Exploring Legal Structures in Romania for Freelancers and Small Business Owners

Continuing our exploration of legal structures in Romania, we delve further into the realm of Limited Liability Companies (SRLs) for freelancers and small business owners. In this chapter, we focus on the essential steps involved in registering an SRL, deciphering taxation intricacies, mastering effective invoicing practices, managing client relationships, and embracing opportunities for professional growth. With this guide, you'll gain the insights needed to confidently navigate the intricacies of operating an SRL in Romania's dynamic business landscape.

2. Limited Liability Company (Societate cu Răspundere Limitată - SRL)

Registering as a Limited Liability Company

To operate legally, the first obligation is to establish a company. And to go through this process as smoothly as possible, it is necessary to know the criteria you must meet for setting up an SRL (Limited Liability Company), as well as the costs you will incur.

Here are the steps you need to follow before submitting the file for registration with the National Trade Register Office (ONRC):

Choose the CAEN code (National Classification of Economic Activities) based on the main activity you will undertake. You can choose multiple CAEN codes, both for the primary activity and for secondary areas of activity. All available CAEN codes can be found on the onrc.ro website.
Determine the name of your company and submit the application for availability verification at ONRC.
Establish the address of the registered office.
Don't forget about the Constitutive Act. This document includes information about administrators, associates, registered office, share capital, and other details required by Law No. 31/1990 on companies.
Choose the bank for depositing the share capital.

Once you have completed these steps, you can submit the registration file to the Trade Register. It must contain the following documents:

Registration application;
Name reservation certificate;
Constitutive act;
Document indicating the registered office address;
Copy of the identity card of the associates and the administrator;
Statements of the associates and the administrator, made under their own responsibility, stating that they can hold the respective positions; these statements must be notarized;
Declaration regarding the real beneficiary of the legal entity.

All the information you need about the SRL registration and the forms needed you can find here.

Consultancy

Trade register offices next to the courts offer free assistance services, including technical editing of registration applications and preliminary guidance on the legal procedures for establishing and modifying corporate articles.

Additionally, these offices also provide assistance for specific activities upon request and at the expense of professionals:

Preparation of articles of incorporation for legal entities that need to be registered in the trade registry.
Drafting the statute for a limited liability company with a sole shareholder.
Providing authenticated dates for documents prepared by the assistance services.
Preparing additional documents or, if applicable, resolutions of the general assembly of members or shareholders, as well as decisions of the board of directors for any changes to the articles of incorporation.

Costs for setting up an SRL in 2023

If you decide to handle the establishment of the company yourself, you will have the following costs:

Notarial statement and signature specimen; average price: 100 lei;
Deposit of share capital: with the entry into force of Law 223/2020 (for simplifying and streamlining the transfer of shares and the payment of share capital by amending Law No. 31/1990 on companies), the minimum share capital is 1 leu;
Fees at the Trade Register: approximately 150 lei.

In case you choose to use a company specialized in establishing firms, then the costs will be slightly higher.

After registration you must collect the following documents from the Trade Register:

Certificate of Company Registration;
Decision of the County Court attached to the National Trade Register Office;
Extract from the Trade Register.

Once you have obtained all the necessary documents, here's what you need to do:

Find and hire an accountant. While in the case of a Sole Proprietorship (PFA) you can handle the accounting yourself, for a Limited Liability Company (SRL), you either need an authorized accountant or a collaboration with an accounting expertise firm. Regardless of your choice, make sure there is good communication between you and your accountant, and that they understand your business and can provide recommendations when needed.
Acquire the mandatory registers for the SRL. For smooth business operations, you must have the following registers:

Inventory Register - where all inventoried items are recorded according to their nature.
Unique Control Register - which documents all the inspections received by the company.
Journal Register - where all economic and financial transactions are recorded.
General Ledger - containing the debit and credit account balances, as well as the account's balance for each month.

Accounting and Bookkeeping

Maintaining proper accounting practices is of utmost importance for businesses operating in Romania. The accounting landscape offers multiple approaches, each subject to specific regulations. Whether a company chooses to organize its accounting in-house or opt for external accounting services, understanding the relevant legal framework is essential. In Romania, the accounting processes of companies are strictly governed by the Accounting Law 82/1991, which establishes the rules and standards for financial recording, reporting, and disclosure.

The accounting of a company can be organized in two main ways. Firstly, it can be managed through separate departments led by individuals like the chief financial officer, chief accountant, or another authorized person with higher economic studies. Such individuals are responsible for ensuring compliance with accounting regulations and maintaining accurate financial records.

