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Two of the important taxation models in Romania

Make the correct decision regarding your taxation model and pay less to state budget.

Two of the important taxation models in Romania – 16% on profit or 3% on revenue, which is the one that fulfills your business requirements?

Most of the entrepreneurs require specialized companies’ counsel when they set up a company in order to avoid roads, queues, unanswered questions and time lost.

As investors, you should be informed that even if you request third party consultation, there are still several extremely important aspects that you should mention before you receive requested help from professionals. These preliminary aspects depend on the activity that you want to develop and are connected to the future taxation environment and expenses to be incurred.

In the following paragraphs you will find important explanation related to those two tax possibilities that you have when you set up a Company in Romania. 

Tax on profit or tax on revenue

Every limited company is defined by her „ fax vector”. This vector represents the first card of the company in her relationship with the tax authority, respectively Romanian State. 

In Romania, the most important forms of taxation for earnings from economic activity are:

1. Tax on profit - 16% (difference between revenue and expense)

2. Tax on revenue – 3% (expenses incurred by the Company are not relevant to the tax level as the only figure that is being taxed is the revenue).

First category - Tax on profit Quarterly each company has to pay tax on profit if it records a profit from activity, by applying 16% on the difference between taxable revenue and deductible expenses. This calculation is done by the company’s accountant and if not done correctly you may pay less or more than you should. The problem of paying wrong amounts of tax to the state budget or even not paying at all is the penalty and interest that can be incurred if the tax authority checks this calculation and establishes material differences. Penalty will be applied on the difference and calculated starting the day that the income tax debt difference should have been paid.

The second category – Tax on revenue

The same procedure of quarterly payments is applied here also with the difference that this tax is payable only on the total of issued invoices (revenue), without having to consider the impact of incurred expenses. In this way the Company may have recorded loss for the interim financial period but has to pay nevertheless 3% on income. However it is worth mentioning that if the company has little expenses in her operational activity, and the profit is big, the economy registered from tax payable on income can be rather substantial.

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