The provisions of G.O. No. 16/2022 structurally changed the microenterprise scheme; in particular, the conditions for accessing and maintaining the scheme are from January 1, 2023 more numerous and complex.

Microenterprise is defined as the Romanian legal entity that on December 31, 2022 will meet the following conditions in addition to the previous conditions (only the new ones introduced by the above-mentioned normative act are specified):

-(First condition) achieve total revenue that does not exceed the equivalent in lei of 500,000 euros/year;
-(second condition) achieve revenues other than consulting and/or management, to an extent exceeding 80% of total revenues; consequently, revenues from consulting and management may not exceed 20% of total revenues;
-(Third condition) have at least one full-time employee;

-(Fourth condition) have partners/shareholders holding more than 25 percent of the value/number of equity securities or voting rights in no more than three Romanian legal entities that can apply the microenterprise income tax system.

Recall that the single rate of the scheme from 1.1.2023 is 1 percent on total registered revenue (the tax burden is eased and faced with stricter rules).

The new conditions in some respects (the first condition), realize what had already transpired during the year, namely the desire to reduce the revenue ceiling to access the scheme (it seems to be an imposition of the EU). In other respects, they raise many concerns.

In particular, the reintroduction of the ban on consulting activities under the guise of the micro scheme (resurrecting an old repealed regulatory provision), appears unreasonable in many respects:

1- firstly, the legislation does not state any definition for “consultancy,” leaving the Romanian Revenue Agency (ANAF) free to endorse any possible broad interpretation to its own advantage.

2- This point (lack of clarity and comprehensiveness of the rule) not only undermines the framework of legality within which taxpayer and Agency should move, but also creates the basis for future litigation.

3- Also considering the growing need for professional consulting in advanced societies, it is discriminatory against intellectual professionals to exclude their activity from the list of activities eligible for access to the micro scheme.

The second condition that, in our view, seems unreasonable is the requirement, in order to remain in the regime, to employ at least one full-time employee. We know very well that micro businesses are the preferred vehicle fiscally for undertaking new activities, both by residents and nonresidents; the micro regime is a propeller for young people and for all taxpayers who want to start a business, agricultural, professional activity, bearing the economic risk of failure (generating future wealth and jobs). In fact, the certain tax costs (and not variable costs dependent on tax profit as in the ordinary regime) allow greater predictability of the economic outcome and minimization of the risk of failure. The obligation to hire, on the other hand, turns out to be an additional burden that burdens a new business both from a tax point of view (if I do not have an employee, I am forced to switch to the ordinary regime) and from the point of view of operating expenses (gross labor costs). Moreover, as all experienced entrepreneurs are well aware, the labor contract is based on a fiduciary relationship that is difficult to establish from the beginning with the employee and needs numerous phases of “evolution.” It would be appropriate to calibrate the benefit rate (now a single one percent) to the turnover or the number of years the taxpayer has completed (the more successful the taxpayer is in his business, the more he will normally have to structure himself with higher costs balanced by increasing turnovers).

The last condition, i.e., the fourth, is in fact a closure to the practice of creating multiple microenterprises to fractionalize the business. It would have made more sense to prevent fractionalization by linking the limit to the actual activity carried out by the individual microenterprise: the limit should then have been dependent on the CAEN code actually carried out by the taxpayer.

It is hard to say what impact the changes to the microbusiness regime will have in the future, for sure the regime is the only real tax appeal for foreign and local small business owners as the ordinary 16 percent regime on taxable profit (burdened by the further increase to 8 percent in dividend withholding) is not competitive with neighboring EU states.