Calculation if the employee is the shareholder of the company

Up to the turnover of 100,000 euros, there is no reason to hire a person(the shareholder himself) so that the tax percentage drops from 3% to 1%, the justification is as the calculations shown below:

a ) 3% income tax

• 100.000 Euro turnover x 3% = 3000 euro/year income tax

b) 1% income tax, in this case it is necessary to have 1 employee

• 100.000 Euro turnover x 1% = 1.000 euro/year income tax
• Minimum monthly salary today is 2230 lei
• Social security contribution for the salary:
  • 2230 x 10% = 223 lei
  • 2230 x 25% = 558 lei
  • 2230 x 2,25% = 50 lei
• Total contribution taxes = 831 lei/month, about 171 euro/month
  • 171 x 12 = 2052 euro/year

That means 1.000 eur income tax + 2052 social contribution = 3052 Euro/year, this value exceed tha value of 3% income tax with 52 Eur.

In this case we sholdn’t take in consideration the net salary, because the shareholder is also the employee.

Calculation if the employee is not the shareholder of the company

In addition to the above calculation, we should also take into consideration the net salary which is 2230-831 = 1399 lei/month, 288 eur/month, meaning 288 x 12 = 3456 eur. This salary also raises the threshold between the difference of 3% and 1% to the income tax.

In this case, the firm must pay a net salary for someone else, not the shareholder, an employee from Romania. The calculation will be:

• Turnover of 280000 eur x 3% = 8400 eur income tax(without an employee) , or
• Turnover of 280000 eur x 1% = 2800 eur/year + 2052 social contribution/year + 3456 net slary/year = 8308 eur income tax(with one employee)

We presented above the 2 variants (employed the shareholder and employed a different person external to the company), from Romania, because the procedure for hiring foreigners by employers, individuals or legal entities in Romania, it is more complicated and requires the following steps:

• obtaining the employment permit
• obtaining a long-stay visa
• obtaining the right of residence
• issuance of a residence permit for work / posting purposes

Information about double taxation

Usually, after paying income taxes followed by paying dividend taxes, the shareholder can transfer all his income to personal accounts and do whatever he wants with that money. Theoretically, these amounts should no longer be taxed in the country of residence of the shareholder, as there are agreements between states to avoid double taxation.

But just in case, the shareholder should check in his country of residence if the income taxed in Romania will also be taxed in his country of residence. The link below provides the list of the countries with which Romania has double taxation agreements.

LIST OF THE COUNTRIES>> CLICK HERE

Double taxation treaties set out the rules according to which taxes on income and capital gains are applied and how double taxation will be avoided. Double taxation conventions contain other special provisions regarding information exchange, non-discrimination and amicable procedures.

The income tax rules are classified into income and capital gains, which will be taxed without limitation in the source state, and income and capital gains which will not be taxed in the taxpayer’s state of residence.

The source state has the right to tax income such as dividends, interest or commissions, while the state of residence must give a reduction to this tax, or not to tax these incomes at all. The state of residence may tax income from international transportation and capital gains, while the source state will not tax them.

If a taxpayer is a resident of a country with which Romania has concluded an agreement for the avoidance of double taxation and also presents the tax residence certificate at the date of payment, then the tax rate that applies to taxable income obtained by that non-resident taxpayer in Romania may not exceed the amount of tax provided for in the agreement that applies to that income. In the situation where there are different tax rates in the Romanian legislation and in the double taxation avoidance conventions, the most favorable rates are applied to the taxpayer. This is also the reason why the taxpayer may not pay other taxes in his country of residence.

Currently, Romania has concluded 87 treaties to avoid double taxation. Among the countries with which treaties are signed are: Germany, Austria, Belgium, Canada, Finland, the Netherlands, Malta, Australia, Canada, China, the United Arab Emirates, India, United States, Russia, Spain, Portugal, Saudi Arabia and others.

The payment of dividends is made by withholding tax, ie the tax due by non-residents for income obtained from Romania in the form of dividends is calculated, withheld, declared and paid to the state budget by the income payer, ie the company. The tax is calculated, respectively withheld at the time of dividend payment, is declared and paid to the Romanian state budget until the 25th of the month following the month in which this income was paid.

