A few years ago, Romania wasn't high on the list of countries favored by investors, startups, or entrepreneurs. Meanwhile, this EU member country has been developing its business climate and working on attracting new companies. Romania is particularly suitable for opening a small or medium enterprise since it has a growing startup ecosystem in Bucharest.
If you're wondering how you can set up a sole proprietorship in Romania, we have created this guide for you outlining all the steps of the registration process.
Disclaimer: Be aware that this article is not a substitute for legal advice. Please always check official websites or seek legal advice before you take action.
Sole proprietorship in Romania
If you wish to start a business and be self-employed, the ideal legal form for you is a sole proprietorship or PFA (Persoană Fizică Autorizată). It is straightforward to work under the PFA structure for locals, but less so for foreigners.
To become a PFA in Romania, you have to be over the age of 18 and have a professional qualification or degree in the field you want to work in. You also need to confirm you have not been convicted of tax evasion.
If you are a foreign national, you will also need to submit your passport and verify your residence in Romania. Lastly, you need to confirm a headquarters for your PFA with a rental agreement or ownership document. Since the bureaucracy may be overwhelming, if you are a foreign national in Romania, consider using legal or accounting help.
The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost. Still, sole proprietors are personally liable for all their business debts, which can be a disadvantage for some people.
However, as a sole proprietor, all of the business funds are at your disposal at all times. You can withdraw money without justifying it. When it comes to accounting, the only thing you need to do is keep a spreadsheet where you note all your transactions.
Registration and social security for self-employment in Romania
There is an obligation to register if you want to be self-employed in Romania, either for a sole proprietorship or in a limited liability company. You also need to register your business name. Keep in mind that for the self-employed in Romania, the company name must contain the founder's first and last name, followed by the name of the legal form - persoană fizică autorizată.
Sole proprietors need to pay pension and health contributions once they exceed the minimum income threshold. This rule means that if your income is lower or equal to the minimum salary, you only pay the income taxes. The contributions amount to 25% (pension) and 10% (health contributions) of the annual minimum wage. If your income is higher than 24,960 RON a year, there is a flat rate of 8,736 RON per year for contributions.
Taxes and VAT for sole proprietors in Romania
Being self-employed does not mean that you will receive a different tax treatment from a limited liability company. According to art. 269 of the Fiscal Code (found here in Romanian), everyone with a regular income needs to register their activity and income.
On the income and profits you make, the state will tax you at a 10% rate, one of the lowest in Europe. Reporting income tax is very simple for sole proprietors; you report it once a year by March 15th of the following year and up to 30 days after the start of business activity.
When it comes to VAT, your registration as a payer is dependent on your clients and your sales. If you work with EU-based clients, the VAT registration is mandatory regardless of your revenue. If you work with Romanian clients only, you will need to register as a VAT payer only if your income is larger than 300,000 RON annually. Reporting VAT also depends on your clients and revenue. You submit the reports either monthly or quarterly.
We hope this article was helpful on your journey to setting up a sole proprietor in Romania. If you expect to work with foreign clients, you might want to consider using Deel.
Benefits of using Deel
- Have a centralized platform that takes care of everything and streamlines the workflow
- Automatically generate invoices based on the contract details
- Manage payments in different currencies and withdraw with a payment method of your choice (SEPA, PayPal, Payoneer, or bank transfer).
- Get 24/7 access to customer support and a team of experts.