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 health contributions once they exceed 6 times the minimum income threshold, i.e. RON 216,000 (for 2023). This rule means that if your income is lower or equal to this threshold, you only pay the income taxes.
Sole proprietors exceeding 12 times the minimum income threshold, i.e. RON 432,000 (for 2023), also need to pay social security contributions.
The health insurance and social contributions amount respectively to 10% and 25% and the base subject to these contributions depends on the income.
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Taxes and VAT for sole proprietors in Romania
Self-employed individuals with a regular income need to register their activity and income.
On the income you make, a 10% tax rate applies, one of the lowest in Europe.
Reporting income tax is very simple for sole proprietors; you submit a return regarding your estimated income up to 30 days after the start of business activity. The next year, by May 25th, you will report a single tax return about income derived in the previous year and estimated income for the current year.
When it comes to VAT, you will need to register as a VAT payer only if your taxable supplies is higher than 300,000 RON annually. You can voluntarily register for VAT if the amount is lower. You submit the reports either monthly or quarterly, depending on your income.
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.
If you're not looking to become an independent contractor, but hire one - learn how you can do it compliantly in Romania.
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