As part of the activity of our law firm, legal consultancy in various areas of civil law is essential.
This category also includes legal consultancy regarding everything related to the establishment, operation / dissolution / liquidation / restructuring of commercial companies.
Our team of lawyers has extensive experience in this field, has established hundreds of companies/entities with different organizational structures (eg: joint stock companies, limited liability companies, branches, representatives), has provided legal services for 23 years consulting clients both in the decision-making process before the establishment of the companies, as well as afterwards, within the professional’s activity in order to protect his interests or to solve the various circumstances that, invariably, any legal entity faces at a given moment. We can state, without false modesty, that all our clients are under the auspices of the principle we set for ourselves: “legal services oriented towards prevention, protection and the client’s interest.”
For this reason, our lawyers specialized in the law of commercial companies consider it appropriate to report some important aspects for professionals.
The conditions for carrying out the commercial activity as a micro-enterprise
As a result of the amendment of the Fiscal Code by Ordinance 16/2022, starting from 01.01.2023, the new conditions regarding the operation of micro-enterprise companies come into force.
What is a microenterprise?
The microenterprise is a company taxed with a tax of 1% of revenues and which cumulatively fulfills the following conditions (art. 47 of the Fiscal Code):
1. achieved incomes, other than those from consulting and/or management, in a proportion of more than 80% of the total incomes;
2. has at least one employee;
3. has associates/shareholders who hold more than 25% of the value/number of participation titles or voting rights in no more than three Romanian legal entities that qualify to apply the tax system on the income of micro-enterprises.
4. the total turnover at the level of a fiscal year does not exceed the value of 500,000 euros;
5. does not fall under the activities or organizational structures expressly exempted by the law.
In which situations does the microenterprise taxation system no longer apply?
According to article 52 of the Fiscal Code, a company loses the micro-enterprise regime if at least one of the following situations occurs:
(1) If during a fiscal year a micro-enterprise achieves revenues greater than 500,000 euros or the share of the revenues obtained from consulting and/or management;
Note: income from tax consultancy, corresponding to CAEN code: 6920 – «Accounting and financial audit activities; consulting in the tax field”. In other words, a company can obtain 100% income from tax consultancy and continue to operate as a micro-enterprise.
(2) In the event that, during a fiscal year, a micro-enterprise no longer fulfills the condition regarding hiring a full-time employee (or fulfilling the equivalent condition). In this situation, the company owes profit tax starting from the quarter in which this condition is no longer met.
Note: As exception, for a micro-enterprise with a single employee, whose employment relationship ends, if within 30 days from the termination of the employment relationship, a new employee is hired with an individual employment contract for an indefinite or fixed duration for a period of at least 12 months, the company will not switch to the corporate tax payer regime.
(3) Micro-enterprises that, during a quarter, begin to carry out activities among those for which it is not allowed to opt for the micro-enterprise regime. They owe profit tax starting from the quarter in which the respective activities are carried out.
(4) In the event that, during the fiscal year, any of the associates/shareholders of a micro-enterprise holds more than 25% of the value/number of participation titles or voting rights in more than three micro-enterprises, the associates/shareholders must establish the micro-enterprise / micro-enterprises that remain in the micro-enterprise regime and those that come out of this regime. The exit from the system of taxation on the incomes of micro-enterprises is communicated to the competent fiscal body and is definitive for the current fiscal year.
What are the exceptions to the application of the microenterprise regime?
Some companies cannot apply the micro-enterprise regime because they fall under the exceptions provided by the Fiscal Code (art. 47 para. (3) letter f)-i))
1. achieved income from consultancy and/or management in a proportion of over 80% of total income, with the exception of income from tax consultancy, corresponding to CAEN code: 6920 – «Accounting and financial audit activities;
2. Romanian legal entity that carries out activities in the fields of insurance and reinsurance, of the capital market, including the one that carries out intermediation activities in these fields;
3. Romanian legal entity carrying out activities in the field of gambling;
4. Romanian legal entity that carries out activities of exploration, development, exploitation of oil and natural gas deposits.