Alternatively, companies can choose to outsource their accounting through contracts with authorized individuals or legal entities. These accounting service providers must be members of the Body of Expert Accountants and Authorized Accountants in Romania. While this option allows businesses to delegate accounting responsibilities to professionals, it also entails holding these service providers accountable for accurate and transparent reporting.

The Role of the Accounting Law:

The backbone of accounting practices in Romania is the Accounting Law no. 82/1991. This legislation provides a comprehensive legal framework that companies must adhere to while managing their financial records and reporting. By establishing clear guidelines, the Accounting Law ensures transparency, accuracy, and consistency in financial reporting.

Financial Accountability and Tax Compliance:

One of the primary objectives of the Accounting Law is to promote financial accountability. By adhering to the law's provisions, companies demonstrate their commitment to accurate financial reporting, building trust among stakeholders, including investors, creditors, and customers.

Additionally, compliance with the Accounting Law facilitates tax compliance. Proper financial recording and reporting help companies accurately calculate and pay their taxes, reducing the risk of penalties and legal consequences.

Reliable Financial Information for Decision-making:

The Accounting Law's strict regulations provide companies with reliable financial information, essential for informed decision-making. Accurate financial data empowers businesses to evaluate their financial performance, strategize for the future, and make sound investment decisions.

Invoicing

As an SRL (Societate cu Răspundere Limitată) in Romania, invoicing is a critical aspect of your business operations. Proper invoicing ensures that you receive payment for your goods or services and helps you maintain accurate financial records. Here's everything you need to know about invoicing as an SRL in Romania:

Mandatory Information on Invoices: Invoices issued by your SRL must contain specific information to be considered valid for tax and accounting purposes. This information includes:

The word "Factura" (Invoice) clearly displayed on the document.
Your company's full legal name, address, and fiscal identification code (CUI).
The customer's full name and address (if applicable).
The unique invoice number and date of issuance.
The date of supply or the date of receiving payment (if different from the issuance date).
A detailed description of the goods or services provided, including quantity and unit price.
The total amount payable, broken down by tax rates (if applicable).
The applicable VAT rate(s) and the corresponding VAT amount (if applicable).
The currency used for the transaction (if different from the national currency, RON).

VAT Rates and Exemptions: As an SRL in Romania, you must charge VAT on applicable goods and services at the correct rates. The standard VAT rate in Romania is 19%, but there are also reduced rates of 9% and 5% for specific goods and services. Some goods and services may be exempt from VAT altogether. Make sure you apply the correct VAT rate to each transaction.
Currency: Invoices in Romania are generally issued in the national currency, Romanian Leu (RON). However, if you conduct transactions in foreign currencies, you must also indicate the equivalent amount in RON based on the exchange rate on the date of supply.
Invoicing Frequency: There are no specific regulations on the frequency of invoicing in Romania. You can issue invoices immediately after the completion of a transaction or provide periodic invoices, such as monthly or quarterly statements, depending on your business needs.
Retention and Archiving: Invoices and supporting documents must be retained and archived for a minimum of 10 years from the end of the fiscal year in which the transaction took place.
Issuing Corrective Invoices: If you make errors on an invoice or need to modify it after issuance, you can issue a corrective invoice to rectify the mistake. Corrective invoices must reference the original invoice number and provide a clear explanation of the changes.
Online invoices: The issuance of online invoices is a procedure that is 100% compliant with the law. It actually represents an efficient alternative to issuing invoices using printed forms. Law no. 148/2012

It's essential to keep up-to-date with the latest regulations and requirements related to invoicing in Romania to ensure compliance with the law. If you have any doubts or specific questions about invoicing, it's recommended to seek guidance from a tax professional or accounting expert familiar with Romanian regulations.

Taxation

Taxation for an SRL (Societate cu Răspundere Limitată) in Romania is an essential aspect of running your business. Here's a comprehensive overview of the main taxes that apply to an SRL in Romania:

Corporate Income Tax

Corporate Income Tax in Romania is a tax levied on the profits made by companies, including SRLs (Limited Liability Companies). The standard tax rate in Romania is 16%, applicable to the taxable profit earned by a company during a fiscal year. However, there are certain exceptions and special regimes that may apply to specific types of companies or economic activities.

