Romanian businesses urged to participate in corporate tax relief scheme

ARC Romania and EY Romania have launched a project to boost awareness of a corporate tax relief scheme that benefits the country’s nonprofits.

Over 600,000 companies in Romania can currently take advantage of a law that allows them to direct up to 20% of their tax to eligible organisations including NGOs, yet only 8% currently do so.

Under this law, companies with a turnover of over 1 million euros can direct 20% of their profit tax to eligible organisations, but not more than 0.75% of their turnover, while micro-enterprises with a turnover of less than 1 million euros can direct 20% of their income tax.

Lev Fejes, Head of Research, ARC Romania commented:

“We need to encourage micro-enterprises to use this facility. In 2020, 6% of micro-enterprises redirected 17.5 million euros. Their involvement in the non-governmental sector would lead to a strengthening of all social, health, cultural and civic services that NGOs provide to local communities.

“NGOs (especially small and medium-sized ones with lower budgets and expenses) should consider a fundraising strategy that is not based exclusively on large companies, but one that extends the circle to micro-enterprises as well. Micro-enterprises can make quick decisions and need to be approached several times a year because they pay quarterly tax and unused money in that quarter cannot be directed back.”

The research project by ARC Romania and EY Romania shows that while take up is low, the number of companies using the 20% tax facility is growing. 2020 saw the amount given under the law rise 12% year on year to reach 335.9 million Euros.

86% of this came from companies with a turnover of over 1 million euros, and 14% from micro-enterprises. However, take up is still very low with only 49,550 of the 606,995 companies currently eligible participating.

In Bucharest, the city with the largest number of registered NGOs, 43.6 million euros (RON 216,003,180) were redirected to good causes from 3,491 taxpayers. In Cluj County, 1,041 taxpayers used the 20% facility and redirected 9.7 million euros (RON 47,969,001).

If all companies that paid profit or income tax had used the tax facility at full capacity in 2020, Arc Romania and EY Romania estimate that more than 811 million euros would have been directed towards key areas such as education, health or the environment.

To encourage take up, EY Romania has produced a guide for businesses.