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If I can run my business by myself and make it sufficiently profitable, that’s great. More often than not, though, I’ll have to identify the right talent and develop a team. Using the services of an accounting firm can greatly help: larger accounting firms have recruitment departments to simplify my search - and also offer payroll services, once I successfully hire my first employee.
Many people who would come and work in my team prefer the stability they perceive from having a work contract of unlimited duration, making them more confident: a labour contract offers them the quick possibility to take a loan, buy a house, think long term. The minimum gross wage is below EUR 500, out of which roughly 40% are salary taxes.
However, there are other ways, more tax-friendly, to make use of the services of a Romanian national. Having a work contract employer-employee is not the only way for me to attract and retain talent: some persons prefer the flexibility of offering me their services while they are either registered as sole traders (in Romanian, that is PFA, Persoana Fizica Autorizata), or they might even have their own company, therefore they will provide me with a Business-to-Business (B2B) service. This way, they can provide their services to multiple clients, especially if their knowledge or expertise is unique. Using the services of a PFA or of another firm would also reduce the taxes I pay.
Option A. Hiring an employee with a work contract
Option A. Hiring an employee with a work contract
Based on the work contract, every month the employee is owed by the employer a gross salary - with the employer being myself. The first tax I need to take into account, because I will have to pay it myself, as an employer, is a 2.25% tax for labour insurance (=ro. CAM, Contribuția Asiguratorie pentru Muncă) on the gross salary I pay my employee. The employee owes the following taxes:
25% Social insurance tax (=ro. CAS, Contribuția de Asigurări Sociale)
10% Health tax (=ro. CASS, Contribuția de Asigurări Sociale de Sănătate)
10% Income tax on the difference between income, on one hand, and CASS + CAS together, on the other hand: Income tax = 10% * (Income - CASS - CAS)
Option B. Making use of the services of a freelancer who has her own company in Romania
Option B. Making use of the services of a freelancer who has her own company in Romania
When the Romanian expert that I want in my team already has her own company, things are easier, because it is a simple business-to-business, B2B, service contract. For me, it is a very good model, because I will be able to deduct the expense as directly related to the functioning of my business in Romania.
The expert that offers me her services and has her own company might make me the price proposal based on the taxes she needs to pay - and it’s good for me to know the value of these taxes as well, so that I can better negotiate.
Taxes she pays
Taxes she pays
The first question is if her total annual revenue is higher than EUR 1 million. If yes, then it’s a profit-paying company.
For a profit paying company, the second question is if she has at least 1 full-time employee. If yes, she has the following taxes to pay:
16% profit tax
5% dividend tax on the dividends withdrawn
IF dividends > ~ EUR 5 000 THEN the individual shareholder(s) in the company of the expert who offers me her services each owe an annual social insurance tax of ~ EUR 500, capped at this value irrespective of the total value of the dividends withdrawn
for the employee in the company of the expert who offers me her services:
a direct tax of 2.25% * gross salary tax for labour insurance CAM
on behalf of the employee, the employer also retains and pays to the state budget the following taxes on the employees’ gross salary:
25% Social insurance tax (=ro. CAS, Contribuția de Asigurări Sociale)
10% Health tax (=ro. CASS, Contribuția de Asigurări Sociale de Sănătate)
10% Income tax on the difference between income, on one hand, and CASS + CAS together, on the other hand: Income tax = 10% * (Income - CASS - CAS)
If she doesn’t have an employee, she has the following taxes to pay:
16% profit tax
5% dividend tax on the dividends withdrawn
IF dividends > ~ EUR 5 000 THEN the individual shareholder(s) in the company of the expert who offers me her services each owe an annual social insurance tax of ~ EUR 500, capped at this value irrespective of the total value of the dividends withdrawn
Coming back to the first question: if her total annual revenue is below EUR 1 million, then it’s a type of company called microenterprise. In this case, the following question is if she has at least 1 full-time employee. If yes, she has the following taxes to pay:
1% revenue tax
5% dividend tax on the dividends withdrawn
IF dividends > ~ EUR 5 000 THEN the individual shareholder(s) in the company of the expert who offers me her services each owe an annual social insurance tax of ~ EUR 500, capped at this value irrespective of the total value of the dividends withdrawn
for the employee in the company of the expert who offers me her services:
a direct tax of 2.25% * gross salary tax for labour insurance CAM
on behalf of the employee, the employer also retains and pays to the state budget the following taxes on the employees’ gross salary:
25% Social insurance tax (=ro. CAS, Contribuția de Asigurări Sociale)
10% Health tax (=ro. CASS, Contribuția de Asigurări Sociale de Sănătate)
10% Income tax on the difference between income, on one hand, and CASS + CAS together, on the other hand: Income tax = 10% * (Income - CASS - CAS)
If she doesn’t have an employee, she has the following taxes to pay:
3% revenue tax
5% dividend tax on the dividends withdrawn
IF dividends > ~ EUR 5 000 THEN the individual shareholder(s) in the company of the expert who offers me her services each owe an annual social insurance tax of ~ EUR 500, capped at this value irrespective of the total value of the dividends withdrawn
Option C. Making use of the services of a freelancer registered as a PFA
Option C. Making use of the services of a freelancer registered as a PFA
A PFA (=ro. Persoana Fizica Autorizata) is a type of sole trader in which (s)he has 100% liability, as opposed to having a company, when the liability is 100% with the company. For me, it is a good model, because I will be able to deduct the expense as directly related to the functioning of my business in Romania.
The expert that offers me her services and is registered as a PFA might make me the price proposal based on the taxes she needs to pay - and it’s good for me to know the value of these taxes as well, so that I can better negotiate.
Taxes she pays
Taxes she pays
The freelancer registered as a PFA pays 10% income tax on the difference between income and expenses. If her annual income from the PFA is greater than ~ EUR 5 000, then she also needs to pay 25% social insurance tax (=ro. CAS, Contribuția de Asigurări Sociale) and 10% Health tax (=ro. CASS, Contribuția de Asigurări Sociale de Sănătate).
Frequency of tax payments
Frequency of tax payments
The frequency of tax payments for the freelancer registered as a PFA is yearly. She needs to file the Single Tax Statement (=ro. Declarație Unică) in 30 days after signing the contract with a company from abroad, ticking the box "Anticipated income from abroad".
For income obtained in Year 1, she needs to pay the taxes until 15 December of Year 1 (anticipated payment) or 15 March of Year 2 at the latest.
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