Tax Regime of Sole Traders and Small Businesses in Romania

Written by: Bridgewest

NameThe new Tax Code in Romania carries, along with its implementation on the 1st of January 2016, adjustments regarding the fiscal regime applicable to listed sole traders and to small businesses, raising questions about the selection of the best method to make the activities, from the fiscal viewpoint.

The fiscal obligations of sole traders

Law no. 227/2015 on the new Tax Code provides for the duties of a sole trader about the payment of levies and contributions associated to the activities executed.  
First of all, a sole trader is obligated to pay the income tax, by applying a 16% tax rate to the taxable revenue, connected to their activities. 
Second of all, the financial obligations of the sole trader  include the payment of social health security contributions and social insurance ones.
For the social insurance contribution, the taxpayer can choose between the 10,5% rate and the 26,3% rate, however, the 10,5% rate does not guarantee a whole retirement contributory period, so, in order to profit from a full pension, they would have to choose the 26,3% rate.
Starting 2016, these taxes are no longer valid upon a base chosen by the sole trader, as possible within the preceding rule, but upon the net income gained from doing independent activities. 
The monthly calculation base, both by the real income system and by the annual income values system is covered and cannot be lower than the equivalent of 35% of the average gross salary and cannot be higher than the correspondent of 5 times this gain. 

The fiscal obligations of small businesses

The new Tax Code delivers a few adjustments for microenterprises in Romania and one of the main changes mentions is the obtained income which must not surpass the lei correspondent of 100.000 euro, cap value enlarged from 65.000 euro.
Related to the previous rule, which delivered a single taxation rate of 3% for the income of microenterprises, presently there are more taxation rates, applied depending on the number of employees.  If the business doesn't have employees, a 3% rate will be applied.
On the other hand, if the microenterprise shall have a single employee the taxation rate will be of 2%, respectively 1% for at least 2 workers.
Furthermore, another innovation presented by the new Tax Code mentions the adjustment of the number of employees through the fiscal year. 
In this situation, the earlier declared taxation rates are applied starting the quarter when the modification has been made.
The activities of both small enterprises and sole traders have advantages and disadvantages, therefore, choosing an option denotes a full examination of every case, taking into consideration the previously revealed features, in order to make a comprehensive and precise picture of the most useful form of organization.
If you need extra information about taxes in Romania, please feel free to contact our team of accountants.