Fiscal registration of non-resident physical persons in Romania

According to the Fiscal Procedure Code, any non-resident entity that enters a fiscal legal relationship has the obligation to obtain a fiscal identification number from Romania (“NIF”).

Following registration, the taxpayer receives from ANAF a tax identification number – NIF – or tax identification code.

A tax identification number (NIF) is a numeric code that is used by individuals or legal entities for tax purposes. It is usually used for the purpose of declaring any tax obligations to the Romanian tax authorities (ANAF). Most EU Member States use tax identification numbers. The main purpose is to manage the obligations of taxpayers. Such systems are based on identifying taxpayers based on these numerical codes.

From the category of individuals, only foreign nationals who have certain tax obligations need to be assigned a tax identification number, as:

• non-resident citizens (whether they are citizens of an EU Member State or outside the EU territory) who are mandated by Romanian companies as directors or members of the boards of directors. If these persons do not have the obligation to obtain a residence permit for Romania (for non-EU citizens) or a registration certificate (for citizens of EU Member States) to issue them a Romanian CNP, they have this obligation to get a NIF. The main purpose is to declare to ANAF the incomes received from the Romanian company (here we refer strictly to the payment of the contributions according to the salaries received in Romania).
• foreign citizens who generate any other type of income with source in Romania and who are subject to taxation on the territory of Romania. Such situations may be those in which foreign citizens earn income for which the obligation to declare tax in Romania occurs – e.g. dividends paid by Romanian companies, rental income (for renting real estate located in Romania), income from trading shares in Romanian companies, etc.
• foreign citizens who buy or sell a building located in Romania.

Documents required to obtain the NIF:

• form 030 (“Declaration of fiscal registration / Declaration of mentions / Declaration of deregistration for natural persons who do not have a personal numerical code”), completed in two copies – one copy is submitted to the fiscal body, and the other is kept by the taxpayer
• declaration 015 “Declaration of fiscal registration / Declaration of mentions / Declaration of deregistration for non-resident taxpayers who do not have a permanent headquarters in Romania"
• copy of the passport of the foreign natural person and copy of the identity card of the Romanian representative
• power of attorney for the representative, in original
• supporting documents regarding the foreigner’s reasons for obtaining the NIF code

The documentation for the NIF application is submitted to the Public Finance Administration in whose territorial area the income is made or the transferred property is located (for example, in case of purchase / sale of a building, to the Public Finance Administration in whose territorial area the purchased / sold building is located ).

For individuals who make income subject to the withholding tax (eg dividends, interest), the request to assign the NIF can be made directly by the income payer, ie in this case, by the company opened in Romania, whose shareholder is a non-resident natural person.

The issuance of the certificate by which the fiscal identification number is assigned is made by the fiscal body within approximately 30 working days from the moment of submitting the complete file.

It is very important that failure to obtain the NIF can prevent taxpayers from claiming a refund of withholding tax or obtaining a certificate of payment of the withholding tax (required for the non-resident partner for tax credit purposes in his or her state of residence).

At the same time, the reason why the Romanian taxpayer (company established in Romania by the non-resident shareholder) requests the registration of non-residents is related to the obligation to submit form 207 „Informative declaration regarding withholding tax / exempt income, on non-resident income beneficiaries„, declaration to be submitted each year by the non-resident taxpayer, until January 31 of the following year, for the last year.

Ziberline Consulting uses the experience it has for the benefit of its clients, in order to offer specialized assistance in the management of the entire fiscal registration process, regarding the non-resident, namely:

• Analysis of payments to non-residents to identify transactions that are subject to withholding tax
• Identification of non-resident entities for which fiscal registration is required
• Providing the list of documents required to obtain a NIF
• Verification of documents and preparation of the fiscal registration file
• Representation before the tax authorities (submission of file and collection of tax registration certificate)
• Preparation and submission of the declaration 207

This is a complete package that will suit the needs of most businesses and entrepreneurs. However, those who require different or additional services will be able to work together with our team to find suitable solutions that will meet their needs according to the chosen business field in which they wish to invest. Our packages are designed to fit the needs of foreign investors who open a company in Romania.