| C o n t e n t |

| § 1. Conditions for Applying the Fiscal Regime of the Microenterprises |

| § 1.1. Basic Rules |

| § 1.2. Rules For the Mandatory Switch to the 16 % Profit Tax |

| § 2. Tax Base |

| § 2.1. Taxable and Non Taxable Revenues |

| § 2.2. Additions to the Tax Base |

| § 3. Tax Rates |

| § 4. Tax Credits |

| § 5. Tax Payment and Declaration |

| § 1. Conditions for Applying the Fiscal Regime of the Microenterprises |

| § 1.1. Basic Rules |

  ҈   A Romanian company may opt for the fiscal regime of the microenterprises based on the revenue tax if, as of December 31st of the previous fiscal year, the following conditions are cumulatively met:

a) the annual revenue is below the equivalent in lei of 500,000 euros. Only the taxable revenues are to be taken into account. The revenue limit is verified by taking into account the company's revenue, combined with the revenues of the related Romanian small and average enterprises, if any. The exchange rate for determining the euro equivalent is that valid at the end of the fiscal year;

b) the share capital is held by entities other than the state and / or local authorities;

c) is not undergoing a liquidation procedure, registered as such in the trade register or in court;

d) the revenues earned from consulting (except for fiscal consulting), and / or management services do not exceed 20 % of the total revenue;

e) it hires at least one employee. By employee is meant the person employed under a full-time individual employment contract. The condition is also deemed as fulfilled when:

- the cumulated norms of the part-time employees amount to at least 8 hour/day;

- the company enters management or mandate contracts providing for a remuneration at least equal to the minimum wage (currently 3,300 lei/month).

f) no associate / shareholder holds more than 25% of the value / number of shares or voting rights in another in other company applying the microenterprise taxation regime.

g) the company is not carrying out activities in the following fields: banking, insurance and reinsurance, capital market, including intermediation activities in these fields, gambling, as well as exploration, development, exploitation of oil and natural gas deposits. Are excepted the secondary insurance and/or reinsurance intermediaries, defined according to the law, which have achieved revenues from insurance/reinsurance distribution activity in a proportion of up to 15% inclusive of total revenue.

h) the company submitted its annual financial statements on time (deadline - 31st March of the follwing year).

҈ Romanian companies can opt to apply the tax regime of microenterprises starting from the fiscal year following the one in which they meet the legal conditions, provided they did not apply this taxation regime after January 1, 2023. The micro-enterprises that carried out, until December 31, 2023 inclusive, activities corresponding to the Horeca activity codes, apply the above mentioned condition starting from fiscal year 2024.

҈ A Romanian company in course of establishment can opt to pay the revenue in the first fiscal year, if the conditions regarding associates / shareholders as well as, within 30 days inclusive from the date of incorporation, employer status are cumulatively met.

| § 1.2. Rules For the Mandatory Switch to the 16 % Profit Tax |

 ҈ The rules regarding the mandatory switch to the profit tax are not applied to the Horeca companies.

҈ If, in course of a fiscal year, a microenterprise earns revenue of more than 500,000 euros and /  or the ratio of revenues from consulting and / or management services, with the exception of  fiscal consulting, exceeds 20 %, it is obliged to switch to 16 % profit tax starting from the quarter in which any of these limits is exceeded, with no future possibility to opt for the revenue tax.

҈ If, during a quarter, a microenterprise no longer fulfills the condition of hiring at least one employee, it switches to 16% profit tax starting from the respective quarter. By way of exception, when a microenterprise terminates the employment contract with its sole employee, the condition is considered fulfilled if, within 30 days from the termination, a new employee is hired under an individual employment contract for either an indefinite period or for a fixed period of at least 12 months. If the employment relationship with the sole employee is suspended, the condition is still considered fulfilled in case of one suspension per year lasting less than 30 days.

҈ Microenterprises carrying out incompatible activities switch to 16% profit tax starting from the quarter in which this situation occurs.

҈ If, during the fiscal year, any of the associates / shareholders of a microenterprise holds more than 25% of the value / number of participation titles or voting rights in more than one microenterprise, the associates / shareholders must decide which companies switch to profit tax The exit from the system of revenue taxation is communicated to the competent fiscal body and is definitive for the current fiscal year.

҈ Associates / shareholders who hold, directly or indirectly, more than 25% of the value / number of participation titles or voting rights, both in the analyzed Romanian company and in other Romanian companies meeting the conditions for the micro-enterprise taxation system, must decide, by March 31 of the following fiscal year inclusive, a single Romanian company that applies this system. Romanian companies for which the associates / shareholders did not observe the deadline of March 31, switch to the profit tax system.

҈ If, during a fiscal year, a microenterprise has not submitted the annual financial statements for the previous financial year by 31st of the following year, it switch to profit tax starting from the first quarter of the respective fiscal year.

҈ If, in course of a fiscal year, a microentreprise goes into liquidation, the switch to the 16% profit tax must be notified to the competent fiscal bodies, no later than March 31st of the following fiscal year. If the liquidation is finished in the year in which it was initiated, the microenterprise tax regime shall be maintained.