It's important to note that the taxable profit is determined based on the company's financial statements and accounting records, adjusted according to the provisions of the Romanian tax law. The tax year for corporate income tax purposes generally follows the calendar year, but companies can choose a different fiscal year under specific conditions.

Taxpayers are required to calculate and declare their corporate income tax liability annually and submit the tax return to the tax authorities by the prescribed deadline.

However, if your SRL qualifies as a microenterprise under certain conditions, it can benefit from a reduced tax rate of 1% applied to its turnover (gross income). To qualify for the microenterprise regime, your SRL must meet specific cumulative conditions, including generating revenues below a certain threshold and having a certain ownership structure. The microenterprise regime is optional, and companies can switch between the standard corporate income tax and the microenterprise tax system under certain conditions.

2. Social Contributions owed by an SRL

If you have chosen to establish an SRL (Limited Liability Company), you should know that there are several reasons why it is beneficial to also be employed by the company:

· You benefit from a reduction in income tax payment.

· You are entitled to health insurance and unemployment benefits.

If the SRL has employees, it is required to pay social contributions to the health fund and pension fund. Although some contributions are owed by the employee, all contributions will be paid by the employer.

The amounts owed will be deducted from each gross salary as follows:

Insurance for Work (CAM) - social contributions owed by the employer - 2.25% of the gross salary.
Social contributions owed by the employee - 45%:

· Social Insurance (CAS) - 25%;

· Health Insurance (CASS) - 10%;

· Income Tax - 10%.

3. VAT

When the SRL becomes a VAT payer, specifically when its revenues exceed 300,000 lei in a fiscal year, there is an obligation to register for VAT within 10 days from the end of the respective month in which the threshold was reached.

The standard VAT rate in Romania is 19%, with two exceptions:

• 9% for deliveries of goods or services such as orthopedic products, human or veterinary medicines, seeds and ingredients for food preparation, delivery of pesticides and fertilizers, etc. Starting in 2023, accommodation, restaurant, and catering services are also subject to 9% VAT, while in 2022, they were classified under the 5% VAT category.

• 5% for deliveries of goods or services such as school textbooks, books, magazines, zoos and botanical gardens, delivery of eco-products, delivery of firewood, etc.

In the case of newly established enterprises, which are automatically registered as non-VAT payers (except when voluntarily opting for VAT registration), firms do not pay VAT if their annual turnover is below the threshold of 300,000 lei.

Obligations as a VAT taxpayer:

As a VAT taxpayer, submit periodic VAT declarations depending on the tax period (monthly or quarterly).
Submit Form 300 - VAT return and Form 390 for intra-community supplies, services, and acquisitions (if applicable) by the 25th of the current month for the previous month.
Companies registered as VAT payers must also submit Form 394 for domestic supplies of goods, services, and national acquisitions, by the 30th of the following month after the reporting period.

4. Dividend tax

What are dividends

According to the Fiscal Code, a dividend represents a distribution in cash or in kind, made by a legal entity to a participant, as a result of holding participation titles in that legal entity.

Taxation of dividends in 2023

Tax on dividends: Government Ordinance no. 16 of July 15, 2022, amending and supplementing Law no. 227/2015 on the Fiscal Code stipulates that: The tax on dividends is determined by applying a tax rate of 8% on the gross dividend paid to a Romanian legal entity. The tax on dividends is declared and paid to the state budget until the 25th day of the following month after the dividend payment.

According to the Fiscal Code, the obligation to calculate and withhold the tax on income in the form of dividends lies with the legal entities (SRL) upon payment of dividends / amounts representing gains resulting from the holding of participation titles by shareholders / associates / investors.

The deadline for remitting the tax is until the 25th day of the following month after the payment. In the case of dividends / gains obtained as a result of holding participation titles, distributed but not paid to shareholders / associates / investors by the end of the year in which they were approved for distribution, the tax on dividends / gains is paid until January 25th of the following year of distribution. The due tax is fully remitted to the state budget.

2. Health contribution related to dividend income: Starting from this year (2023), the calculation base for the health insurance contribution owed by individuals who earn income from dividends, independent activities, copyright, rents, leasing of goods, etc., is determined based on 3 thresholds.

The income received from dividends is taken into account (after the payment of the 8% tax). It is also important to mention that this amount of the health contribution is calculated using the level of the current gross minimum wage in the country at the time of submitting the Single Tax Return (Declarația Unică).

Taxpayers who obtain income such as those mentioned above have the obligation to estimate the annual net income for the current fiscal year, in order to determine the estimated annual tax, by submitting the unique declaration on income tax and social contributions until May 25th of the year in which the income is earned.

