PFA vs SRL Romania for Foreigners: Which Structure to Choose in 2026

PFA vs SRL in Romania for Foreigners: Which Business Structure to Choose in 2026

Romania has emerged as an increasingly attractive destination for foreign entrepreneurs and freelancers, offering a vibrant market, strategic location, and a competitive tax system. However, one of the most critical initial decisions for any foreign professional looking to establish an economic activity here is choosing the right legal form for their business. The two primary options that often present themselves are the Persoană Fizică Autorizată (PFA - Authorized Physical Person) and the Societate cu Răspundere Limitată (SRL - Limited Liability Company).

The Dilemma: PFA or SRL for Foreign Freelancers & Entrepreneurs

This choice is arguably the number one question we receive from foreign professionals considering or already operating in Romania. It’s not merely a bureaucratic formality; it profoundly impacts your tax obligations, administrative burden, legal liability, and future growth potential. Understanding the nuances between a PFA and an SRL is paramount for making an informed decision that aligns with your specific business goals, risk appetite, and long-term vision in Romania. The landscape, particularly regarding taxation, is dynamic, with annual adjustments and interpretations, making up-to-date information, specifically for 2026, crucial.

To provide a quick overview before diving into the specifics, here's a preliminary comparison:

This table provides a high-level overview. Let's delve deeper into each structure, considering the specific context for foreign investors and the anticipated legal and fiscal framework for 2026.

What is a PFA (Persoană Fizică Autorizată)?

A Persoană Fizică Autorizată (PFA) is the Romanian equivalent of a sole trader or authorized individual. It is not a legal entity but rather an individual who is authorized to perform economic activities independently. This structure is governed primarily by Government Emergency Ordinance no. 44/2008 regarding the performance of economic activities by authorized physical persons, individual enterprises, and family enterprises, as subsequently amended and supplemented.

Under a PFA, the individual is self-employed and personally responsible for all business debts and obligations. This means there is no legal distinction between the individual and the business. Income generated by the PFA is considered the individual's personal income.

Requirements for EU vs Non-EU Citizens

For EU/EEA/Swiss citizens: Citizens of the European Union, European Economic Area, and Switzerland generally benefit from the principle of free movement of persons and services. This means they can establish a PFA under largely the same conditions as Romanian citizens. They will need to register their residence in Romania if they intend to reside for more than 3 months (Government Emergency Ordinance no. 194/2002 regarding the regime of foreigners in Romania, as republished, Article 17) and obtain a fiscal identification number (NIF) from the National Agency for Fiscal Administration (ANAF).

For Non-EU citizens: Non-EU citizens face a more stringent process. Establishing a PFA typically requires them to already possess a right of residence in Romania that permits self-employment (e.g., a long-stay visa for economic activities, family reunification, or specific types of work permits). The general rule under OUG 194/2002, Article 43 states that foreigners can perform independent economic activities under the conditions provided by law for Romanian citizens, provided they hold a right of residence for this purpose, granted based on a long-stay visa for economic activities. This often means demonstrating sufficient funds, a viable business plan, and adherence to specific immigration requirements before even contemplating PFA registration. Practical advice: Consult with an immigration lawyer first to ensure you have the correct type of visa and residence permit that allows for self-employment. The mere possession of a tourist visa or a short-term business visa is absolutely insufficient.

Registration at ONRC

The registration process for a PFA is handled by the National Trade Register Office (ONRC), specifically through its territorial offices attached to the county tribunals. The legal framework is still OUG 44/2008. Key steps include:

Consequences of non-compliance: Operating an economic activity without proper registration as a PFA or SRL is considered illegal and can lead to significant fines under Law no. 12/1990 regarding the sanctioning of acts of illegal trade, ranging from 2,000 RON to 20,000 RON, in addition to confiscation of goods and income derived from such activities. Furthermore, undeclared income can be subject to retroactive taxation, penalties, and interest from ANAF.

