Legislative news on micro-enterprises and PFAs from 1 January 2023

From January 2023, the status of micro-enterprises will see some significant changes.

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From January 2023, the status of micro-enterprises will see some significant changes. These are the result of Government Ordinance no. 16/2022, a much disputed normative act, which generated many amendments to the fiscal Code and many tensions in the business environment.

What is changing for micro-enterprises?

According to the provisions of Government Ordinance 16/2022, Art. 47 (1), letter c) a microenterprise will be that Romanian legal entity that will cumulatively fulfill the following conditions, on December 31 of the previous fiscal year:

  • it has achieved revenues that did not exceed the ron equivalent of 500.000 euros. The exchange rate for determining the euro equivalent shall be that applicable at the close of the financial year in which the revenue was recorded;
  • achieved revenues other than consultancy and/or management, in a proportion of over 80% of the total revenues;
  • the establishment of a condition for the holding of units by the same shareholder/associate in no more than three micro-enterprises;
  • has at least one employee (in which case it is necessary to eliminate the 3% tax rate).

Other provisions of the normative act specify that:

  • micro-enterprises may NOT choose to pay corporate tax during the fiscal year, the option may be exercised from the following fiscal year, with the exceptions provided in Article 52. (Earns more than 1.000.000 euros). The option is communicated to the competent tax authorities;
  • a romanian legal entity that is newly established may choose to pay tax on the income of micro-enterprises starting with the first fiscal year, within 30 days including from the date of registration of the respective legal entity. Therefore, if the employment relationship is suspended, according to the law, the condition regarding the holding of an employee is considered fulfilled if the period of suspension is less than 30 days and the situation is recorded for the first time in the respective fiscal year. Otherwise, the provisions of Article 52 (2) shall apply accordingly. (Romanian legal entities that fall under Law no. 170/2016 on tax specific to certain activities).

As a conclusion, regarding the condition of having at least one employee for the application of income tax specific to micro-enterprises, it is stated that suspended employment relationships can trigger the transition to corporate tax if the suspension lasts for more than 30 days. Because the suspension of the employment relationship for less than 30 days does not entail the transfer to the corporate tax, it is mandatory that the situation does not repeat more than once in a fiscal year.

Also, one of the new clauses, which will generate many complications in practice, is the establishment of a condition for the holding of shareholdings by the same shareholder/associate in no more than three micro-enterprises.

What does the current wording of the normative act imply?

In the event that, during the fiscal year, any of the shareholders of a micro-enterprise owns more than 25% of the value/number of shareholdings or voting rights in more than three micro-enterprises, the shareholders shall determine the micro-enterprise/micro-enterprises which are outside the scope of this title and which are to apply the provisions of title II from the quarter in which that situation is recorded, so that the condition relating to the maximum number of three micro-enterprises in which any of the associates/shareholders holds more than 25% of the value/number of the shareholdings or voting rights is met.

The exit from the system of taxation on the incomes of micro-enterprises is communicated to the competent fiscal body, according to the provisions of Law no. 207/2015, with subsequent amendments and completions, and is final for the current fiscal year.

In practice, when we talk about different shareholders with different participations in several companies, it is very difficult to imagine how these decisions will be made, what will happen if there is no agreement of the majority shareholders on the determination of the fiscal vector (Which of the companies should give up the status of micro-enterprise?), etc. Unfortunately, we do not believe that the legislator has taken into account all possible variants and anticipated possible bottlenecks in the application of this provision, so the entire business environment is looking forward to implementing rules.

Declaration, withholding and payment of dividend tax

Another novelty brought by OG16/2022 refers to the increase of the tax on dividends. According to the new provisions, the dividend tax is established by applying a tax rate of 8% on the gross dividend paid to a Romanian legal entity. The dividend tax is declared and paid to the state budget, until 25 inclusive of the month following the one in which the dividend is paid.

This provision (the increase of the dividend tax from 5 to 8%) is valid for all companies, but in the case of micro-enterprises that will also suffer other changes with negative fiscal impact, it will have a greater impact.

Changes for PFAs too. Setting annual net income on the basis of income rules

The same normative act, in Article 69, paragraph 9 introduces amendments that will also impact PFAs, namely:
“Taxpayers, for whom the net income is determined on the basis of income rules and who in the previous fiscal year recorded an annual gross income higher than the RON equivalent of EUR 25.000, starting with the next fiscal year have the obligation to determine the annual net income in the real system. The exchange rate used to determine the equivalent in lei of EUR 25.000 is the average annual exchange rate communicated by the national Bank of Romania at the end of the fiscal year. This category of taxpayers has the obligation to duly complete and submit the single statement of income tax and social contributions due by individuals by 25 May including the year following that of the income realization.”

Until 01.08.2022, the provision was as follows:

  • the taxpayers for whom the net income was determined on the basis of income rules had to have registered in the previous fiscal year a gross annual income higher than the ron equivalent of 100.000 euros.

So, starting next year, far fewer taxpayers will be able to benefit in the future from the facilities of calculating net income on the basis of income rules.