The bureaucratic nightmare of starting a business in Romania
How I managed to start a business after months of fighting with paper work and how it might change my life
This is the story of me — a Ghostwriter — founding a business in Romania, after working for many years as a self-employed person. I started working as a Freelancer in the second half of 2009. Wait, let’s start at the beginning.
1989 — a year that for some people has no meaning, for others it was a major turn in their (suppressed) lives. The Romanian Revolution started in December and ended quite quickly after that. Lives where lost, a much-needed freedom was gained.
Without diving too deep into the history of the revolution, let’s get to the point: I was born that year, 1989, in March. In January 1990, I arrived in Germany — right after the Revolution. My family had been thinking of moving out of Romania for quite a while — well, my grandfather at least.
Nearly 18 years later I decided to move back to Romania — yes, I’m not going into the story how I grew up in a strange country (that might be another story). I’ve visited Romania every year in the summers since 1999 if I remember correctly. I’ve witnessed the somewhat slow, at the same time fast transition this country was experiencing year after year.
Going on a six weeks long vacation to your home country is somewhat strange, but also interesting. It’s not the usual vacation which is too short to really get to know the destination. You have a lot more time to discover different things.
Traveling every summer to Romania also has the benefit that you witness new things differently from people actually living there. People would always tell me how lucky I was living abroad. Well, maybe, maybe not. I didn’t consider myself that happy because I never felt at home.
That is the reason why I moved back to Romania in 2008. I made the mistake to want to study Business Administration after it was way too hard to get into a good art school. I might have to elaborate on that: I’ve always loved drawing, but I never took lessons. Meaning: I had the talent, but wasn’t good enough bringing my ideas to the paper. I simply lacked the skills necessary because I didn’t know them.
Long story short: I applied to get into an art school, took two drawing tests and didn’t do terribly considering my lack of, well, knowledge. The problem: It was literally impossible to translate my German degree to a Romanian one. Because the entrance exam took into account the pratical tests and your degree — I couldn’t get in even if I was the most talented guy in the world.
I’m already writing a bigger introduction than I had planned but bare with me for a bit longer.
After being devasted for a few days — and believe me, I was after I didn’t get into art school — I started thinking about an alternative. Having majored in Commercial Informatics in Germany, I thought I’d go with plain old Business Economics with the major Business Administration — huge mistake.
Two years into college I got bored of all the useless things they taught there — so I quit. The good thing: A year before I started working as a Ghostwriter. That’s what I still do today, more or less. I’m actually expanding, that’s why I founded a company.
Starting to work as a freelancing Ghostwriter
Ghostwriting. You’ve probably heard of the term before. Simply put: You write something in the name of another person. Your name is therefore rarely mentioned. How did I go from art to economics and finally to writing? Well, more or less by sheer luck. I can’t remember the exact details, but if my mind isn’t playing tricks on me, I started thinking about work to do from home. A few Google searches later I stumbled upon a forum post with an ad. Somebody was looking for a person to write descriptions for software.
A short interview later and I got the job. The problem: For it to be legal, I had to get some paperwork done. In Romania, you can be a so called Persoană Fizică Autorizată, short PFA. It’s basically a self-employed person like the German Einzelunternehmer. You are still a private individual, but are allowed to send invoices. Anyway, my godfather helped me with the paper work back in 2009, after that I started working with that company for around three years. Later I started collobarting with a German Einzelunternehmer with whom I’ve been working with ever since.
When everything went downhill
2016 — a year that brought a lot of change to my live — not that I really wanted it to change. Change is good, you might think. No, it really isn’t when you are basically forced — by law — to give up working as a freelancer, because your government thinks: Let’s screw the little guys, because we can. Or, it may be good, but I didn’t know it at that time. More on that later.
Wait, what the heck is he talking about? Let me tell you: In 2015, the Romanian government started throwing laws around, trying to get more money for their budget. Instead of thinking about useful ways, they started picking on us PFA. There are two possibilities to be a PFA:
- Sistem real: You pay your taxes on the money you make.
- Normă de venit: You pay taxes based on pre-defined norms.
The problem with the second option is: The pre-defined norms only exist for specific categories, programmers for example. Now, those guys make quite a lot of money, which isn’t bad when you pay your taxes. But, they don’t pay as much as others, because according to the pre-defined norm, they always pay the same value, no matter how much money the make.
Because of that pre-defined norm, companies started to think: Wait a minute, why should we hire those guys if they pay much fewer taxes as a PFA? And that’s what happened. Companies forced programmers (and other people obviously) to register as a PFA. The problem: Those people still sit in the offices those companies provide, which isn’t legal, but who cares?
