The first aspects you need to consider when starting your entrepreneurial journey are: choosing the legal form of your business (LLC or sole proprietorship), selecting the appropriate CAEN activity codes, understanding the taxes and duties you must pay and how they should be settled, as well as recruiting talent (if applicable), choosing the right accounting services, and selecting the most suitable source of financing.
If this year you want to start a business in Romania or you already own one and want to stay up to date with the latest decisions, here are the taxes and duties you need to pay starting in 2023.
Taxes and duties for an LLC (SRL) – 2023
Value Added Tax (VAT)
If you want to set up a new company in 2023, you should know that your LLC will initially be a non-VAT payer. At present, a newly established LLC cannot opt to register as a VAT payer from the start; this option becomes available later and must be reported to ANAF (the Romanian tax authority). However, you can easily apply for a loan for a newly established company to give your business a strong start.
A non-VAT-paying LLC may keep this status only if its annual turnover remains below the threshold of approximately RON 300,000. Naturally, as you begin to grow and expand your business, your turnover will exceed this threshold.
Once you exceed this limit, you must register your business as a VAT payer within ten days from the end of the month in which the RON 300,000 threshold was exceeded. As a VAT payer, the standard VAT rate of 19% will apply, except in the following cases:
- Water supply services, food, beverages, and medical services are subject to a 9% VAT rate;
- Catering services, accommodation, school textbooks, books, magazines, access to museums, cultural events, and sports events are subject to a 5% VAT rate.
VAT must be declared and paid quarterly to ANAF.
Social contributions
Social contributions refer to a set of tax obligations that both employers and employees must pay monthly from gross income in exchange for social insurance. Since this article focuses on the taxes and duties payable by an LLC, below are the social contributions you are required to pay as an employer:
- Social Security Contribution (CAS) – 25%;
- Health Insurance Contribution (CASS) – 10%;
- Income tax – 10%;
- Work Insurance Contribution (CAM) – 2.25%.
If you are just starting out and feel overwhelmed by salary payments and state taxes, you can apply for a business loan from Mikro Kapital to cover your working capital needs.
Dividend tax
According to Government Ordinance no. 16/2022, starting January 1, 2023, the dividend tax has been increased to 8%. Prior to this decision, the dividend tax applied to both private and state-owned companies was 5%.
The new regulation provides for an increase in the dividend tax only for dividends distributed/paid between Romanian legal entities, as well as for those distributed/paid to non-residents of Romania.
Dividends may be distributed quarterly or annually, but only with the withholding, declaration, and payment of the 8% dividend tax applied to the gross value of the dividends.
Taxes and duties for a sole proprietorship (PFA) – 2023
The taxation of a sole proprietorship (PFA) differs from that of an LLC and can be carried out in two ways, depending on the advantages applicable to the entrepreneur: taxation under the real system or taxation based on income norms. These two methods are explained below.
Taxation under the real system
Taxation under the real system involves paying a 10% tax on the net income earned by the PFA. In this context, net income represents the difference between taxable gross income and deductible expenses.
Due to the way the tax is calculated, taxation under the real system is considered the most advantageous option.
To determine net income, you may keep simplified accounting records of all income and expenses related to your activity, or you may hire a specialized accountant to ensure accuracy.
Taxation based on income norms
Taxation based on income norms involves applying the standard 10% tax rate to a predetermined amount (income norm), regardless of the actual income earned by the PFA. These amounts are established annually and vary depending on the county or even the locality where the PFA owner’s residence is registered.
Starting this year, the threshold for taxation based on income norms has been reduced from €100,000 to €25,000. This measure mainly affects self-employed individuals whose PFAs are taxed based on income norms and who earn annual gross income exceeding the new threshold in lei equivalent.
Those who exceed the €25,000 threshold in 2023 will be required to switch to taxation under the real system starting with the 2024 fiscal year. Consequently, these individuals must complete and submit the Single Tax Statement regarding income tax, social contributions, and health contributions owed by individuals by May 25, 2024.
When determining net income under the income norm system, you are no longer required to keep records of expenses, as they no longer influence the amount subject to the 10% tax. Under income norm taxation, you only need to monitor your revenues.
Find out how you can access a microloan as a sole proprietor!
Social contributions
A sole proprietorship must also contribute to the social system if it meets the predefined criteria calculated based on generated income. In order for a PFA to be required to pay social contributions, it must earn income equivalent to at least 12 gross minimum wages at the national level.
Thus, for 2023, the Romanian Government introduces new thresholds for social contributions payable by a PFA:
- CAS threshold – 25%;
- CASS threshold – 10%.
Whether you operate an LLC or a sole proprietorship, the taxes and duties mentioned above are mandatory and must be paid in accordance with the conditions and deadlines established by law.
On the Mikro Kapital blog, you are always up to date with the latest information from the business world!