5. The deposit guarantee fund in the banking system, established according to the law;
6. The investor compensation fund, established according to the law;
7. The private pension guarantee fund, established according to the law;
8. The insured’s guarantee fund, established according to the law;
9. the fiscally transparent entity with legal personality.
Starting from January 1, 2023, Romanian legal entities carrying out activities corresponding to CAEN codes: 5510 – «Hotels and other similar accommodation facilities», 5520 – «Accommodation facilities for holidays and short periods», 5530 – «Parks for caravans, campsites and camps», 5590 – «Other accommodation services», 5610 – «Restaurants», 5621 – «Food activities (catering) for events», 5629 – «Other food services n.e.c.», 5630 – «Bars and other beverage serving activities» can opt for the application of the micro-enterprise fiscal regime. For income from other activities, other than the CAEN classes mentioned above, legal entities apply the profit tax declaration and payment system provided for in Title II “Profit Tax”, if they meet any of the following conditions:
- achieves revenues from consulting and/or management in a proportion of over 20% including total revenues;
- b) carry out activities for which it is not allowed to opt for the micro-enterprise system;
- c) income from other activities exceeded the equivalent in lei of 500,000 euros.
The exchange rate for determining the euro equivalent is the one valid at the end of the financial year preceding the one in which the revenues were recorded. They owe profit tax for income from other activities starting from the quarter in which any of these conditions were met, for the entire period in which the taxpayer exists.
Fiscal limits are checked based on cumulative recorded income since the beginning of the fiscal year, and the calculation and payment of the profit tax is carried out taking into account the income and expenses realized starting from the quarter in which any of the exclusion conditions were met.
Can micro-enterprises opt for the payment of profit tax?
Micro-enterprises cannot opt for the payment of profit tax during the fiscal year, the option can be exercised starting from the following fiscal year, except for the situation in which they no longer meet the conditions provided by law to apply this regime.
Can the microenterprise regime be established upon establishment?
A Romanian legal entity that is newly established can opt to pay tax on the income of micro-enterprises starting from the first fiscal year, if it meets the conditions provided by the Fiscal Code.
1. on the date of registration in the trade register: the company’s share capital is owned by persons other than the state and administrative-territorial units; has associates/shareholders who hold more than 25% of the value/number of participation titles or voting rights in no more than three Romanian legal entities that qualify to apply the tax system on the income of micro-enterprises (art. 47 para. (1) letter d) and h))
2. fulfilling the condition of hiring an employee or its equivalent, according to the law, within 30 days including the date of registration of the respective legal entity.
How to verify the share of income from activities that lead to the exclusion of the company from the application of the microenterprise regime?
The fiscal limits provided for income obtained from activities that lead to the exclusion of the company from the application of the micro-enterprise regime are verified on the basis of the accumulated income recorded since the beginning of the fiscal year. The exchange rate for determining the euro equivalent is the one valid at the end of the previous financial year.
How is the profit tax calculated and paid for companies that lose the microenterprise regime?
The calculation and payment of the profit tax by the micro-enterprises that lose the micro-enterprise regime as a result of fulfilling at least one of the exclusion conditions is carried out taking into account the income and expenses realized starting from the respective quarter.
How is the fiscal year determined for a microcompany?
The fiscal year of a micro-enterprise is the calendar year.
In the case of a micro-enterprise that is established or ceases to exist, the fiscal year is the period of the calendar year in which the legal entity existed.
What is the Taxable Base?
The taxable base on which tax rates of 1% are applied is represented by the total of quarterly revenues that are recorded in the credit of the accounts in the 7th class “Revenue accounts”, according to the applicable accounting regulations, from which some income categories are subtracted ( mentioned in art. 53 paragraph (1) of the Fiscal Code) and the elements (mentioned in art. 53 paragraph (2) of the Fiscal Code) are added.
What are the incomes that are deducted from the taxable base?
