Microenterprises: Possibility to opt for the Corporate Tax

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By Gabriela POPESCU, Senior Associate, GRUIA DUFAUT Law Office

Long-expected and heavily debated by the business environment, the Government Ordinance allowing microenterprises to opt again for the corporate tax has just been published in Official Journal no. 291 as of 30.03.2018 (OUG no. 25/29 March 2018). We hereby remind you that the rule is that microenterprises pay a flat-rate tax on turnover and not a corporate tax, as follows: 1% of turnover if they have 1 or more employees; 3% of turnover if they have no employees. The turnover threshold below which a company is considered a microenterprise for taxation purposes is 1 million Euros (the equivalent in Lei).

Microenterprises Referred to in the New Regulations

Please note that the new provisions of OUG no. 25/2018 apply exclusively to microenterprises which cumulatively fulfill the following conditions and which can therefore opt for the 16% corporate tax: If their share capital is at least 45,000 Lei (the equivalent of approximately 9,657 Euros) and if they have at least 2 full-time employees, hired under (i) an individual employment contract, (ii) an agency/a management contract, if the amount of their remuneration is at least equal to the minimum gross salary at country level (namely 1,900 Lei/month – the equivalent of approximately 408 Euros/month). Thus, the turnover threshold is currently 1 million Euros (the equivalent in Lei), compared to the previous thresholds of 500,000 Euros and 100,000 Euros.

Application of the Provisions of OUG no. 25/2018

The provisions stipulating the possibility of micro-enterprises to opt for the corporate tax apply from 1 April 2018, i.e. from the second quarter of 2018. Thus, microenterprises that cumulatively fulfill the legal requirements (share capital of at least 45,000 Lei and at least 2 full-time employees) can opt for the corporate tax only once, starting from the quarter when such conditions are fulfilled, their option being final. This option must be communicated to the relevant tax authorities, within the deadlines and in compliance with the legal provisions.

If a company decides to opt for the corporate tax and the number of employees varies during the year, falling below 2, the condition concerning the number of employees must be fulfilled again within 60 days, a deadline that is also extended during the next fiscal year.

In the event that these conditions are no longer fulfilled, the company will be subject again to the turnover tax, from the fiscal year following the year when the share capital falls below 45,000 Lei and/or when the number of employees falls below 2, provided of course that the company’s turnover does not exceed 1 million Euros (the equivalent in Lei).

Compared to the previous rigid regulations regarding the taxation of microenterprises, which have been the subject of much criticism from the business community, it is clear that the choice recently granted to companies by OUG no. 25/2018 is intended to stimulate domestic and foreign investment, as well as to encourage entrepreneurship in Romania.