What is an SRL (Societate cu Răspundere Limitată)?

A Societate cu Răspundere Limitată (SRL) is the most common form of limited liability company in Romania, similar to a German GmbH or a UK Ltd. It is a distinct legal entity separate from its owners (shareholders/associates) and managers. The primary legislation governing SRLs is Law no. 31/1990 regarding commercial companies, as republished and subsequently amended and supplemented. This legal separation is a cornerstone of the SRL, providing a crucial layer of protection for personal assets.

Single-member SRL (SRL-D) Option

Historically, Romania offered a special regime for young entrepreneurs called SRL-D (Societate cu Răspundere Limitată - Debutant), which offered certain tax incentives and financing facilities. However, the SRL-D program was abolished from January 2021. All existing SRL-D companies converted to regular SRLs. Therefore, for 2026, the discussion focuses solely on the standard SRL, which can be formed by a single shareholder (known as a single-member SRL).

A single-member SRL is perfectly acceptable and widely used in Romania. It functions identically to an SRL with multiple shareholders, except for a few internal governance specificities. An individual cannot be a sole shareholder in more than one SRL (Article 14, Law 31/1990), and an SRL with a single shareholder cannot be the sole shareholder of another SRL. However, one person can be a shareholder (but not the sole shareholder) in multiple SRLs and can simultaneously be a PFA.

Minimum 500 RON Share Capital

A significant advantage for entrepreneurs is the low minimum share capital requirement. Under the current rules, the minimum share capital for an SRL is 500 RON, under Law no. 239/2025 (Legea nr. 239/2025), which amended Law 31/1990. This drastically reduces the financial barrier to entry compared to many other EU countries. However, while legally permissible, it is often advisable from a practical and credibility standpoint to contribute a slightly higher amount (e.g., a few hundred or thousand RON) as initial working capital, especially if you intend to engage with banks or suppliers requiring some financial robustness.

Tax Comparison 2026

Understanding the tax implications is often the most significant factor in choosing between a PFA and an SRL. The Romanian fiscal code (Law no. 227/2015 regarding the Fiscal Code, as subsequently amended and supplemented) dictates these rules, and significant changes have occurred in recent years. Our analysis reflects the anticipated framework for 2026, based on current legislation and trends.

PFA Taxes:

Taxation for PFAs is based on the individual's income. It's crucial to distinguish between the real accounting system and the norm-based taxation system (forfetară).

1. Income Tax:
   • Rate: A flat 10% income tax is applied to the net income (total revenues minus deductible expenses) generated by the PFA. This is regulated by Article 67 of the Fiscal Code.
2. Health Insurance Contribution (CASS):
   • Rate: 10% of the annual taxable income. However, there are caps. For 2026, CASS will be calculated based on annual earnings, with contributions paid if the net income exceeds 6 gross national minimum salaries (4.050 RON as of 1 Jan 2026, so 6 * 4.050 = 24.300 RON annually). The maximum CASS base is capped at 72 gross national minimum salaries (72 * 4.050 = 291.600 RON annually), as per Article 170 of the Fiscal Code.
   • Payment: Paid quarterly or annually, depending on the regulations at the time. The final adjustment is made with the annual tax declaration (Form 212).
3. Pension Contribution (CAS):
   • Rate: Varies based on income thresholds. For 2026, CAS will be calculated based on annual earnings, with contributions paid if the net income exceeds 6 gross national minimum salaries (as above, 24.300 RON annually). The maximum CAS base is capped at 72 gross national minimum salaries (291.600 RON annually). The contribution rate is 25% of the declared income base, as per Article 138 of the Fiscal Code.
   • Payment: Similar to CASS, paid quarterly or annually, with final adjustment via Form 212.

Total Effective Rate for PFA (Real Accounting System): When combining income tax, CASS, and CAS, the effective tax rate can range from approximately 35% to 45% on net income, depending on the level of income and the specific thresholds for CASS and CAS in 2026. Higher incomes tend to approach a lower effective percentage due to the caps on CASS and CAS contributions.