The government didn’t like what was going on and started to swing the ban hammer. The laughable thing about the new law is that it doesn’t even affect the people in question. According to the new law, you are now obligated to pay a fixed percentage to the pension fund. Before that, the contribution was calculated in a strange way, taking into account the median economic salary. Only a small percentage of that had to be payed into the pension fund. The monthly contribution was minuscule to say the least. Now they force you to pay up to 26,3 percent of your revenue. So in total you pay:
- 16 % taxes
- 26,3 % pension fund
- 10,5 % social insurance
You have to give away more than half your revenue (52,8 %) to the government. That isn’t much, you might say. And yes, I know it’s not much when you look at other European countries. But you miss the point:
- we started working as a PFA because taxes where low
- as Freelancers, we do not have the same benefits as employees
- we do not have payed vacation or sick days
- we do not have a fixed income every month
- we have to manage our accounting ourselves
There is so much more I could enumerate, but you should get the point. The biggest problem: The new tax system is a huge burden for people who have to carefully calculate their expenses every month. Some have loans, others invested a lot of money in their business.
Anyway, in 2016 I deregistered as a PFA and started a business, a SRL-D, comparable to an LLC or Limited. And boy, that was a whole new adventure.
From one nightmare to another
If you are still reading — and believe me, I appreciate your patience — you should know that we are getting closer to my actual experience starting a business in Romania.
The moment of truth came a few months ago. In January, I decided to put an end to the madness and started gathering information how to start a SRL-D. I quickly discovered that I couldn’t do my accounting myself any longer, I had to get a an accountant. Remembering a friend telling me that his sister is an accountant, I got in touch with her and told her about my plan. That was in the middle of January.
Fast forward to April 1st — no, it’s not a joke — I have finally sent my first invoice to my partner in Germany, with whom I’ve been working with for the last four years.
Wait a second, what happend from January to April, you ask? A lot, mostly bureaucratic nonsense and other hoops you have to jump through.
The biggest hurdle: I have to be a value-added tax payer. Working nearly exclusively with partners from Germany, I have to be a VAT payer, otherwise I can’t work with them. Meaning: I had to get a VAT ID. To my surprise, that wasn’t as easy as a few years back when I applied as a PFA. In the meantime, the government decided to fight tax evation — ironic, considering how they have been doing nothing for the the last 26 years — and with that came a 20 page long application form (formularul 088).
This form asks a ton of information, some of them have nothing to do with the VAT ID, for example:
- your education
- if you have submitted similar forms and how many
- and a lot of other nonsense
The problem is: The answers you give are run through a program which determines if you become a VAT payer or not. If it rejects you, you’re literally screwed because you can’t ever apply again. Basically, you are out of business because other companies won’t be able to deduce VAT from your invoices.
Obviously, I didn’t go through with it, and here is why: I founded a SRL-D, which is a subform of the SRL. Every Romanian who has never founded a company or has been a shareholder can incorporate a SRL-D for free. If I had failed the test, that company would have been worthless to me, meaning that I had to start all over with a normal SRL — and all the costs associated with founding one.
The even funnier thing about the form 088 is that the fiscal authority already knows 75 percent of the 20 questions asked. Why would I have to tell them things they already (should) know? My guess is that the institutions do not share information because they are terribly unorganized and inefficient.
Recently, companies have started complaining about the form 088 and it seems it might get changed in the future. I’m not holding my breath. But, if I didn’t submit the form, how am I working?
Easy: There is a simple process to get a VIES VAT ID. It’s only available for doing business outside of Romania — works for me, for now at least.
Working without pay for 4 months
As I said earlier, my first invoice went out the door — or email outbox — on April 1st. That means that I’ve been living without pay for three months. I won’t get any money until May because I have hired myself and the contract was only signed on April 1st. The first salary will be available on May 1st.
Why is that? Simply put: You can’t use the money your company makes for personal use. All the profit is earned as dividends the following year after you have submitted your financial statement. Meaning: Going from PFA to SRL is a huge pain in the butt unless you hire yourself.
Hiring yourself is a two-edged sword: You pay taxes as an employer and employee. I lessened the tax burden in the only way I could come up with:
- I calculated the money I would need every month (for expenses) and gave myself a salary
- take what is left (profit) as dividends the following year
I still have to live from money I have left over from the previous year — which was going to finance my next vacation. Well, thank you, government. It’s a pleasure doing business with you.
Things have a way of working out in the end
If you read until the end — yes, this is the end of what I wanted to share with you — you might think that everything that has happened in the last months was a bad experience. Well, yes, it was. But, thinking about it, it might be a change for the better.
You never know how things will work out. After all the bad reasons in the world, some good came out. — John Lydon
I’m a person who doesn’t live in the past. Let bygones be bygones, as they say. The transition to my own company will bring me many benefits from here on. Taxes are much lower, my accountant takes care of all the paperwork and I can focus on what is important — creating meaningful and powerful content.
Whatever you do, just start
This is what we at CONTENTKRAFT are doing, starting fresh, with new ideas and a lot of energy.
: Strange as in unknown of unfamiliar
: While not life chaning, some things changed for the better fast, some didn’t at all
: Summer vacation was six weeks long in Germany, it might have changed in the meantime
: There are people who name or thank their ghostwriters
: If you speak Romanian, I encourage you to read this wonderful piece by Loredana Voiculescu over at republica.ro, which explains more about the application form
: Obviously sarcasm
Manu Schwendener | Unsplash
Timon Studler | Unsplash
Calum MacAulay | Unsplash
Ondrej Supitar | Unsplash
Sonja Langford | Unsplash
Didier Weemaels | Unsplash