If you are at the beginning of your way in terms of entrepreneurship, please find below the most important differences and similarities between the two forms of legal organization.
A SRL is established at the National Office of the Trade Register (ONRC). A PFA is set up directly at ANAF if it is a liberal profession or at ONRC for other situations. An individual cannot hold several PFAs individually but he or she can be a sole shareholder within several SRLs.
A SRL could have an unlimited number of employees, but a PFA is limited up to 3 employees or at most 8 employees (for some forms of authorized persons). The sole shareholder can be an employee of his own SRL, but the authorized person cannot be an employee of the PFA he or she set up.
There are no major differences in the deductibility of expenses of the two forms of legal organization. However, there is a difference in the time when the expenses become deductible: at SRL they become deductible when they are accrued (when, for example, an invoice has been issued) and at PFA they become deductible when they are paid.
As for SRL, we refer in this article to the income tax of micro-enterprises.
A SRL pays:
– 3% on turnover if it has no employees and 1% on turnover if it has at least one full-time employee
– 5% on gross dividends distributed (dividends represent the net profit distributed by the company to shareholders, as the difference between income and expenses)
– CASS (contribution for social health insurance) in the fixed amount of 10% of 12 minimum wages if the net dividends paid exceed the amount of 26,760 lei in 2020 and 27,600 lei respectively in 2021. (In 2020 CASS is 26,760 * 10% = 2,676 lei; in 2021 CASS is 27,600 * 10% = 2,760 lei)
A PFA pays:
– 10% of net income (as difference between income received and deductible expenses paid)
– CASS (contribution for social health insurance) in the fixed amount of 10% of 12 minimum wages if the net income exceeds the amount of 26,760 lei in 2020 and 27,600 lei respectively in 2021. (In 2020 CASS is 26,760 * 10% = 2,676 lei; in 2021 CASS is 27,600 * 10% = 2,760 lei)
– CAS (social insurance contribution) in the fixed amount of 25% of 12 minimum wages if the net income exceeds the amount of 26,760 lei in 2020 and 27,600 lei respectively in 2021. (In 2020 CASS is 26,760 * 25 % = 6,690 lei; in 2021 CASS is 27,600 * 25% = 6,900 lei)
Accounting and tax reporting
A SRL organizes the double entry accounting (or accrual accounting) and a PFA organizes the cash accounting (the most used method) or the accrual accounting, optionally (if the activity is more complex). An SRL submits annual financial statements and a PFA submits the single annual statement. If the PFA decides to report according to double entry accounting, then it submits annual financial statements.
A SRL can withdraw cash through annual or interim dividends (every calendar quarter) and a PFA can withdraw cash at any time, without other legal formalities. In both cases, the payment thresholds must be complied with.
If you need a practical example of tax computation for a SRL or a PFA, please send an e-mail to email@example.com.