Norm-based Taxation Option (Income Norms - Normă de venit)

For certain activities included in the applicable income-norm lists, excluding liberal professions, PFAs can opt for norm-based taxation (normă de venit) if their annual gross revenues in the previous year did not exceed 25,000 EUR. This threshold is set by the Fiscal Code and remains 25,000 EUR for 2026; the income norms themselves vary by activity and locality and are published annually. This is regulated by Article 69 of the Fiscal Code.

• How it works: Instead of deducting actual expenses, taxes (10% income tax, CASS, CAS) are applied to a pre-defined annual income norm established by the county's fiscal authorities for specific CAEN codes. This norm is typically much lower than potential actual gross revenues.
• Advantages: Simplified accounting (no need to track expenses stringently), predictable tax burden, often results in a significantly lower overall effective tax rate, sometimes even below 10-15%, especially for high-profit margin activities.
• Limitations: Not available for all CAEN codes. Once chosen, it's generally applicable for a minimum period. If gross revenues exceed the threshold, the PFA automatically switches to the real accounting system in the following fiscal year.

Practical advice: The normă de venit option is often highly advantageous for foreigners engaged in eligible freelance activities. You must check if your specific CAEN code qualifies in your county of residence and what the applicable income norm is. This can drastically reduce your tax burden.

SRL Taxes:

SRL taxation offers more flexibility and is generally more favorable for higher revenues or growing businesses.

1. Micro-enterprise Tax:

   • Eligibility: An SRL is generally eligible for the micro-enterprise tax regime if its annual revenues in the previous year did not exceed EUR 100,000 (converted at the BNR exchange rate at year-end), according to Article 47(1)(c) of the Fiscal Code, as amended by OUG 156/2024 for 2026.
   • Conditions: The SRL must also have at least one employee; have shareholders holding more than 25% of shares designate only one company to apply the micro-enterprise regime; and not engage in certain excluded activities (finance, insurance, gambling, etc.). As of 2023, the condition of having at least one employee is mandatory for micro-enterprises wishing to apply the micro-enterprise tax regime, according to Article 47(1), letter g) of the Fiscal Code.
   • Rate: A single rate of 1% of total revenues applies if the company has at least one full-time employee (or equivalent). The 3% rate no longer applies in 2026.
   • Switching Regimes: If revenues exceed EUR 100,000 or any conditions cease to be met, the company switches to the standard corporate income tax regime (16%), subject to the applicable statutory transition rules, exceptions and deadlines.

2. Standard Corporate Income Tax (CIT):

   • Eligibility: Applicable if the SRL does not meet the micro-enterprise conditions or exceeds the EUR 100,000 revenue threshold.
   • Rate: 16% of net profit (revenues minus deductible expenses). This is regulated by Article 17 of the Fiscal Code.

3. Dividend Tax:

   • Rate: Profits distributed to shareholders (as dividends) are subject to an 16% dividend tax, as per Article 97 of the Fiscal Code. This tax is withheld and paid by the company on behalf of the shareholders.
   • Payment: Paid annually after the approval of financial statements, or quarterly if interim dividends are distributed. The company must declare and pay the dividend tax to the state budget.

4. Salary Obligations for the Administrator (if also an employee):

   • If the administrator or shareholder (foreign or Romanian) takes a salary from the SRL, that salary is subject to standard Romanian employment taxes (income tax, CASS, CAS, unemployment, etc.). For 2026, the employer's social contributions are approximately 2.25% for work insurance, and the employee's contributions (withheld from gross salary) are 10% income tax, 10% CASS, and 25% CAS. This effective tax burden for an employee is significant, often exceeding 40-45% of gross salary for the employee and another roughly 2.25% for the employer on top of the gross.
   • Practical advice: Many foreign entrepreneurs prefer to extract profits through dividends due to the lower combined tax burden (1% micro-tax + 16% dividend tax) versus taking a substantial salary, which incurs high social contributions. However, having at least one employee on staff (which can be the administrator) is crucial to maintain the 1% micro-enterprise tax rate.

