Romanian micro-company

[Jocelyn]

From how I read your post, I get the feeling you might not want to live in Romania, but be a tax resident there.

I have no major desire to live in Romania but I am a digital nomad. I can spend X number of months there and pretend to live there X more, to add up to 183 days. I spend most of my time in Asia, but I want a European presence cause it is easier to get good "free" or cheap healthcare in Europe.

Few other desireable places have the low dividend tax of Romania, and most other EU destinations will add the difference between Romanian and their dividend taxation if I live there.

 

[soomon]

I feel you. I truly do. I just wonder at what point in time countries will start enforcing tax on digital nomads or fine them, since they do work and usually are on a tourist visa, as well a usually trigger CFC and PE rules and thus become liable for taxes. That is why I want to point that out.
I do hope they will not go that route and accept digital nomads as visitors.
Regarding the 183 day rule, if you manage to somehow "proof" or convince authorities you were there for 183 days even though you weren't, you'll be good on that front
What I understand is that should I move abroad and back later on, I might have to convince my authorities what I actually lived there. Should I fail to do that, they might tax me with the local taxes in addition to the ones on Romania.
I do not want to tell you what to do and I most certainly do not want to tell you to stop being a DN or travel less. I only wanna point out these potential issues

 

[orangekangaroo]

@soomon I see more and more countries welcoming Digital Nomads (the richer ones) with special visas, regulation and taxation. Just like some countries have options for investors and pensioners. But that is a bit off-topic.

 

[Jocelyn]

I hear you. I believe moving from one EU country to another EU country is way easier and relaxed than just telling your original country "I lived in Vietnam all year so I don't want to pay tax".
Romania will still get the 3% on my revenue and 5% on my dividend so they should for all intents and purposes be happy that I spend time there.

 

[Jocelyn]

Attached the guidelines of the Romanian Tax Office - hope someone can clarify.

I read that guideline now. Very informative.
I still do not have clear answers for you. I do feel quite at ease when it comes to the Romanian tax man though. If I rent an apartment, and I submit the declaration that I have stayed 183 days, within 30 days of those 183 days expiring, all should be good. Especially since I am paying them money.

If in doubt. Get a Romanian ID card or exchange your driving license for a Romanian one. (talking about EU citizens now). Then get a Romanian health insurance. This is just to be 100% safe.

What is my concern is the taxman in the high tax EU country that I am a citizen of. But since I fulfill the Romanian obligations, they should treat me as somebody that has moved permanently.

 

[soomon]

What is my concern is the taxman in the high tax EU country that I am a citizen of. But since I fulfill the Romanian obligations, they should treat me as somebody that has moved permanently.

Exactly. I opened a thread about this in the tax forums here. let's see what information people will share with us. But I agree with the one that already came back: get a tax lawyer in the high tax country and ask them. I guess this cannot be avoided and the money seems to be very well invested if it saves you thousands of euros later on.

 

[JustAnotherNomad]

No authority will ever complain or second-guess that you want to be a tax resident of their country. After all, you're bringing them money.
The risk is always with your home country, which would lose tax revenue: They may question your new tax residency and demand proof.

 

[1nomad]

anybody knows The Counselor | law practice ? They are quite cheap (RO micro-company for EUR 400) but I don't know if I can trust them

 

[ilpablo]

Hi guys, so far i opened my Romanian micro-company and setup my residency. To get a tax certificate you need to show a rental contract within six months.

My lawyer told me with a company, residency certificate, rental contract, bills in my name and a tax certificate i will be bulletproof even if i don't spend at all 183 days here and i travel without staying more than 183 days in any other country. What do you think? Any thoughts?

 

[orangekangaroo]

Hi guys, so far i opened my Romanian micro-company and setup my residency. To get a tax certificate you need to show a rental contract within six months.

My lawyer told me with a company, residency certificate, rental contract, bills in my name and a tax certificate i will be bulletproof even if i don't spend at all 183 days here and i travel without staying more than 183 days in any other country. What do you think? Any thoughts?

Cut your ties as much as you can elsewhere. Don't advertise your whereabouts. Your country of citizenship is probably the most difficult one in terms of proofing you have left.

 

[ilpablo]

Cut your ties as much as you can elsewhere. Don't advertise your whereabouts. Your country of citizenship is probably the most difficult one in terms of proofing you have left.

Yes, i do agree with you.
So, if i follow these rules it should be fine even if i live somewhere else?

My country of origin: A (days spent 160, but no ties)
My country of residence: B (days spent 30/40, company setup here, rental contract, mobile phone, tax certificate)
Country where i stay: C,D,E the rest of the year

According to the Romanian tax office, in order to be considered Romanian tax resident and get a tax certificate you should:

1) Have a permanent address in Romania
2) Have Romania as the center of your vital interests
3) Have a permanent place of residence (buy a home or rental agreement)
4) Spending more than 183 in the country


For my country is almost the same.

