How Are Small Companies Affected in 2023 - 1% or 16% Tax?

August 4th, 2022

The changes to the Tax Code bring a series of novelties starting January 1st, 2023 regarding micro-enterprises, according to Government Ordinance no. 16/2022 for the amendment and completion of Law no. 227/2015 regarding the Tax Code.

What conditions must companies meet in 2023 to pay 1% tax?

Soon, small companies will have to adjust their business in order to adapt to the new requirements for micro-enterprises.

Is it mandatory for the company to have an employee in 2023? Can I own several companies from 2023? What activities fall into the category of microenterprise income tax? When is the 16% profit tax paid? Here are just some of the questions we will answer next.

The main conditions for a company to pay tax on the income of micro-enterprises in the amount of 1% are:

  1. The company must have 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.

  2. In other words, a person can own maximum 3 micro-companies.

    Otherwise, the entity will pay 16% profit tax.

  3. The company has at least 1 full-time employee;;

  4. Income from consulting and/or management activities must be a maximum of 20% of the company's total income;

  5. Thus, consulting companies switch to profit tax..

  6. The new income threshold for micro-companies changes from 1,000,000 euros to 500,000 euros per year.

If these requirements are not met, the company will be charged 16%, instead of 1%.

It is important to specify that the 3% tax rate on the income of micro-enterprises disappears, as it will be mandatory for the company to hire at least one employee.

What activities fall under profit tax?

Distinct from the requirements mentioned above, there are certain activities that always fall under the profit tax system, namely:

  • banking field;

  • fields of insurance and reinsurance, of the capital market, including intermediation activities in these fields;

  • gambling;

  • exploration, development, exploitation of oil and natural gas deposits;

  • consultancy and/or management in a proportion of over 80% of the company's total revenues.

What happens if the company remains without an employee?

The company will switch to the profit tax regime and will pay 16%. It is mandatory that tax authorities (ANAF) be notified of the termination of the employment contract because the company no longer has at least one employee and no longer fulfills the condition to be considered a micro-enterprise.

In conclusion, it is clear that these tax changes have an impact particularly on small companies, which will have to act in time to keep the benefit of the reduced tax of 1%.

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