxes. There is no income tax for dividends and capital gains imposed for holding companies in Romania.

Is the VAT subject to tax minimization for a company in Romania?

Yes, fiscal optimization through the VAT is possible in Romania. There are specific methods that can be implemented by an experienced Romanian accountant. Feel free to discuss further details with our team.

What kind of activities are not considered tax minimization options for companies in Romania?

Avoiding tax payments, not providing sufficient documents to prove all the financial transactions of a company, or preparing false reports are strictly forbidden and are not considered tax minimization options.

Can an accountant in Romania deal with tax minimization methods for registered companies?

Yes, our accountants in Romania have experience in the taxation field and can help companies align with the available and applicable tax minimization methods in Romania. You can hire our accounting firm in Romania if you would like to benefit from our expertise.

Choose our team of accountants from Bucharest

Are you interested in accounting services for a company in Romania? We recommend our team of specialists, with experience in this vast field. Complete accounting services, monthly, quarterly, and annual financial reporting, complete tax consulting, internal audits, financial management, and risk assessment, are just some of the accounting services that a team of specialists in this field can offer you. As for the attributes of our experts, clients can rely from the start on professionalism, trust, dedication, and experience. These are just some of the reasons why you might choose to work with our accounting firm in Romania, regardless of the activities you carry out in this country.

You can contact our accounting firm in Romania if you need help from our specialists in tax minimization matters.