CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. Contributed Articles
  3. Low Corporate Tax Countries in Europe: How to Legally Pay 1%

Low Corporate Tax Countries in Europe: How to Legally Pay 1%


Contributed by Zugimpex
September 3, 2020



The average corporate tax rate in the EU is set to reach 21.30% in 2020. There are some ways to get away with paying less. For instance, Malta has a 6/7 refund scheme for non-residents (an effective tax rate of 5%), while Ireland and the Netherlands offer a "sandwich" solution to decrease the CIT to less than 5%.

Also, there are member states with a low flat corporate tax rate: 9% in Hungary and 10% in Bulgaria.

However, a real discovery for low tax seekers is Romania! Its micro-company scheme offers a straightforward and fully compliant way to pay a corporate tax of 1%.

Set Up a Micro-Company in Romania

According to the Romanian Fiscal Code, micro-companies in Romania can benefit from a tax rate of 1% if they:

  • show a total turnover of less than 1,000,000 EUR in the previous year
  • hire at least one Romanian citizen (otherwise, the tax rate will be 3% instead of 1%)

It is important to highlight: the 1% rate applies to the net sales. Therefore, sometimes it makes sense to pay a higher net profit-based rate than a lower revenue-based rate. To opt for the former, a company needs to have a share capital of at least 45,000 RON (~9,000 EUR) and employ two persons or more. Whenever the microenterprise criteria are not met (e.g. earnings exceeded the 1,000,000 EUR threshold), the company automatically switches to the 16% tax rate in the same quarter. The article "Micro-Enterprise in Romania: 1% Corporate Tax" by Zugimpex provides a good example in this regard:

"If a company earns 150,000 EUR and spends 145,000 EUR on salaries and other expenses, it is cheaper to pay 16% from the net profits (800 EUR) than 1% from the total turnover (1,500 EUR)."

What to Do Next

There are different ways to take money out of a tax-effective Romanian micro-company.

For instance, if another EU or Swiss company holds at least 10% of its shares, dividends can be distributed at the corporate level tax-free, under the EU Parent-Subsidiary Directive.

In the case of individuals resident in low-tax countries such as the UAE or Monaco, there is a possibility to withdraw dividends at favourable rates (normally, 0-5%), based on double tax treaties in force.

Finally, it is important to note that a Romanian company cannot be used as a shell company for avoiding taxes. It must have real substance, including employees and/or physical office. Its input to a company's turnover should justify the part of revenue attributed to the Romanian company in case of a holding.

Final Takeaways

The Romanian micro-company scheme is a true discovery for aspiring entrepreneurs or those who are looking to redomicile their offshore companies to safer jurisdictions. Not only is it tax-attractive, but also it guarantees continuity (being fully compliant with EU regulations) and opens access to smart low-cost labour. In short, setting up a Romanian microenterprise is cost-efficient and safe. Worth trying!

 

Tags: European Union (EU) | Romania | tax | tax planning

 

 

Back to Articles

















Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »



Stay Updated

Please enter your email address to join the Tax-News.com mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.


To manage your mailing list preferences, please click here »

Network Blogs and Features