How to register & tax regime of Authorized Natural Persons - PFA in Romania
For those who want to do business in Romania, but don't want to create a limited liability company (SRL, which stands for Societate cu Raspundere Limitata), the most common method is to register as a PFA (Persoana Fizica Autorizata/Authorized Natural Person, or a Sole Trader). It is much easier and the tax regime is more relaxed than in the case of a company.
Whether you are a freelancer or a highly qualified person, or you are producing a commodity you want to sell, in Romanian law the PFA is the equivalent of self-employed, a form of organization that allows you to work on your own, but also to hire up to three employees.
Foreigners who want to register as PFA in Romania must meet the same conditions as Romanians, but only after having obtained residence in Romania and a local ID. On top of this, the diplomas obtained in another country, as well as the professional qualifications, must be recognized in Romania by the Ministry of Education or the Ministry of Labor.
A foreign citizen who wants to become PFA in Romania must also have a contract with the National Health House (CNAS), where they will pay the mandatory health insurance contributions.
Who can register as a PFA in Romania
A PFA in Romania can have a variety of activities that are listed in the CAEN Code (Classification List of the Activities within the National Economy), except for those that are subject of special laws or for specific categories of entrepreneurs.
This form of contract is mostly used by freelancers - whether IT specialists, bloggers or entrepreneurs working in media and advertising, or highly qualified people who are not hired with a work contract -, or by those who make craft products or agricultural products they sell. One must provide proof of qualification for the activities they want to perform with their PFA, either as proven experience or studies.
How to become a PFA in Romania
The first step to becoming a PFA in Romania is the registration at the National Trade Register Office (ONRC). The persons eligible to become PFA in Romania must be over 18 (the age of majority in Romania), have a professional qualification or studies in the field they want to work as PFA and have not been convicted for tax evasion or other acts sanctioned by tax laws.
Another mandatory condition for receiving the PFA status is to have headquarters that meet the norms provided by the law for labor protection, environmental protection, and sanitary-veterinary norms. If the headquarters is located in a block of flats, a signed agreement from the association of tenants and from the immediate neighbors is also required.
According to the law, the name of the Authorized Physical Person will be the name and surname of the person who wants this status, or the name and the first letter of the surname, followed by the phrase "authorized physical person" or PFA. In order to avoid the existence of two or more PFAs with same names, the person who makes the application should have three naming options, listed in order of preferences, and their availability will be verified before the registration.
Documents required for a foreigner to become a PFA:
- Application for registration;
- The document certifying the existence of the headquarters (ownership act or rental agreement), in original or legalized copy, as well as the consent of the tenants association and neighbors, if any;
- ID card or passport of the applicant, as well as the official documents proving residence in Romania;
- Signature specimen of the Authorized Physical Person, which can be given at the time of the application;
- Documents proving the studies, professional training or professional experience in the field in which the entrepreneur will work as PFA; the studies and professional diplomas must be recognized and certified by the Ministry of Education or the Ministry of Labor.
A PFA cannot have more than three employees and cannot obtain authorization for more than five activities.
All forms for registering as PFA can be downloaded from the ONRC site, which also offers a handy overview in English here.
The tax regime of a PFA in 2018
In 2018, the PFA's tax regime underwent major changes. Thus, the 25% retirement contribution (CAS) and the 10% health contribution (CASS) are applied to the gross minimum wage of 1,900 lei. A PFA has the obligation to pay these contributions only if their annual income exceeds the level of 12 minimum gross salaries, namely 22,800 lei. As of the 1st of January, 2018, the income tax for PFA decreased from 16% to 10%. Thus, PFAs who do not exceed an annual income of 22,800 lei, will pay only the 10% income tax.
As shown above, although the ONRC explains the entire process of registering as PFA in Romania, it may be difficult for a foreign citizen to deal with the bureaucracy. That is why most choose to work with a law firm or an accountant who help them with filling in the forms, clarifying all documents needed in their particular case, certifying the study diplomas or legalizing identity papers.
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(photo source: Adobe Stock)