Effective Rate on Distributed Profits for SRL (Micro-enterprise): If your SRL qualifies for the 1% micro-enterprise tax and you distribute 100% of the profits as dividends, the total effective tax rate on your gross revenue is approximately 16.84% (1% micro-enterprise tax, plus 16% dividend tax on the remaining 99% profit).

If the SRL operates under the 16% corporate income tax, the total effective tax rate on distributed profits would be 29.44% (16% corporate tax + 16% dividend tax on the remaining 84% profit: 0.16 + (0.84 * 0.16) = 0.2944).

Liability Comparison

This is a critical distinction that heavily influences risk management strategies.

• PFA: Unlimited Personal Liability As an Authorized Physical Person, there is no legal separation between you, the individual, and your business. This means that if your PFA incurs debts, suffers losses, or faces legal claims, your personal assets (e.g., house, car, personal bank accounts) can be subjected to recovery by creditors. This is explicitly stated in Article 24 of OUG 44/2008, which specifies that authorized physical persons respond with all their personal patrimony to the obligations assumed as a result of their economic activities. This poses a significant risk, particularly for ventures involving substantial capital, external financing, or potential for high-value claims.

• SRL: Limited to Share Capital (but Piercing the Veil Risks) An SRL provides limited liability to its shareholders. According to Article 3 of Law 31/1990, shareholders are only liable up to the amount of their contributed share capital. This means your personal assets are generally protected in case of business debts, bankruptcies, or lawsuits. Creditors can only pursue the assets held by the company.

  However, there are exceptions where the corporate veil can be "pierced," and shareholders or administrators can be held personally liable. This usually occurs in cases of:

  • Fraud or illegal activities: If the company is used for fraudulent purposes or to avoid legal obligations, the individuals involved can be held accountable.
  • Gross mismanagement or breach of fiduciary duties: Administrators can be held personally liable for damages caused to the company by their serious negligence or intentional acts, as per Article 144(1) of Law 31/1990.
  • Insolvency: In cases of insolvency caused by the fault of company administrators (e.g., illegal withdrawals, continuation of activity despite evident insolvency), they can be held personally and jointly liable for the company's debts to the extent of the prejudice caused, under Law no. 85/2014 on insolvency and pre-insolvency procedures, Article 169.
  • Non-payment of social contributions/taxes: While generally a company obligation, certain tax authorities might seek recovery from administrators in cases of deliberate evasion or non-payment, as stipulated in Article 25 of the Fiscal Procedural Code (Law 207/2015).

Practical advice: While an SRL offers significant personal asset protection, it does not absolve administrators or shareholders of all responsibilities. Maintain proper corporate governance, comply with all legal obligations, and avoid commingling personal and business finances to strengthen the limited liability shield.

When to Choose PFA

The PFA structure is ideally suited for specific types of foreign entrepreneurs and freelancers:

• Freelancing, Consulting, or Single-Person Activities with Few Clients: If you operate primarily as an individual service provider (e.g., IT developer, graphic designer, translator, consultant, coach) with a manageable number of clients and straightforward billing, a PFA offers simplicity.
• Relatively Low Income (e.g., under 25,000 EUR/year): For lower annual revenues, particularly if you qualify for the normă de venit (norm-based taxation) or have significant deductible expenses, the PFA can be tax-efficient. The thresholds for CASS and CAS make it proportionally heavier for moderate incomes, while the normă de venit can mitigate this significantly.
• Simple Operations with No Immediate Need for Employees: If you don't anticipate hiring employees or requiring elaborate operational structures, the PFA's minimal administrative burden is attractive. Hiring employees as a PFA is legally possible but administratively more complex than for an SRL, and it doesn't align with the sole trader's spirit.
• Desire for Lower Administrative Burden: PFAs require simpler accounting (a single-entry system for real accounting, or almost no accounting for normă de venit), fewer filings, and generally less complex compliance compared to an SRL. You might not even need a full-time accountant if your operations are straightforward, although professional advice is always recommended for foreigners to ensure compliance.

