Taxes and the tax system in Romania: overview

In recent years, Romania has increasingly appeared on the map of international business. The country attracts entrepreneurs from Europe, IT companies, and investors not only with relatively low operating costs, but also with a clear tax model. For businesses operating in the EU or planning to enter the European market, the Romanian jurisdiction appears to be a fairly pragmatic solution: simple company registration, access to the European market, and competitive tax rates.

Romania’s tax system is built on the general principles of the European Union, but at the same time has several of its own features. In particular, the country has a special regime for micro-enterprises with minimal tax burden, as well as standard EU taxes — corporate income tax, VAT, personal income taxes, and social contributions. Thanks to this, businesses can choose the optimal taxation model in Romania depending on turnover, company structure, and the nature of activities.

For entrepreneurs considering opening a company or relocating a business to Romania, it is important to understand not only the tax rates, but also the logic of the entire system: which taxes in Romania are paid by companies, which by individuals, what preferential regimes exist, and what the requirements for tax reporting are. These aspects are what form the real tax burden on a business.

In this overview, we will examine how the tax system in Romania works, which taxes are key for companies and individuals, and what nuances should be taken into account when planning activities in this jurisdiction.

Features of the Romanian Tax System

The tax system in Romania is built on a classical European principle: tax obligations are determined primarily by the taxpayer’s tax residency, as well as the source of income. In fact, the system operates under a model used in most EU countries: residents pay taxes on global income, while non-residents pay only on income earned within the country.

For companies, the key criterion is the tax residency of the legal entity. A company is considered a tax resident of Romania if it:

• is registered in accordance with Romanian legislation;
• or has a place of effective management on the territory of the country.

In such a case, the company is subject to taxation in Romania on its worldwide profits, unless otherwise by international double taxation avoidance agreements. In turn, foreign companies operating through a permanent establishment are taxed only on profits related to activities in Romania.

For individuals, the principle of determining residency is also based on several criteria. A person may be recognized as a tax resident of Romania if at least one of the following conditions is met:

• they have a permanent place of residence (domicile) in Romania;
• their center of vital interests (economic and personal ties) is located in the country;
• they stay in Romania for more than 183 days during any 12 consecutive months;
• they are a Romanian citizen working abroad as a public official.

After obtaining tax resident status, an individual is subject to taxation in Romania on global income, i.e., income from both Romanian and foreign sources. If a person is a non-resident, only income derived from Romanian sources is taxed.

A separate role in the system is played by double taxation avoidance agreements, which Romania has concluded with many countries. The country has signed more than 85 Double Taxation Avoidance Agreements (DTA) with countries in Europe, Asia, the Americas, the Middle East, and Africa. These agreements determine in which country tax should be paid if a taxpayer or company has connections with multiple jurisdictions. In addition, as an EU member state, Romania applies European tax directives on dividends, interest, and royalties between companies of member states.

As a result, Romania’s tax system operates according to a fairly predictable logic: the taxpayer’s status is determined, the source of income is established, and then the relevant tax rates and international agreements are applied. This structured approach makes the jurisdiction understandable for foreign businesses planning to operate in the European Union market.

Taxes for Individuals in Romania

The taxation of individuals in Romania is considered one of the simpler models in the European Union. The system is based on a flat income tax rate, which significantly simplifies the calculation of the tax burden for both residents and foreigners earning income within the country.

The main tax is Personal Income Tax, the standard rate of which is 10% and applies to most types of income. Taxable income includes salaries, income from entrepreneurial activities, investment income, rental income, dividends, interest, and other sources of profit. This single income tax rate is a distinctive feature of the Romanian tax system and differs significantly from the progressive taxation scales used in many other EU countries.

Along with income tax, individuals pay mandatory social contributions, which effectively constitute the main part of the tax burden on employment income. The main contributions are:

• pension contribution (CAS) — 25% of gross income;
• health insurance contribution (CASS) — 10%;
• unemployment insurance contribution (CAM) — 2.25%, which is paid by the employer.

These contributions are usually withheld by the employer when paying salaries, which simplifies tax administration for employees. As a result, the effective burden on employment income is significantly higher than the nominal income tax rate.

A separate procedure applies to investment income. For example, dividends received by individuals from companies are taxed at a rate of 16%, which is applied at the time of payment. At the same time, if the total investment income exceeds the threshold, an obligation to pay the health insurance contribution may also arise.

For certain categories of taxpayers, special regimes or tax incentives may apply. For example, in previous years Romania offered tax incentives for employees in the IT sector, construction industry, and research activities, although the conditions of such benefits are periodically revised by the government.

Overall, the model of individual taxation in Romania is characterized by a relatively low income tax rate but high social contributions. This structure is typical for many Central and Eastern European countries and allows the state to finance the social security system while maintaining competitive conditions for businesses and investors.

Taxes for Companies and Business in Romania

The corporate taxation system in Romania is designed to combine a standard corporate tax model with a separate regime for small businesses. In practice, companies can operate under one of two main regimes: payment of corporate income tax or the micro-enterprise regime, where tax is calculated on turnover. The choice of regime primarily depends on the company’s income level and the structure of its activities.