So if i satisfy the first 3 of these 4 points i should be okay (Address, company, rental contract)... Plus I've added a local bank account and mobile phone.

Can I travel and sleep at night now?

 

[JustAnotherNomad]

160 days is a LOT. It's also many more days than you spent in country B.
The authorities of country A (if they find out) could take the stance that B is just your holiday home and that country A is still your real home.
It depends on how strict the laws of country A are and what the tax treaty between A and B says, if there is one.

 

[Bl4ckJackk]

Hey guys, does any one of you use the micro-company for long term investing in many different assets, not just stocks? Hear me out I'm trying to figure these things out.
The increase of dividend tax to 8% is not so nice, but I think the effect of taxing revenue with only 1% and the potential to keep almost 99% in the micro-company as retained profits to reinvest has great potential.

Let me do an example with probably the second best jurisdiction that I found for my case (software dev freelancer 200k euro/year) Bulgaria. The overall taxes would come to about 9%. So let's say I would make 200k in Bulgaria with my sole proprietorship and have to pay 18k of it every year (some of it monthly) to taxman. Now I am left with 182k in my personal bank account and I want to invest, let's say for the sake of this example I buy a stock. The stock doubles in value in one year. Therefore I have made 182k profit that I will have to pay 10% Bulgarian Capital gains tax on (18,2k). In the end, I am left with 182 * 2 - 18,2 so about 345,8k.

Now for the example with Romanian micro-company, I only pay the 1% (2500 eur) tax every year and some additional insurance contributions from employing myself from my min. salary, which would be like 2700 eur a year. There is I think another 600 eur a year if I pay out large dividends, which is not the case here.
This would leave me with 200 000 - 2500 - 2700 = about 195k or like 2% tax. Now the same thing, I invest it in a stock and it doubles. I invested 195k, now it is 390k and the tax on profit is either the 1% again at the end of the year (if it is considered a company profit taxed as corporate tax under micro-enterprise) or 10% as typical capital gains tax in romania.
So If it was the 10% capital gains tax, I am left with 390 - (390/2 * 0,1) = 370,5k. Which is much better than the first case, but is this money still considered to be inside the company, therefore if I wanted to use it eventually, I would have to pay that 8% dividend tax on it again? That would reduce it to
about 341k, So actually funnily enough almost the same result as with Bulgaria. And I would avoid the additional hussle of having a company while in BUlgarie I would just be a freelancer.
But if I did not have to pay that Capital gains tax and were able to claim that the profits are from my business activity and should be taxed with that 1% then I think this picture would look quite different, as I could quickly multiply the amount and then pay the 8% somewhere down the line but on much bigger pile of cash. Does anyone know how this works or if even? Is this owrth it? There could be a huge difference that I am unable to see well yet.

 

[orangekangaroo]

Hey guys, does any one of you use the micro-company for long term investing in many different assets, not just stocks? Hear me out I'm trying to figure these things out.
The increase of dividend tax to 8% is not so nice, but I think the effect of taxing revenue with only 1% and the potential to keep almost 99% in the micro-company as retained profits to reinvest has great potential.

Let me do an example with probably the second best jurisdiction that I found for my case (software dev freelancer 200k euro/year) Bulgaria. The overall taxes would come to about 9%. So let's say I would make 200k in Bulgaria with my sole proprietorship and have to pay 18k of it every year (some of it monthly) to taxman. Now I am left with 182k in my personal bank account and I want to invest, let's say for the sake of this example I buy a stock. The stock doubles in value in one year. Therefore I have made 182k profit that I will have to pay 10% Bulgarian Capital gains tax on (18,2k). In the end, I am left with 182 * 2 - 18,2 so about 345,8k.

Now for the example with Romanian micro-company, I only pay the 1% (2500 eur) tax every year and some additional insurance contributions from employing myself from my min. salary, which would be like 2700 eur a year. There is I think another 600 eur a year if I pay out large dividends, which is not the case here.
This would leave me with 200 000 - 2500 - 2700 = about 195k or like 2% tax. Now the same thing, I invest it in a stock and it doubles. I invested 195k, now it is 390k and the tax on profit is either the 1% again at the end of the year (if it is considered a company profit taxed as corporate tax under micro-enterprise) or 10% as typical capital gains tax in romania.
So If it was the 10% capital gains tax, I am left with 390 - (390/2 * 0,1) = 370,5k. Which is much better than the first case, but is this money still considered to be inside the company, therefore if I wanted to use it eventually, I would have to pay that 8% dividend tax on it again? That would reduce it to
about 341k, So actually funnily enough almost the same result as with Bulgaria. And I would avoid the additional hussle of having a company while in BUlgarie I would just be a freelancer.
But if I did not have to pay that Capital gains tax and were able to claim that the profits are from my business activity and should be taxed with that 1% then I think this picture would look quite different, as I could quickly multiply the amount and then pay the 8% somewhere down the line but on much bigger pile of cash. Does anyone know how this works or if even? Is this owrth it? There could be a huge difference that I am unable to see well yet.

