TAXATION: NEW TAX REGIME FOR MICRO-ENTERPRISES (DRAFT)

The government has proposed significant changes to the tax regime for micro-enterprises by passing a bill through the procedure of assuming responsibility in Parliament¹. One of the most significant changes is the reduction of the turnover threshold, below which a micro-enterprise can choose to pay a 1% income tax.

Change in tax rate

Currently, the tax rate for micro-enterprises opting for income tax is 1%. Qualify for this taxation system micro-enterprises that meet a number of conditions such as: (i) revenues under 500,000 euros, (ii) at least one employee, (iii) they do not carry out certain specific activities (e.g. banking, insurance, gaming, tax consulting, etc.), (iv) more than 80% of the company's total revenue comes from activities other than consulting and management (v) the company’s partners/shareholders hold more 25% of the value/number of shares or voting rights in maximum of 3 Romanian legal entities eligible for the application of the tax regime on income to micro-enterprises.

The legal draft presented by the Government provides for new tax rates:

1. 1% for micro-enterprises with a turnover under 60,000 euros and which do not carry out certain specific activities (corresponding to CAEN codes 5821 - Publishing of computer games, 5829 - Publishing of other software products , 6201 - Custom software development (customer-oriented software), 6209 - Other IT service activities, 5510 - Hotels and similar accommodation, 5520 - Holiday and short-stay accommodation, 5530 - Caravans, campsites and campgrounds, 5590 - Other accommodation services, 5610 - Restaurants, 5621 - Event catering services, 5629 - Other catering services n.e.c., 5630 - Bars and other drinking establishments, 6910 - Legal activities - only for professional companies legal entities, created by lawyers, 8621 - General health care activities, 8622 - Specialized health care activities, 8623 - Dental activities, 8690 - Other human health activities).
2. 3% for micro-enterprises with incomes above 60,000 euros OR carrying out the activities listed above (even if their income is less than 60,000 euros). If the companies carrying out activities under the CAEN codes listed above also derive income from activities under other CAEN codes, the 3% tax rate also applies to income derived from these other activities.

If the annual income of a micro-enterprise exceeds 60,000 euros during the tax year or if it begins to carry out activities falling under the aforementioned list, the 3% rate becomes enforceable starting with the quarter when such situations occur.

If a micro-enterprise no longer carries out the activities listed above and its annual income falls below 60,000 euros, the 1% tax rate starts to apply in the quarter when such situations occur.

Micro-enterprises subject to corporate tax, by option or due to incompliance with the conditions provided for above, must inform the tax administration before March 31 of the following financial year.

The conditions relating to the minimum number of employees, the share of income derived by the micro-enterprise from its main activities, the value/number of shares that can be held by shareholders/partners are maintained, as are the specific areas (e.g. banking, insurance, gambling, tax advice, etc.).

Note

1. According to article 114 of the Constitution, the Government can undertake responsibility before Parliament on a law. The Government's assumption of responsibility for a law means that the law in question does not follow the legislative procedure provided for by the regulations of the two chambers, but is subject to a strictly political debate, resulting in keeping or dismissing the Government and starting, in accordance with the Constitution, the procedure for forming a new Government. If the Government has is not dismissed from office, the law presented is considered adopted and its application becomes mandatory for the Government. If the President of Romania requests the review of the law adopted under this procedure, the law shall be subject to debate in a joint session of the two chambers.