Second wave of company liquidations expected in May

Over 3,143 companies decided in April to suspend their activities and a further 635 applied for dissolution in Bucharest alone, with tax advisors and businesspeople blaming the lump-sum tax, enforced on 1 May, and the financial crisis.

The number of company registrations in April 2009 (8,582 registrations) was almost half that in the same month in 2008 (13,392 registrations).

"This is one of the collateral effects of the minimum tax which is making businesspeople think twice about establishing a company. Having an unprofitable company is no longer a free lunch," Gabriel Biris, tax lawyer, told Business Standard. In fact, Biris believes that the number of suspensions is below expectation. "There will certainly be a second wave of suspensions, liquidations, and cessations in May, when we will see exactly where things stand. Many have not yet reacted, because they have not had the time to read the application rules published in the Official Gazette on 30 April," said Gabriel Sincu, Tax Advisor for the Mazars consultancy company.

Representatives of businesspeople say that this effect of the lump-sum tax is a positive one for the economy, because it drives thousands of inactive companies off the market.

"There are hundreds of thousands of companies on the market that are not functioning," said Florin Pogonaru, President of the Romanian Association of Businesspeople (AOAR), adding that this will also ease check by the National Agency for Fiscal Administration. "However, this measure has been wrongly applied, because no simultaneous measures were taken to ease the exit of companies from the market, such as, for example, the declaration of automatic liquidation of a company, if this has not registered its fiscal situation for three years," said Pogonaru. The official added that lump-sum amounts are reasonable for the turnovers to which they are applied.

According to officials in the Ministry of Finance, companies which file an application for activity suspension with the National Trade Register Office (ONRC) after 1 May will have to pay an amount to the state, computed as part of the fixed quota. The calculation is as follows: the value of the annual minimum tax depending on the company's turnover is divided by 365 days. The result is multiplied by the total number of days of activity as of 1 May to the day on which the suspension application is registered. For example, in case a taxpayer with turnover below €12,000 (the fixed amount applied being €500), who submitted an application for suspension of activity to ONRC on 5 May, must pay RON 24.10 (€5.47) to the state.

Business Standard