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Romania - Fiscal changes coming soon - Need Plan B

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Any link to read(even in Romanian)?

I just applied for tax residency last month. The‌ changes in the first post look scary especially considering the deadline.

Romania also has a‍ solo trader option which is a bit more expensive than SRL micro company, but considering⁠ the changes it makes sense to switch.

A good reason to stay in Romania is⁤ 10% capital gains tax which is one of the lowest in EU.
 
Alright, so it seems that the solo trader option(PFA) is also getting knifed. The limit‌ will be around 20k eur plus extra taxes.

Dividend tax info is contradictory at the‍ moment, but might get to 10% or stay at 8 for now. But it will⁠ be raised again, that's for sure.

So, according to some sources, deadlines:
1st September -⁤ CG changes, might be something positive. If I'm reading it right, moving yours stocks to⁣ Romania and then selling after will save 7% on capital gains.
1st Oct - Revenue⁢ tax increase from 1 to 3%. Still ok, not the end of the world.
1st Jan - After 60k eur per year the company switches to 16% tax. So still︀ not bad, have some time to reach the cap before moving somewhere else.

Just need︁ to figure where to?

That's true. But the trend is very visible, and the deadlines are soon.︂ One should not terminate everything tomorrow, but start searching for a way out already.
 
For many people with a Romanian micro company it makes sense to max out the‌ possible benefits and have an alternative structure available when you are getting close to relevant‍ thresholds.

I would use the Romanian company shares to make a capital contribution to the⁠ Estonian holding company.
Estonian company only pays tax on distributions so it can be effectively⁤ 0% tax vehicle.

Now you can have an Estonian company as a parent with a⁣ Romanian subsidiary.
As per EU parent-subsidiary directive the profits distributed by a subsidiary to its⁢ parent company are exempt from withholding tax. Similarly, Estonia may not and will not charge︀ withholding tax on the profits that this company receives from its subsidiary and can redistribute︁ them tax free. Immediately saving 8% tax and you will only pay this revenue tax.︂

Lets say we used discounted cash flow method and valued the romanian subsidiary as EUR︃ 500k.
Now the holding will be generating 500k surplus cash over time. As we are︄ sort of miser and don't want to pay 20% tax we will not distribute dividends︅ from the operating profits of the Estonian holding. Instead, at some point we would consider︆ the holding company to be overcapitalized and decide to reduce the capital up to the︇ extent of the previous capital contributions leaving us with additional EUR 500k tax-free income (which︈ will not even be considered income, although technically it is).
Because the amounts are so︉ low and we have structured everything appropriately we don't need to involve auditors in the︊ process.

Estonian company with a branch in Bulgaria is also a great structure with maximum︋ 10% total tax.
You can structure the profits that you need to distribute under Bulgarian︌ branch where they will be taxed at 10% and reinvestable profits to Estonia where they︍ will not be taxed if not distributed (0%).
 
But you︎ will eventually have to pay those 20% of Estonian tax? Plus anything that your current️ residency will require
Although keeping the money in Estonia for years and reinvesting sounds tempting.‌
 
No this dividend will not be taxable in⁠ Estonia. With Estonian holding you can accumulate rights to pay out tax free profits and⁤ pay them out whenever you want (e.g., when your tax residency is in a good⁣ place) and meanwhile reinvest.

A resident company, including a general and limited partnership, shall pay⁢ income tax on profit distributed as dividends or other profit distributions upon payment thereof in︀ monetary or non-monetary form (no tax before distribution)

The income tax is not charged︁ on

dividends, if:
1) the resident company paying the dividend has derived the dividend which︂ is the basis for the payment from a resident company of a Contracting State or︃ the Swiss Confederation subject to income tax (except for a company located in a non-cooperative︄ jurisdiction for tax purposes) and at least 10 per cent of such company’s shares or︅ votes belonged to the company at the time of deriving the dividend;

2) the company︆ paying the dividend has derived the dividend which is the basis for the payment from︇ a company of a foreign state (except for a company located in a non-cooperative jurisdiction︈ for tax purposes) and at least 10 per cent of such company’s shares or votes︉ belonged to the company at the time of deriving the dividend, and income tax has︊ been withheld from the dividend or income tax has been charged on the share of︋ profit which is the basis thereof;

PE profits, if:
a) the dividend is paid out︌ of the profit attributed to foreign permanent establishment of a resident company and income tax︍ has been charged on such profit;

b) the dividend is paid out of profit attributed︎ to a resident company’s permanent establishment located in a Contracting State or Swiss Confederation;
 
>If your profit is over 30%, you ll be taxed 16%
Where did you find‌ information about this proposal? It would mean for an IT freelancer, the combined tax rate‍ of 16% profit tax + 10% dividends gives a combined taxation of >24% at a⁠ near 100% profit margin.

>the non-ceiling of social health insurance contribution taxes for freelancers (PFAs)⁤
Does this mean a PFA would have to pay in total 10% income tax + 35% social security contribution = 45% effective tax?
 
Thanks interesting.
I have been reading these documents, however don't fully understand one thing.

https://contapp.ro/blog/wp-content/uploads/2023/07/Ordonanta-modificare-cod-fiscal-2023-2024.pdf
Looking at Section 84D;

nivelul de 36 de salarii minime brute pe ţară, în vigoare‌ la termenul de depunere a declaraţieiprevăzute la art. 120, în cazul veniturilor realizate cel puţin‍ egale cu 36 de salarii minime brute peţară

If I read correct, the proposal would⁠ have PFA Social Security contribution be capped at 36 minimum wage (up from a max.⁤ of 24 minum wage previously)?
 
I have to say, it's a little bit unclear for me.
This blog;
https://reinventconsulting.ro/modif...GPgJMWVdDSz49GH-7w9gL35C0a8-3ysQxxjgJNx9-HtecPFAs will pay CASS 10% applied on all taxable income earned – any cap below which‌ no health is due is removed

And this news article;
https://therecursive.com/romania-new-fiscal-measures-threat-for-it/the non-ceiling of social‍ health insurance contribution taxes for freelancers (PFAs)

Seems to mention completely removing the cap. So⁠ that information is not correct then?
 
I didn't understand this part, can you explain it a bit more?
And why would you⁢ need to do something like this? If the dividends were taxed in Romania, shouldn't it︀ be possible to distribute them free of tax anyway?
More importantly maybe: Will Romania accept︁ the substance of your Estonian holding company?

What if the tax authorities of either country audit you?
 
Yeah, but we were talking about using a holding company? Why would you then have‌ to use this capital contribution trick (which I didn't understand)?
 
Indeed its not mandatory at all - just an example how you can pay zero⁠ tax for many years with certain business models.
 
What isn't‍ mandatory? You mean zero tax, as in no tax in Romania either?
Could you please⁠ explain that trick again in more detail? It sounded interesting, I just didn't understand it.⁤
 
Oh, very good news! Only 2% tax‌ increase is perfectly fine. No need to panic and move to Cyprus yet xD
 
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