I think you are super optimistic on your trading profits, but you may have a magic bullet here. With regards to that to reach those profits you may have to do a lot of buying and selling. Which is turnover for the micro company. You could reach the 500k limit easily for hardly any gain, over a Bulgarian company. If you were to trade personally this would be taxed at 10% in Romania. Again most much difference between the countries.


But the big difference if you make losses on your trading. This can happen, have a look at which jurisdiction is better for that, you can use your losses from previous years for cap gain taxes in the future. My believe is the Romania micro company is not a good vehicle for trading as you can't offset last year's losses.

 

[Bl4ckJackk]

I think you are super optimistic on your trading profits, but you may have a magic bullet here. With regards to that to reach those profits you may have to do a lot of buying and selling. Which is turnover for the micro company. You could reach the 500k limit easily for hardly any gain, over a Bulgarian company. If you were to trade personally this would be taxed at 10% in Romania. Again most much difference between the countries.


But the big difference if you make losses on your trading. This can happen, have a look at which jurisdiction is better for that, you can use your losses from previous years for cap gain taxes in the future. My believe is the Romania micro company is not a good vehicle for trading as you can't offset last year's losses.

Sorry I forgot to say my profits are From software engineering and there are virtually no costs, losses from investing could happen I guess, but most of it is long term passive investing so I don't know how much I should bank on being able to write the losses against my active income, but I'll keep it in mind.

 

[European]

Hey guys, does any one of you use the micro-company for long term investing in many different assets, not just stocks? Hear me out I'm trying to figure these things out.
The increase of dividend tax to 8% is not so nice, but I think the effect of taxing revenue with only 1% and the potential to keep almost 99% in the micro-company as retained profits to reinvest has great potential.

Let me do an example with probably the second best jurisdiction that I found for my case (software dev freelancer 200k euro/year) Bulgaria. The overall taxes would come to about 9%. So let's say I would make 200k in Bulgaria with my sole proprietorship and have to pay 18k of it every year (some of it monthly) to taxman. Now I am left with 182k in my personal bank account and I want to invest, let's say for the sake of this example I buy a stock. The stock doubles in value in one year. Therefore I have made 182k profit that I will have to pay 10% Bulgarian Capital gains tax on (18,2k). In the end, I am left with 182 * 2 - 18,2 so about 345,8k.

Now for the example with Romanian micro-company, I only pay the 1% (2500 eur) tax every year and some additional insurance contributions from employing myself from my min. salary, which would be like 2700 eur a year. There is I think another 600 eur a year if I pay out large dividends, which is not the case here.
This would leave me with 200 000 - 2500 - 2700 = about 195k or like 2% tax. Now the same thing, I invest it in a stock and it doubles. I invested 195k, now it is 390k and the tax on profit is either the 1% again at the end of the year (if it is considered a company profit taxed as corporate tax under micro-enterprise) or 10% as typical capital gains tax in romania.
So If it was the 10% capital gains tax, I am left with 390 - (390/2 * 0,1) = 370,5k. Which is much better than the first case, but is this money still considered to be inside the company, therefore if I wanted to use it eventually, I would have to pay that 8% dividend tax on it again? That would reduce it to
about 341k, So actually funnily enough almost the same result as with Bulgaria. And I would avoid the additional hussle of having a company while in BUlgarie I would just be a freelancer.
But if I did not have to pay that Capital gains tax and were able to claim that the profits are from my business activity and should be taxed with that 1% then I think this picture would look quite different, as I could quickly multiply the amount and then pay the 8% somewhere down the line but on much bigger pile of cash. Does anyone know how this works or if even? Is this owrth it? There could be a huge difference that I am unable to see well yet.

Hi @Bl4ckJackk
1. I read that, with the latest update to the law, the income of a micro-company cannot come from "consulting" activities. This is a very general term. Do you have info as to what is considered "consulting"? Working as a freelance software developer could be seen as consulting if you do a project for a client for a couple of months, another project for another client...
2. What kind of work do you do as a SW developer to make €200K a year? What languages? Does it have to do with ML, AI?

Thanks

 

[Bl4ckJackk]

Hi @Bl4ckJackk
1. I read that, with the latest update to the law, the income of a micro-company cannot come from "consulting" activities. This is a very general term. Do you have info as to what is considered "consulting"? Working as a freelance software developer could be seen as consulting if you do a project for a client for a couple of months, another project for another client...
2. What kind of work do you do as a SW developer to make €200K a year? What languages? Does it have to do with ML, AI?

Thanks

I've read somewhere on here that the consulting rule is not really a problem and some users on here are doing programming work in Romania, so I think this is not an issue.
As to your second question, I do normal programming with languages like Java... but I have more clients. You could make this much money with just one client, but you would have to have a contract job for some clients in let's say US or UK, potentially DE/NL/CH but for me it has proven very difficult to find a job if you don't live there. And if you live there you have to pay those +-50% taxes...