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A sole proprietor, self-employed person in Romania (PFA – Authorized Natural Person). A very large number of entrepreneurs search the internet for «Registration of a sole proprietorship in Romania». The thing is that almost everyone assumes that a sole proprietor in Romania is the same as in their home country! This is a huge misconception — in Romania it is something completely different in meaning and substance. And in order to understand the differences, we will answer the most basic questions.
What taxes and contributions does a PFA pay? Who is required to pay social and pension contributions, and how is their amount calculated? When and where should payments be made? In this article, you will find answers to all the important questions about PFA taxes. And once you have answered these questions, you will ultimately come to the conclusion that it is still better to set up an SRL under the simplified taxation regime.
1. What taxes does a PFA pay?
There are two methods of taxation for a PFA:
- Taxation under the real system
- Taxation based on a fixed income norm
In both cases, the tax rate is 10%. The main difference between these methods is how the amount to which this tax is applied is calculated.
Taxation under the real system
PFAs taxed under the real system pay 10% of their net profit, which is defined as the difference between gross income and deductible expenses. This is the most accurate method, as it takes into account the PFA’s actual income and expenses. To use this method, a PFA is required to keep accounting records of all income and expenses related to their business activity.
Taxation based on a fixed income norm
Here, the 10% tax is applied to a fixed amount — the income norm established by law for specific types of activity (CAEN codes). These norms vary depending on the region and the particular activity. This method is simpler, as it does not require tracking expenses.
Important: Since 2023, the threshold for applying taxation based on the income norm has been reduced from 100,000 to 25,000 euros.
2. How to choose between the real system and the income norm?
The choice depends on the type of your activity and your expected net income. If your activity falls under CAEN codes that qualify for taxation based on the income norm, you need to find out the norm for your region. Then assess your income and expenses:
- If your estimated net income is lower than the income norm, choose taxation under the real system.
- If your estimated income is higher than the norm, choose taxation based on the fixed income norm.
Example of calculation:
For CAEN code 9602 («Hairdressing services») in Cluj-Napoca, the income norm is 31,400 RON. If your net income is 50,000 RON, then the tax under the real system will be 5,000 RON, while under the fixed income norm it will be 3,140 RON.
3. Social contributions for PFA: pension and health
PFAs are required to pay social contributions (CAS and CASS) if their income exceeds 30,600 RON (the minimum annual wage).
Pension contributions (CAS):
- 25% of the minimum income (30,600 RON), which amounts to 7,650 RON per year.
- Or 25% of a higher amount, if you wish to increase your pension.
Health insurance contributions (CASS):
- 10% of the minimum income (30,600 RON), which amounts to 3,060 RON per year.
4. When and how to pay taxes?
Taxes and contributions are paid on the basis of the Single Declaration, which must be submitted by 25 May of the following year. The amounts can be paid via the SPV electronic service.
To sum up:
Taxation of PFAs in 2023 depends on the type of your activity, your income, and your place of registration. Choose the appropriate taxation method to optimize your expenses.
For advice and additional services on registration and accounting, contact us!