When to Choose SRL

The SRL structure is generally recommended for any foreign entrepreneur with ambitions beyond solo freelancing or significant revenue expectations:

• Planning to Scale or Hire Employees: If your business model involves growth, expanding operations, or hiring staff, an SRL provides the necessary legal and operational framework. It simplifies HR processes and offers a more professional appearance to potential employees.
• Anticipated Income Above 25,000 EUR/year (or where normă de venit is not an option): For higher revenues, the micro-enterprise tax regime with its 1% revenue tax plus 16% dividend tax often results in a significantly lower overall effective tax rate compared to a PFA under the real accounting system. This becomes even more pronounced as revenue increases, given the CASS and CAS caps for PFAs.
• Need for Liability Protection: If your activities carry inherent risks (e.g., product development, operations with significant contractual obligations, or ventures requiring substantial investment), the limited liability protection of an SRL is invaluable, shielding your personal assets.
• Working with Corporate Clients Who Require Invoices from a Company: Many larger corporations, both in Romania and internationally, prefer or mandate working with legal entities (SRLs) rather than individual entrepreneurs (PFAs). An SRL project a more professional and stable image, which can be crucial for securing larger contracts.
• Planning to Bring Partners or Investors: An SRL's share-based structure makes it easy to add co-founders, introduce new shareholders, or attract external investors. This flexibility is virtually non-existent for a PFA, which is inherently a single-person endeavor.
• Seeking Capital or Bank Loans: Banks and financial institutions typically prefer lending to SRLs, which are perceived as more stable and creditworthy entities compared to PFAs, especially for larger sums. An SRL's assets can also serve as collateral.
• Perceived Professionalism and International Recognition: An SRL is a universally recognized corporate structure, lending greater credibility and ease of doing business across borders than a PFA, which might be less understood outside Romania.

Registration Process Comparison

PFA Registration Process:

• Timeline: Generally 1-3 working days from the submission of a complete dossier to the ONRC. If all documents are correctly prepared and the application is complete, the process is very swift.
• Cost: Low, typically ranging from 100-200 RON for registration fees, publication fees, and document processing. You might incur additional costs for sworn translations of foreign documents (if needed) or legal assistance.
• Required Documents: Copy of identity document, proof of address, proof of professional qualifications/experience (diplomas, work certificates relevant to CAEN codes), signature specimen, declaration on own responsibility, fiscal record (if required), application form. Non-EU citizens will also need proof of their valid residence permit allowing self-employment.
• Steps: Prepare documents, obtain sworn translations (if applicable), submit to ONRC, publish in the Official Gazette (optional but common for visibility), obtain registration certificate.

SRL Registration Process:

• Timeline: Generally 3-7 working days from the submission of a complete dossier to the ONRC. The process is more involved than for a PFA due to the legal entity's complexity.
• Cost: Moderate, ranging from 500-1500 EUR or more, depending on whether you engage a legal professional for drafting the Articles of Association and handling the entire process. A small share capital contribution (minimum 500 RON) is also required which must be deposited.
• Required Documents: Copy of identity document(s) of shareholder(s) and administrator(s), proof of address for the company's registered office (e.g., rental agreement, property deed), articles of association (statut) drafted by a lawyer (highly recommended), signature specimen for the administrator, sworn declarations, proof of share capital deposit, fiscal record (if required). Non-EU citizens must also demonstrate a right to reside and act as an administrator or shareholder if they intend to be physically present and involved in management.
• Steps: Choose company name (verify availability at ONRC), draft Articles of Association, obtain registered office, open a bank account and deposit share capital, prepare other necessary declarations and documents, submit the complete file to ONRC, publish in the Official Gazette, obtain registration certificate and CUI, register at ANAF for fiscal purposes (VIES, EORI, etc., if applicable).