The standard tax for legal entities is Corporate Income Tax (CIT). The base rate is 16% and applies to the company’s taxable profit. Taxable profit is defined as the difference between the company’s income and expenses recognized under tax legislation. Such expenses may include operating costs, personnel expenses, depreciation of fixed assets, research and development expenses, and other costs directly related to the company’s business activities.

A special place in the taxation system is occupied by the micro-enterprise regime, which is used by small businesses, startups, and companies in the IT services or consulting sectors. A company may apply this regime if its annual turnover does not exceed EUR 100,000 and it has at least one employee under an employment contract. In this case, the tax is paid not on profit but on the company’s revenue. The rate is 1% of turnover, which significantly reduces the tax burden for small companies.

At the same time, there are certain requirements for applying this regime. In particular, the company must generate income from ordinary business activities and comply with established restrictions regarding ownership structure and types of activities. If the company’s turnover exceeds the limit during the year, it automatically switches to the standard profit taxation regime.

In addition to corporate income tax or the micro-enterprise tax, companies in Romania may pay other taxes related to profit distribution and business activities. For example, dividends paid by a company to its shareholders or participants are subject to taxation at a rate of 16% (until 2026 — 10%). Tax in Romania is withheld at the time of dividend payment. In the case of dividend payments to non-residents, reduced rates may apply in accordance with international double taxation avoidance agreements or EU directives. Dividends paid between Romanian companies or between EU companies may be exempt from this tax provided that the recipient holds at least 10% of the payer’s capital for at least 1 year.

Value Added Tax (VAT) also plays an important role in Romania’s corporate taxation system. The standard VAT rate in Romania is 21%, however, a reduced rate of 11% applies to certain categories of goods and services. VAT registration becomes mandatory if the company’s turnover exceeds the threshold, namely RON 395,000 (EUR 80,000) of annual turnover, as well as in cases of certain cross-border transactions within the European Union.

Romania also has a vehicle tax, which is paid depending on engine capacity and type of vehicle, as well as a property tax, which is levied on real estate and determined based on its value and purpose (residential or commercial).

Tax Reporting in Romania

In Romania, the tax reporting system for companies and individuals is quite structured, but at the same time has its nuances that may affect tax planning, especially for non-residents or those planning to conduct business through a permanent establishment.

Tax declarations for companies:

• Corporate Income Tax (CIT): reporting is submitted annually to the tax authorities, usually by March 25 of the year following the reporting year. The declaration must be accompanied by financial statements prepared in accordance with Romanian accounting standards or IFRS (for large companies).
• Micro-enterprises: pay turnover tax quarterly or annually, depending on the chosen form of filing declarations.

Important: In Romania, the system of advance payments for corporate income tax (CIT) is one of the key elements of tax administration. Advance CIT payments are made by all companies subject to profit tax that operate in Romania. This applies to resident companies, non-residents with a permanent establishment, newly established companies, even if a loss is expected in the reporting year. Advance corporate tax payments are made quarterly: for Q1 — by April 25, for Q2 — by July 25, for Q3 — by October 25, for Q4 — by January 25 of the following year. For new companies, the advance is calculated based on projected profit with subsequent adjustment after filing the annual return. Micro-enterprises (taxed on turnover) do not make advance payments.

Tax declarations for individuals:

• Personal income tax — an annual declaration (Form 200) is submitted by March 25 of the year following the reporting year. The declaration includes income from salary, self-employment, rent, royalties, and other sources.

Value Added Tax (VAT):

• VAT returns are submitted monthly or quarterly, depending on turnover.
• For non-residents selling goods or services within the EU, the OSS (One-Stop-Shop) system is applied to simplify VAT reporting in multiple EU countries.

Social contributions and payroll tax:

• For employees, monthly reports are submitted on the accrual and payment of CAS, CASS, and CAM. It is important that the data matches the accrued salaries and accounting records, as the tax authorities closely monitor compliance.

Thus, for non-resident companies, it is important to correctly determine tax residency, manage advance payments, and comply with deadlines for annual and quarterly filings. Errors or delays may lead to penalties and interest accrual, so proper planning and support are critically important.

It is noteworthy that in Romania, particularly advantageous sectors include IT and digital technologies (software development, startups, SaaS, outsourcing), research and innovation projects in industry, biotechnology, and green technologies, manufacturing and industry (light industry, food production, furniture manufacturing, high-tech production), as well as energy and the green economy (renewable energy sources, energy-efficient solutions). For these sectors, the Romanian Tax Code provides tax deductions, additional write-offs for R&D expenses, state grants, investment incentives, and the possibility of partial tax exemptions, making them especially attractive for residents and non-residents planning to do business in the country.

To take advantage of the Romanian tax system, avoid risks, and calculate the tax burden, it is advisable to contact Azola Legal Services. Specialists will help properly register a company in Romania, organize accounting and tax records, submit declarations, and make use of all available incentives. This allows businesses to focus on growth rather than bureaucracy and tax nuances.