Tax residency in Romania for digital nomads is something you will consider once you find out more about the country. At this moment it is still a hidden gem.
However, the fact that it has some of the fastest broadband internet in all of Europe is something that shows you that the country takes it digital development seriously (1).
Living in Romania
Romania is part of the European Union and joined the Schengen Area from April 2024.
This means that citizens of the European Union can freely travel and live in Romania. If you fall under this category, you won’t need a visa anymore to travel to Romania.
If you’re a citizen from a third country, you will need a visa. Here the Romanian digital nomad visa could come in handy again. However, you should know that one of the criteria to qualify is a minimum income of around €3.300 per month.
Romanian tax rules
If you are planning to spend some time in Romania, you should be aware that this could have some tax consequences.
Tax residency in Romania
There are three ways by which you can become a tax resident in Romania.
The first way is by spending more than 183 days in Romania during a twelve month period.
Most nomads don’t like to be locked in one place though. So, this rule doesn’t always apply to them. If you would qualify as a Romanian tax resident under this criterium, you would be liable to taxes as from the day of your arrival in Romania.
The second way to become a Romanian tax resident is by having the centre of your vital interests situated in Romania.
This isn’t a black and white criteria and takes into account different elements. I’ve discussed this topic in my article about the best tax residency for digital nomads.
If you would qualify as a Romanian tax resident under this criterium, you would be liable to taxes as from the day you establish your centre of vital interests in Romania.
The third way is by being domiciled in Romania. This means you have a permanent home – owned or rented – available to you in Romania.
This links closely to the centre of vital interests as this will also take into account the place where you are staying.
Technically, there is also a fourth way to qualify as a Romanian tax resident, but this is only applicable to Romanian citizens working abroad as a civil servant.
Tax residency in Romania for digital nomads: tax rates
Romania applies a flat personal tax rate of 10%. This is a good deal from the perspective of solely income taxes.
Nonetheless, we should also take into account social contributions (see below).
Dividends are subject to a tax rate of 8% and are also taken into account to calculate your health insurance contributions (see below). The same applies to interests but the income tax rate is 10%.
Tax residency in Romania for digital nomads: social contributions
Social contributions for self-employed individuals are tricky to calculate. There are minimum and maximum contributions.
The actual amount of contributions depends on your income level compared to the minimum income in Romania.
You will need to pay social insurance contributions on the one hand and health insurance contributions on the other hand.
Social insurance contributions amount to 25%.
Health insurance contributions are levied at at rate of 10%.
However, maximum contributions apply. These are around €3.600 and €1.500 respectively.
Tax residency in Romania for digital nomads
Although the income tax rate in Romania only amounts to 10%, you also need to consider social contributions. Whether or not, this is a good deal will depend on your situation and income level.
Nevertheless, setting up tax residency in Romania for digital nomads might be interesting after all when it is combined with a Romanian company.
Setting up a company in Romania
The standard corporate tax rate in Romania equals 16%.
That said, Romania has a specific regime for micro-companies.
Micro company – old regime
Micro companies are subject to taxes on their revenue instead of on their profit. The applicable tax rate is 1%.
However, there are some conditions that apply in order to qualify as a micro-company.
First, your annual revenue cannot exceed €500.000. If you exceed this threshold, the standard corporate tax rate applies from the quarter you exceed the threshold.
Second, at least 80% of your revenue should come from activities other than consulting or management.
Third, the micro-company should have at least one full-time employee who works for the company as an employee (so, no director).
Apart from the corporate tax of 1% on revenue, you should also account for withholding tax when taking out a dividend. As mentioned before, withholding tax on dividends equals 8%.
Micro company – new regime as from 2024
If you qualify for the tax regime for micro companies, setting up a company in Romania can get interesting.
However, you should know that the regime was changed a few times over the past years due to which the conditions always became more strict.
Consequently, there is no guarantee the conditions won’t be amended further later on.
The first change is that you can now only be a shareholder for 25% or more in one micro company. Before, you could be a shareholder in maximum three companies.
Individuals who are a shareholder in more than one company will need to decide which company they want to let qualify as a micro company. The other companies will fall under the normal tax rules.
New thresholds apply regarding the maximum revenue of the micro company.
If your revenue remains under €60.000, you can still apply the tax of 1% on your revenue, just like before.
However, for businesses with a revenue between €60.000 and €500.000 a new rate of 3% applies.
If your revenue exceeds €500.000, you no longer qualify as a micro company.
The new changes are less strict than initially presented as the absolute maximum threshold of €60.000 in revenue was not withheld.
Nevertheless, the general conditions in order to qualify as a micro company (e.g. no consulting and hiring one employee) are still obstacles for many digital nomads.
Conclusion
Setting up tax residency in Romania for digital nomads can be interesting. Even more so if you qualify for the micro company tax regime.
Nonetheless, as you are taxed on your revenue instead of on your profit, it will be most interesting to people operating a business with lower costs.
Unfortunately, the regime doesn’t apply if you’re a consultant.
Do you want to know what the options are to limit your tax burden? Reach out!
