Company tax regimes changed as of 2023, becoming simpler

In case you didn't know yet, following specific Romanian Tax Code amendments, which were published in July of 2022, company tax regimes suffered significant changes as of 1 January 2023.
company tax regimes will change in Romania

With the formerly applicable tax regimes, Romanian companies had to do all sorts of verifications after each financial year to identify which tax regime they should apply in the next one. For example, they had to check, depending on the type of business activity previously carried out, if they could stay with the current business tax system, or if they had to switch to another from the 4 systems that can currently apply.

Starting with 1 January 2023, when the July 2022 tax amendments of the company taxation system came into play, things simplified. More exactly, Romanian companies have to apply only one mandatory tax regime. They also have one optional regime that they can choose. However, the optional one can be applied only once, until the applicable conditions aren’t fulfilled anymore.

Company tax regimes previously applicable

The previous company tax system applicable in Romania involves the existence of 4 business taxation regimes. Which one should have applied depended on the type of business activities carried out, and the level of the annual revenue registered. Here are the 4 tax regimes that were applicable before 1 January 2023:

  • The micro-enterprise tax system: applicable by companies that achieve revenues of up to 1 million euros per year (equivalent in lei), including companies operating in the HoReCa industry (hotels, restaurants, cafes);
  • The profit tax regime: companies registering revenues of more than 1 million euros per year (equivalent in lei), or those with revenues lower than that, but who choose to apply the profit tax regime, with the fulfillment of specific conditions;
  • The specific/HoReCa tax regime: these are essentially companies operating in the HoReCa field;
  • Mixed tax regime: companies that, although they apply the specific tax regime, they also carry out business activities that are subject to the profit tax regime.

Thus, at the end of each financial year, and up until now, companies have had to do extensive checks on the business activities actually carried out and the level of revenue derived from each of them. They have to verify if the conditions of these four taxation systems are fulfilled and for which of them.

Basically, they had to do an annual analysis for determining whether they should change the tax regime or not. Or whether there are potentially any “tricks” they can apply for avoiding changing the tax regime, such as spreading a larger business across two or more smaller companies (e.g., to avoid reaching the revenue threshold of 1 million euros in a year).

What applies as of 1 January 2023

For this reason, Romanian authorities enacted major changes to the Romanian tax system. These changes are also meant to bring more predictability in the activity of companies in Romania.

Why? Because from a system with 4 different types of business taxation, we will move to a single mandatory regime. This will be “seasoned” with a single optional regime (and which can be used only one time).

More precisely, the specific tax and the mixed tax systems will disappear, the micro-enterprise taxation will become optional (but to be used only one time), and the profit tax system will remain the only mandatory regime.

Thus, as of next year, the majority of the companies will apply the profit tax system. This means that, at the end of each financial year, they will have to verify only if the company will be able to meet the conditions for the application of the micro-enterprise taxation. This involves fewer options in the life of a company, and long-term clarity on the tax side of the business.

Once the micro-enterprise tax conditions are no longer met, companies will have to (re)enter profit taxation system for good. In other words, January 1, 2023 serves as a “ground zero” in terms of whether or not to apply the micro-enterprise tax regime. The change means that all newly established companies will be able to apply the micro-enterprise regime only once in their existence.

They will be able to apply it from the very beginning, if they meet applicable conditions. Or later on, but they will be able to apply it only until the applicable conditions are no longer fulfilled. Once conditions are not fulfilled, as of the next tax year they will have to switch to the profit taxation system for the rest of their existence.

The micro-enterprise system can also be applied after 1 January 2023 by those companies that already applied it before 2022.

Florin Stoicescu

Florin Stoicescu

Tax & Legal consultant since 2005.

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