Client management and contracts

Client management and contracts are essential aspects for freelancers and small business owners in Romania to ensure smooth operations, protect their interests, and maintain positive client relationships. Here are some key considerations:

Clear Scope of Work: Before starting any project, it's crucial to have a clear scope of work agreed upon with the client. Outline the project's objectives, deliverables, timelines, and any specific requirements. This clarity helps avoid misunderstandings later on.
Written Contracts: Always use written contracts when working with clients. Contracts should include project details, payment terms, intellectual property rights, confidentiality clauses, dispute resolution mechanisms, and any other relevant terms. Having a contract in place provides legal protection for both parties.
Payment Terms: Clearly define your payment terms in the contract, including the payment schedule, accepted payment methods, and any late payment penalties. Promptly issue invoices and follow up on outstanding payments to maintain healthy cash flow.
Communication: Effective communication is vital for client management. Regularly update clients on project progress, seek feedback, and address any concerns promptly. Clear and open communication fosters trust and builds stronger client relationships.
Managing Expectations: Set realistic expectations with clients regarding project timelines, deliverables, and outcomes. Be transparent about any potential challenges and how you plan to address them.
Quality and Professionalism: Consistently deliver high-quality work and maintain a professional demeanor. Satisfied clients are more likely to become repeat customers and provide referrals.
Client Feedback: Actively seek feedback from clients after completing projects. Client feedback helps you understand your strengths and areas for improvement, allowing you to enhance your services.
Intellectual Property Rights: Clarify intellectual property rights in the contract to avoid disputes over ownership of the work product.
Legal Compliance: Ensure that your contracts and business practices comply with Romanian laws and regulations. Seek legal advice if needed, especially for complex projects or unique situations.
Document Everything: Keep records of all communications, project updates, and client interactions. These records can be valuable in case of any disputes or misunderstandings.

By implementing effective client management practices and using well-structured contracts, freelancers and small business owners in Romania can establish strong professional relationships, protect their interests, and foster long-term success in their ventures.

Professional development and networking

Professional development and networking opportunities are crucial for freelancers and small business owners in Romania to stay competitive, enhance their skills, and grow their ventures. Here are some aspects to consider:

Workshops and Training Programs: There are various workshops, seminars, and training programs organized by industry associations, business incubators, and entrepreneurial organizations in Romania. These events cover a wide range of topics, from marketing and finance to technology and innovation. Attending such programs can provide valuable insights and knowledge to improve business practices.
Online Courses and Webinars: Many online platforms offer courses and webinars that freelancers and small business owners can take advantage of. These platforms provide flexible learning options, allowing entrepreneurs to learn at their own pace and convenience.
Networking Events and Business Conferences: Networking events and conferences provide opportunities to connect with other professionals, potential clients, and business partners. It is an excellent way to expand your professional network and gain new business opportunities.
Business Incubators and Accelerators: Some cities in Romania have business incubators and accelerators that support startups and small businesses by providing mentorship, office space, and access to funding sources.
Online Networking Platforms: Social media platforms and professional networks like LinkedIn can be valuable for freelancers and small business owners to connect with potential clients and collaborators.
Mentoring Programs: Seeking mentorship from experienced professionals in your industry can offer valuable guidance and help you avoid common pitfalls in business.
Collaborative Spaces and Co-Working: Collaborative spaces and co-working offices are popular among freelancers and small business owners, offering a vibrant environment for working and networking with like-minded individuals.

By actively engaging in professional development and networking opportunities, freelancers and small business owners in Romania can enhance their skills, stay informed about market trends, and foster valuable connections to grow their businesses successfully.

In conclusion, establishing and operating a Limited Liability Company (SRL) in Romania involves a multifaceted journey that requires careful planning, adherence to legal regulations, and a commitment to sound business practices. From the initial steps of registration and choosing the right CAEN code to managing client relationships, invoicing, taxation, and ongoing professional development, each aspect plays a vital role in the success of your venture.

In your pursuit of excellence, consider seeking professional guidance, whether from legal experts, accountants, or mentors who can provide tailored insights and help you navigate challenges effectively. With dedication and a commitment to upholding the highest standards, your Limited Liability Company can thrive, contribute to the economy, and realize its full potential in Romania's vibrant business ecosystem.

Here's to a future filled with growth, innovation, and prosperity for your Limited Liability Company in Romania.