҈ Microenterprises cannot opt for the payment of profit tax in course of the fiscal year; the option can be exercised starting from the following fiscal year, unless the profit taxation is mandatory.

| § 2. Tax Base |

| § 2.1. Taxable and Non Taxable Revenues |

҈ According to the Title III of the Tax Code, the Romanian companies classified as micro-enterprises are subject to the revenue tax. The tax year is the calendar year.

  ҈   The taxable base of the revenue tax is the revenue from any source, with the following exceptions:

a) offsetting revenues related to the cost of the production in course or stocked;

b) offsetting revenues related to the costs of services in progress;

c) offsetting revenues related to the production of tangible and intangible assets;

d) revenues from subsidies;

e) revenue from written-off provisions, adjustments for depreciation or loss of value, previously considered as non-deductible expenses by the profit tax calculation or built up in years in which the company was subject to the revenue tax;

f) revenue resulting from the restitution or cancellation of interest and / or delay penalties, which were non-deductible expenses when calculating the taxable profit;

g) revenue earned from compensations paid by insurance / reinsurance companies, for damages caused to inventory or fixed assets;

h) gains from exchange rate differences, resulting from either evaluation or settlement;

i) financial gains related to claims and debts denominated in Lei but to be settled based on the exchange rate of a foreign currency, resulting from their evaluation or settlement;

j) commercial discounts granted to the clients after initial invoicing (credit notes), recorded in the "709" account;

l) compensations received according to decisions of the European Court of Human Rights;

m) revenues sourced in a foreign state with which Romania has concluded a double taxation avoidance convention, if they were taxed in that foreign state;

n) dividends received from a Romanian company;

o) dividends received from a legal entity located in another EU member state, provided both the Romanian microenterprise and the foreign legal entity meet the exemption conditions.

| § 2.2. Additions to the Tax Base |

  ҈   The following amounts are added to the tax base:

a) the commercial discounts received from suppliers after initial invoicing (credit notes), recorded in the "609" account;

b) the positive net exchange rate gains, recorded in the whole year, must be added to the Q4 tax base. In the case of microenterprises switching to profit tax in course of the year, the net exchange rate gains recorded from the beginning of the year shall be deemed as items equivalent to taxable  revenues in the first quarter for which the profit taxi is due;

c) the diminished or cancelled reserves (e.g. legal reserve, reserves from the revaluation of fixed assets), which were previously deducted from the taxable profit;

d) reserves based on fiscal facilities, built up during periods in which the company was  taxed on profits, which are used to increase the share capital, for distribution to shareholders in any form, to cover losses or for any other reason.

| § 3. Tax Rates |

҈ The revenues earned by the microenterprises are taxed at the following rates:

a) 1 %, for microenterprises that achieve revenues below 60,000 euros inclusive and do not carry out the activities provided for in letter b) point 2.

b) 3 %, for micro-enterprises that:

1. earn revenues over 60,000 euros or

2. carry out main or secondary activities, corresponding to the following NACE codes (3 % activities):

- 5821 - Publishing of computer games;,

- 5829 - Other software publishing;

- 6201 - Computer programming activities (customer-oriented software);

- 6209 - Other information technology and computer service activities;

- Horeca codes (5510, 5520, 5530, 5590, 5610, 5621, 5629, 5630);

- 6910 - Legal activities - only in case of professional companies with legal personality, established by lawyers;

- 8621 - General medical practice activities;

- 8622 - Specialist medical practice activities;

- 8623 - Dental practice activities;

- 8690 - Other human health activities.

҈ In the situation where microenterprises carrying out 3 % activities earn revenues from other activities, the 3 % revenue tax will apply to all revenues.

҈ If, during the fiscal year, the revenues achieved by a microenterprise exceed the level of 60,000 euros, or the microenterprise begins to carry out 3 % activities, the rate of 3 % is applied starting from the quarter in which any of these situations occur.

҈ When, during the fiscal year, a microenterprise no longer carries out 3 % activities and the total revenue does not exceed the level of 60,000 euros, the tax rate of 1 % is applicable starting from the quarter in which such situations occur.

| § 4. Tax Credits |

  ҈    Microenterprises that maintain / increase the value of their own capital are granted the following tax credits:

a) 2%, if the own capital presented in the annual financial statements is positive and at least equal to half of the subscribed share capital;

b) if the positive value of the own capital, adjusted by eliminating the result of the current year, exceeds the value registered in the previous year, the tax credits are applied as follows: 

 Tax credit [%]                          Annual growth of the adjusted own capital [%]

 5% up to and including 5%

 6%                                                over 5% and up to and including 10%

7%                                                 over 10% and up to and including 15%

8%                                                 over 15% and up to including 20%

9%                                                 over 20% and up to including 25%

10%                                               over 25%

c) 3%, if the increase of adjusted own capital as compared to the year 2020 is above the minimum levels shown in the table below, provided the own capital is positive:

Reporting year Minimum growth [%]

2023                                              10%

2024                                              15%

2025                                              20%

| § 5. Tax Payment and Declaration |

҈ The declaration and payment of the revenue  tax is carried out quarterly, before the 25th of the month following the reporting quarter.

  ҈  Microenterprises that are liquidated in the same year in which the procedure was initiated must declare and pay the due revenue tax until the date of submission of the final financial statements.

Drafted by

Tax Advisor Dorin Stefanescu