The following incomes are deducted from the taxable base (art. 53 paragraph 1):
a) revenues related to product inventory costs;
b) revenues related to the costs of services in progress;
c) revenues from the production of tangible and intangible assets;
d) revenues from subsidies;
e) income from provisions, adjustments for depreciation or loss of value, which were non-deductible expenses when calculating the taxable profit or were constituted during the period when the Romanian legal entity was subject to the tax on the income of micro-enterprises;
e^1) income from adjustments for expected losses related to financial assets constituted by Romanian legal entities that carry out activities in the banking field, in the fields of insurance and reinsurance, of the capital market, which were non-deductible expenses when calculating the taxable profit or were constituted in the period in which the Romanian legal entity was subject to the microenterprise income tax.
f) the income resulting from the restitution or cancellation of interest and/or delay penalties, which were non-deductible expenses when calculating the taxable profit;
g) the income obtained from compensations, from insurance/reinsurance companies, for the damages caused to goods of the nature of stocks or own tangible assets;
h) income from exchange rate differences;
i) financial income related to claims and debts with settlement depending on the exchange rate of a currency, resulting from their evaluation or settlement;
j) the amount of commercial discounts granted after invoicing, recorded in the “709” account, according to the applicable accounting regulations;
k) the income related to the payment titles obtained by the entitled persons, according to the law, initial holders in the records of the Central Commission for the Determination of Compensations or their legal heirs;
l) compensations received based on the decisions of the European Court of Human Rights;
m) income obtained from a foreign state with which Romania has concluded a double taxation avoidance convention, if they were taxed in the foreign state.
n) dividends received from a Romanian legal entity.
o) dividends received from a subsidiary of the micro-enterprise, a legal entity located in another member state of the European Union, to the extent that both the micro-enterprise and the subsidiary meet the conditions provided for in art. 24; the provisions of this letter prevail over those of letter m).
What are the incomes that are added to the taxable base?
In order to determine the income tax of micro-enterprises, the following shall be added to the taxable base:
a) the amount of commercial discounts received after invoicing, recorded in the “609” account, according to the applicable accounting regulations;
b) in the fourth quarter or in the last quarter of the taxable period, in the case of taxpayers who cease to exist, the favorable difference between the income from exchange rate differences/financial income related to receivables and payables with settlement depending on the exchange rate of a currency, resulting from the evaluation or their settlement, and expenses from exchange rate differences/related financial expenses, recorded cumulatively since the beginning of the year; in the case of micro-enterprises that become profit tax payers, this difference represents elements similar to the revenues in the first quarter for which they owe profit tax; in the case of micro-enterprises that become profit tax payers, in the first quarter of the fiscal year, the respective difference does not represent elements similar to income in this first quarter;
c) the reserves, except for those representing tax facilities, reduced or canceled, representing the legal reserve, reserves from the revaluation of fixed assets, including land, which were deducted when calculating the taxable profit and were not taxed during the period in which the micro-enterprises were and income tax payer, regardless of whether the reduction or cancellation is due to the change in the destination of the reserve, its distribution to participants in any form, liquidation, division, merger of the taxpayer or any other reason;
d) the reserves representing fiscal facilities, constituted during the period when the micro-enterprises were also paying profit tax, which are used to increase the social capital, for distribution to participants in any form, to cover losses or for any other reason. If the fiscal reserves are maintained until the liquidation, they are not taken into account for determining the taxable base as a result of the liquidation.
What is meant by an employee of a microenterprise?
According to the Fiscal Code, an employee means a person employed with a full-time individual employment contract, according to Law no. 53/2003 – Labor Code, republished, with subsequent amendments and additions.
Also, the Fiscal Code assimilates the following situations to the notion of employee, from the perspective of fulfilling the condition regarding the establishment of the micro-enterprise fiscal regime:
a) micro-enterprises have employees with part-time individual employment contracts, if the fractions of the norm provided in the individual employment contracts, added up, represent the equivalent of a whole norm;
b) micro-enterprises have concluded management or mandate contracts, according to the law, if their remuneration is at least at the level of the minimum gross basic salary per country guaranteed in payment.