Episode 3: IT Business in Romania – Tax advantages
Best place to start an IT business
Considered one of the most important Romania’s area of business, the IT industry speed of development is growing day by day benefiting from a 400% growth in the last 10 years registering a significant global turnover of EUR 6 billion in the year of 2019, which represented a 5.5% of Romanian GDP.
The foreign investment interest is on an ascending path, too, mainly because of the important TAX ADVANTEGES that Romanian government granted this industry. In a nutshell, everybody who decides to start a business in the IT field is exempt from the INCOME TAX payment for a certain category of employees.
Thus, analyzing the IT tax treatment applied in other Eastern Europe countries like Bulgaria, Czech Republic, Poland, Hungary or Slovakia we can easily conclude that Romania is the only one that offers tax advantages for the IT market and this policy can prove to be an important advantage for everyone interested in doing business in Romania.
IT employees – Income tax
| Country
|
Romania
|
Bulgaria
|
Czech Republic
|
Poland
|
Hungary
|
Slovakia
|
| Income Tax %
|
0%
|
10%
|
15%
|
18%
|
16%
|
19%
|
Requirements
So, how can you benefit from this tax advantages?
Quite easy, by setting up a Romanian Company.
First of all, anyone who intends to conduct a business in Romania has to register a company with the Romanian authorities. This process can be fulfilled in 3 working days since the incorporation documents are submitted and can be easily initiated by filling up our questionnaire with the required information. Also, if you are not sure what type of Company fits your business model best, feel free to check a short description for each of them.
Keep in mind that in order to benefit from the abovementioned tax reduction, the Company that will apply for these fiscal advantages has to be registered with one of the following NACE codes as a business line:
| NACE class
|
NACE codes
|
Description
|
| 582 - Software publishing
|
5821
|
Publishing of computer games
|
|
|
5829
|
Publishing of other software products
|
|
|
|
|
| 620 - Computer programming, consultancy and related activities
|
6201
|
Computer programming activities
|
|
|
6202
|
Computer consultancy activities
|
|
|
6203
|
Computer facilities management activities
|
|
|
6209
|
Other information technology and computer service activities
|
The second requirement that needs to be fulfilled in order to benefit from the abovementioned tax reduction concerns the legal framework that regulates this tax reduction, namely the Order 1168/2017 regarding computer programming activities (“the Order”).
Therefore, the main criteria include:
- The job title of the employee has to be found in the Order Annex;
- The job is part of a specialized IT department highlighted in the employer's organization chart;
- The Companies specialized IT department highlighted separately in the employer's organization chart has registered a turnover of at least EUR 10.000 in the previous year, with the exception of newly established Companies that doesn’t need to match this criterion for the first two years of activity;
- The employee has a diploma for short- or long-term higher education studies, issued by an accredited higher education institution or hold a baccalaureate degree and is currently taking the courses of an accredited higher education institution and actually perform one of the activities set out in the Order Annex.
Actual benefits
Having said that, let’s analyze a practical situation that show the real benefits of the tax reduction. Considering the Romanian average monthly net salary of the IT industry, which at the end of 2020 was RON 7,674 which is the equivalent of EUR 1,570, we will do a full simulation of the taxes that an employer has to pay for its employees, according with the in force legal provisions:
NET income[1]: RON 7,674 ≃ EUR 1,570
GROSS income: RON 11,809 ≃ EUR 2,417
FULL income[2]: RON 12,075 ≃ EUR 2,471
[1] The net income represents the amount that the employee earns each month
[2] The full income represents the entire amount that an employer has to pay each month for one IT employee