Table of Contents
Question: How can I be a self employed person in Romania, from a legal point of view?
Answer: A self employed in Romania is registered as a PFA which stands for ”Persoana Fizica Autorizata”, phrase also commonly translated as a Romanian authorized physical person. This is actually a highly preferred alternative for perfectly qualified individuals who choose to set up their own business. This proved quite a convenient option for Romanians and it is still perfectly functioning for all natural persons seeking for a more approachable way to turn their experience and qualifications into real profit. From the legal point of view, there are certain conditions to be fulfilled in order to qualify for the status of PFA Romania.
If you are interested in this opportunity and feel confident in the knowledge and experience you have acquired up until the present moment, then you can start a sole trader in Romania (PFA). Our lawyers in Romania can assist you from the very beginning.
Question: What conditions do I need to meet if I want to register as an Authorized Physical Person, in Romania?
Answer: The first thing that should be handled in this respect is the registration procedure which means that you will be listed by the Trade Register Office as an authorised natural person. Here are some essential features which briefly illustrate the most important stages in the PFA Romania registration process and that have to be understood as essential conditions:
- you have to be over 18 years old;
- you either have to be qualified or trained, or you need the professional experience required to conduct the economic activity for which the authorization is requested (depending on specific circumstances);
- as any other legal entity, you must have a registered office;
- last, but not least, you must never have been convicted by a final court decision for committing the offenses punished by financial or customs laws, or for those involving financial and fiscal discipline as those that are enrolled in the tax record certificate.
Feel free to reach out to our Romanian lawyers for more information about these conditions for operating as a sole trader in Romania.
Are you looking to purchase property in Romania? Whether it is for residential or commercial purposes, if you plan on starting and running a business in a Romanian city, our team is also able to assist you if you want to purchase a property. We provide services to EU and non-EU citizens, and we can give you details on the current requirements that apply in your case, according to nationality and status (resident/non-resident).
Question: How and when do I register for VAT registration when having a PFA in Romania? Can your Romanian lawyers assist me?
Answer: The Romanian Authorized Physical Person can register for VAT in two situations: either when incomes exceed certain limits or when the individual voluntarily applies for VAT registration.
On the national level, self-employed persons with incomes of up to 65,000 EUR/year are exempted from VAT. But, even if this limit is not surpassed, a self employed in Romania should register for VAT since certain instances may require this registration. In order to register for the intra-Community VAT, a Romanian self-employed must be previously registered for Romanian VAT. We are referring here to the situation when a Romanian authorized physical person provides intra-Community services. In this case, the individual must register for VAT in order to report the operations performed. This particular registration would not turn the person in question into a regular VAT payer. The VAT registration code received for intra-Community services cannot be used to issue invoices for economic operation carried out on the Romanian territory and intended for recipients established in this very same country. If you have questions on this procedure, please reach out to our attorneys in Romania.
A highly important aspect of the Romanian VAT regime concerns the legal possibility to regain the non-taxable privileges. Even if exceeding the 65,000 EUR/year threshold for only one year, individuals have the chance to return to VAT-exempt status for the following year, on condition that the annual turnover does not exceed the provided limits. So, at the beginning of the calendar year, a self-employed may request to be removed from the VAT registered persons record.
Our lawyers in Romania can provide complete details on the taxation regime and the VAT registration process.
Question: What kind of activities can I perform as a Romanian PFA?
Answer: If you want to be registered as a Romanian authorized physical person, you should know that this legal entity can obtain approval to perform all kinds of economic activities that are mentioned in the CAEN Code, of course excepting those that are governed by special laws and that are reserved for a certain category of entrepreneurs. Assistance for obtaining special permits and licenses is provided by our Romanian law firm.
As you can see, under certain circumstances, the PFA Romania regime can become a little bit confusing. That is why our skilled experts are prepared to assist you concerning a wide range of issues regarding this topic. We come to your aid and we offer you permanent guidance throughout the entire process, representing you before the Romanian authorities. We can help you start your own business by authorising you as a natural person able to carry out independent economic activities.
Question: 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 sole traders (PFA) that usually make a lot more money, can pay them according to the minimum gross salary of 3.000 RON/month, in 2023.
So, the differences can be overwhelming.
According to the law in place, at the moment, for an employee that earns 5.000 RON per month gross salary, the employee will pay monthly state contributions of 2,073 RON per month, and the employer will pay 113 RON per month for the 5,000 RON gross monthly salary (which has a net value of 2,925 RON). At the same time, 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 has changed starting in 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 sole proprietorships in Romania (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 has increased to 3,000 RON (gross monthly salary value) starting on January 1st, 2023.
You can contact our tax lawyers in Romania for more information about these changes and how they will influence your sole trader in Romania.
Question: Are there any advantages to opening a Sole Trader (PFA) instead of a SRL in Romania?
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.
Our team of lawyers can answer additional questions depending on the activity you will undertake using the sole proprietorship in Romania (PFA).
When starting any type of business, one might need a team of professionals who can lead him or she through the intricate legal provisions. This is where our team of laywers in Romania makes the difference. We are at your service anytime and ready to help you open a sole trader in Romania (PFA) or just to offer you the necessary legal information for your business. Call our law firm anytime for a free consultation.