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Micro-enterprise or profit-tax paying company?

In Romania, the choice between establishing a profit-tax paying company and a micro-enterprise can significantly affect taxation, administrative burden, and operational flexibility.


Micro-companies versus profit-tax paying companies in Romania


Profit-making Company


Pros:

  • Flexibility in Operations: Offers more flexibility in terms of operational scope and the ability to engage in various business activities.

  • Credibility: May be perceived as more credible and stable by clients, partners, and financial institutions.

  • Growth and Investment: Suitable for businesses planning to scale, seek investment, or go public.

  • Tax Deductions: Offers more opportunities for tax deductions and incentives, especially for larger investments.


Cons:

  • Higher Tax Rates: Subject to a corporate tax rate of 16% on profits, which can be higher than the tax rate for micro-enterprises.

  • Increased Compliance: Faces more rigorous accounting, reporting, and compliance requirements.

  • Administrative Costs: May incur higher administrative costs due to the need for more complex accounting and legal services.



Micro-enterprise


Pros:

  • Lower Tax Rates: Benefits from a lower tax rate on total income, which can go as low as 1%, making it more suitable for small or starting businesses.

  • Simplified Administration: Enjoys simplified accounting and reporting requirements, reducing administrative burdens and costs.


Cons:

  • Revenue and Activity Limitations: Eligibility for micro-enterprise status is subject to annual revenue thresholds and restrictions on certain activities

  • Limited Scalability: As the business grows and revenue exceeds the threshold, it will transition to the standard tax regime, which may not be as favourable.

  • Perception Issues: May be perceived as less credible or stable by some clients and partners, especially in certain industries or when dealing with larger companies.


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