PFA Taxes in Romania

Do you wish to register as a self-employed individual? Our lawyers in Romania answer some of the popular questions about the taxation regime for this business form.

What is the PFA taxation system in Romania, at the moment?

Due to the big differences between social contributions paid by employees and those who are authorized self-employed persons (PFA), the Ministry of Finances suggested a change in the tax system for PFA.

An employee pays social contributions based on their income, while PFA that usually make a lot more money, can pay them according to tthe minimum gross salary of 2.550 RON/month, in 2022.

So, the differences can be overwhelming.

According to the law in place, at the moment, an employee that earns 5.000 RON per month gross salary, will pay contributions of about 2.000 RON per month, while a PFA with the same earnings can pay less per month.

Our Romanian lawyers can give you more updated information and assist you with this calculation.

Despite the fact that the Romanian state wants to encourage entrepreneurship, applying this system of taxes can lead to differences up to 43% between the income of a PFA that opted for the minimum limit of contributions payment and an employee.

The law on PFA taxation is changing starting with January 2023, and so is the minimum gross salary.

Working with our Romanian law firm is reccomended for those professionals who are just starting out as well as those who wish to be up to date with these changes.

2023 PFA taxes

Starting with January 2023, the PFA will be subject to the following taxes:

• Social security contributions:

CAS (the pension): starting with 2023, a new limit of 24 minimum gross salaries is in place for PFAs with a net income over 61.200 RON. In this case, the contribution is calculated according to the net income:

• Less than 12 minimum gross salaries, the pension contribution is not mandatory.
• Between 12 and 24 minimum gross salaries, the contribution is calculated relative to the limit of 12 salaries (30.600 RON) and the amount is 637,5 lei/month.
• Over 24 minimum gross salaries, the contribution is calculated relative to the limit of 24 salaries (61.200 RON) and the amount is 1.275 RON/month.

CASS (health contribution): From 2023, the health contribution is decreased from 12 minimum gross salaries to 6 minimum gross salaries. Like the CAS, it has a limit of 24 minimum gross salaries, therefore the contribution is as follows:

• Less than 6 minimum gross salaries, the health contribution is not mandatory.
• Between 6 and 12 salaries, the contribution is calculated relative to the limit of 6 salaries (15.300 RON) and the amount is 127,5 RON/month.
• Between 12 and 24 salaries, the contribution is calculated relative to the limit of 12 salaries (30.600 RON) and the amount is 255 RON/month.
• Over 24 salaries, the contribution is calculated relative to the limit of 24 salaries (61.200 RON) and the amount is 510 RON/month.

• The income norm:

As of 2023, the limit of income is down to 25.000 EUR and the PFAs with incomes over this limit will have to be taxed in the real system from 2024 and they will have to pay the taxes based on the net income.

For example, if you have a PFA and in 2023 you record a gross annual income bigger than the 25.000 EUR limit, from the year 2024 you will have to determine the net annual income in the real system.

NOTE: The reduction of the limit and the application of the calculation method in the real system will apply from 2024.

• The income tax: remains the same, with a value of 10% of the net income.

We remind entrepreneurs that the calculations above were made for the 2022 gross minimum salary. This will be increased starting with 2023.

You can contact our tax lawyers in Romania for more information about these changes and how they will influence your business.

Are there any advantages to opening a PFA instead of a SRL in Romania? Can your lawyers in Romania explain?

Based on this modifications, taking into account the taxes paid by a PFA and those paid by a SRL, most small entrepreneurs are wondering which is the most suitable option.

When it comes to the income taxes, microenterprises pay 1% to 3% of their incomes, based on the number of their employees, while a PFA pays 10% x income + CASS + CAS.

Still, after we draw the line, a PFA is the one with more fiscal advantages compared to the SRL:

• The money they earn can be spent any time
• The fiscal debt is smaller than in the case of the owner being employed at his own microenterprise

Therefore, the law needs a fast modification regarding the minimal limit that gives PFA’s an advantage regarding fiscal contributions, but it severely disadvantages employees.

The experts at our Romanian law firm can provide more details as needed.

Since the beginning of 2020, together with the increase of the minimum wage, the taxes for PFAs have increased as well.  According to the new taxation regime for 2023 presented herein, the current regime is subject to a significant change, with the modification of the income norm threshold from EUR 100,000 to EUR 25,000. As seen above, the CAS and the CASS contributions have changed as well.

The team of experts at our law firm in Romania can give you more details on the taxation and the reporting requirements for the PFA. Contact us for more details.

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