Romania Overhauls Micro-companies Tax Regime Via GO No. 16/2022

A series of amendments and additions to the Romanian Fiscal Code were made by way of GO no. 16/2022 in Romania impacting a wide range of entities. With the changes, which will come into force on January 1^st, 2023, micro-companies' income tax will become optional.

Additionally, significant changes include the following:

1. A Romanian legal entity will now be able to opt for the application of the micro-company income tax if it cumulatively meets the following conditions on December 31 of the previous year:
2. The income achieved did not exceed the lei equivalent of 500,000 euro (previously the limit was 1,000,000 euro);
3. The social capital is owned by entities other than the state and administrative-territorial units, according to the fiscal Code;
4. The entity is not in dissolution, followed by liquidation, registered in the commercial register or in the courts of law (this criterion was applicable previously as well);
5. At least 80% of its total revenues are generated from services other than consulting and management (newly introduced condition)
6. The entity has at least one employee (newly introduced condition)
7. The entity has associates/shareholders that hold more than 25% of the value/number of participation titles or voting rights in no more than three Romanian micro-companies (newly introduced condition)
8. Law no. 170/2016 regarding the specific tax will be repealed/revoked as of January 1, 2023.
9. Romanian legal entities that carry out activities corresponding to the CAEN codes for HORECA (5510, 5520, 5530, 5590, 5610, 5621, 5629, 5630) can opt for the payment of micro-company tax (without having to fulfil the above conditions) or for the payment of CIT.
10. Romanian legal entities, apart from those that carry out activities corresponding to the above CAEN HORECA codes, can opt to apply micro-company tax as of the fiscal year following that in which they meet the conditions.
11. New categories of Romanian legal entities that cannot apply the micro-companies' regime have been introduced, including Romanian legal entities carrying out activities in the:
12. banking field;
13. fields of insurance, reinsurance, of the capital market, including the one that carries out intermediation activities in these fields;
14. field of gambling;
15. exploration, development, exploitation of oil and natural gas deposits sector.

• If a micro-company derives revenues exceeding EUR 500,000 or its revenues from consulting and management exceed 20% or more of the total revenues during a fiscal year, it owes CIT as of the quarter in which it exceeded those limits.
• The dividend income received from a subsidiary located in another member state of the European Union can be deducted when calculating the micro-company tax, to the extent that both the micro-company and the subsidiary meet the EU Parent-Subsidiary Directive conditions.
• The tax rate on the income of micro-companies is 1% (the 3% rate previously applicable to entities without employees has been revoked).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.