Practical advice for foreign investors: While self-registration is technically possible for both, engaging a specialized Romanian lawyer or consultant for SRL formation is highly recommended. They can ensure compliance with all legal requirements, draft robust constitutive acts, register specific activities, and navigate potential complexities, especially concerning non-EU citizens' specific residency and work permit implications.

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FAQ

1. Can a foreigner be both a PFA and a shareholder/administrator in an SRL in Romania? Yes, generally. A natural person can conduct economic activities as a PFA and simultaneously be a shareholder and/or administrator in one or more SRLs. The only notable restriction is that a natural person cannot be the sole shareholder in more than one SRL.

2. Are there specific restrictions for non-EU citizens forming a PFA or SRL in Romania? The main restriction for non-EU citizens is related to their right of residence and work in Romania. To perform independent economic activities (PFA) or act as an administrator (SRL), they must hold a valid long-stay visa and residence permit that permits such activities. Simply being a shareholder in an SRL does not automatically grant residency or the right to work if you are a non-EU citizen. OUG 194/2002 is paramount here.

3. What is the minimum turnover for a PFA to be mandatory to register for VAT? Both PFAs and SRLs become mandatory VAT payers if their annual turnover calculated under Article 310 of the Fiscal Code exceeds 395,000 lei in a calendar year (Article 310 of the Fiscal Code). Below this threshold, registration is optional.

4. Do I need a Romanian bank account for my PFA or SRL? Yes, it is mandatory. For an SRL, a bank account for depositing the share capital is required even before registration. Both PFAs and SRLs need a RON-denominated bank account for operational purposes, receiving payments, and making tax payments. It is also advisable to have foreign currency accounts if you deal with international clients.

5. How do I pay taxes as a foreigner with a PFA or SRL in Romania? Taxes are paid to the Romanian State Budget (ANAF) via bank transfer to specific treasury accounts. PFAs typically pay CASS and CAS quarterly or annually. PFA income tax is usually paid annually, with an advance payment system. SRLs pay micro-enterprise tax quarterly, corporate income tax quarterly, and dividend tax annually or quarterly, depending on the distribution frequency. Electronic payment via virtual private space (SPV) is increasingly common and often mandatory for legal entities.

6. What are the main risks of non-compliance with Romanian tax laws for foreigners? Non-compliance carries severe consequences. These include fines (contravenții) for administrative infringements (e.g., late filings, incorrect declarations), penalties and late interest on overdue taxes, confiscation of undeclared income, and in cases of significant tax evasion, criminal charges potentially leading to imprisonment (Law 241/2005 on preventing and combating tax evasion). ANAF has extensive powers to conduct tax inspections and audits. Ignorance of the law is not a valid defense.

7. Can I switch from a PFA to an SRL later on? Yes, it is possible. Many entrepreneurs start as a PFA for simplicity and then transition to an SRL as their business grows. The process typically involves closing down the PFA (or suspending its activity) and then incorporating a new SRL. Assets and client contracts can be transferred from the PFA to the SRL, although this requires careful planning, legal advice, and potential administrative steps to ensure a smooth transition and avoid tax disruptions. This process is generally not as simple as a direct 'conversion' but rather an establishment of a new legal entity coupled with the cessation of the old one.

Choosing between a PFA and an SRL is a strategic decision that demands careful consideration of your business model, scale, risk tolerance, and long-term objectives. For foreigners, understanding the specific legal and fiscal intricacies, along with potential immigration implications, is crucial. While the PFA offers a straightforward entry point for individual freelancers, the SRL provides robust liability protection and a scalable framework for more ambitious ventures. Consulting with a specialized Romanian legal and accounting professional is highly recommended to navigate these options effectively and ensure full compliance with Romanian law in 2026 and beyond. This comprehensive approach will lay a solid foundation for your success in the Romanian market.