Romania’s 1% vs. Bulgaria’s 10%: Which Eastern European Option Suits You Best?

Last week, I received an email from Thomas, an online marketing entrepreneur from Munich:

Richard, I pay almost 50% in taxes in Germany. A friend told me about 1% tax in Romania and 10% in Bulgaria. Is that real? And which country is better for me?

I hear this question every day.

Here’s the honest answer:

Yes, both options are real. But—and this is important—they work in completely different ways.

While Romania’s 1% micro-enterprise is perfect for small digital businesses, Bulgaria’s 10% flat tax offers more flexibility for growing companies. Both countries are EU members, which means legal certainty.

The problem? Most German entrepreneurs don’t know which option fits them.

That’s why today I’ll take you on a detailed journey through both systems. Not as a theoretical advisor, but as someone who knows these structures from hands-on experience.

Ready for an honest comparison?

Yours, RMS

Why Eastern Europe is Interesting for German Small Business Owners

Before we dive into the details, let’s clear up a common misconception:

Eastern Europe is no longer a “grey area.”

These countries are full-fledged EU members with modern tax systems. On top of that, they’re actively attracting foreign entrepreneurs with low tax rates.

EU Accession Countries: Legal Certainty Meets Tax Advantages

The crucial advantage is EU membership. This means:

• Freedom of movement: You can settle anywhere in the EU
• Unified legal system: EU law supersedes national law
• Double tax treaties: Protection from double taxation
• No capital controls: Your money can move freely

Many German small business owners have registered in Eastern Europe. The trend has been growing over recent years.

The Trend: Germans Discover Eastern Alternatives

Why the boom?

The answer is simple: German entrepreneurs are taxed to the hilt.

While a freelancer in Germany with €60,000 annual profit pays about €28,000 in taxes and social security, in Romania it’s just €600. In Bulgaria, it would be €6,000.

That’s not a comparison. That’s a different universe.

Both countries also offer modern infrastructure. Bucharest and Sofia now have better internet than many German cities. The cost of living is around 40-60% of Germany’s level.

Romania’s 1% Micro-Enterprise: At a Glance

Romania’s micro-enterprise status is a gift for digital nomads.

Here are the bare facts:

Requirements for the Romanian Micro-Enterprise

The 1% tax applies under these conditions:

1. Revenue cap: Maximum 500,000 Lei (approx. €100,000) per year
2. Number of employees: No more than 9 employees
3. Field of business: No restrictions (IT, consulting, e-commerce—anything goes)
4. Residence obligation: Minimum 183 days per year in Romania

The genius? You pay 1% of your turnover. Not your profit.

Wait a minute—that sounds bad at first, right?

Actually, it’s brilliant. Why? Because you don’t need bookkeeping. No complicated profit calculations. No discussions with the tax office about business expenses.

You sell for €50,000? You pay €500 in tax. Done.

Practical Implementation and Registration Process

Registration is surprisingly simple:

The entire process takes about a week. Considerably faster than setting up a German GmbH (limited company).

The best part? You can hire a local lawyer. The all-inclusive cost is €800-1,200. In Germany, you’d make that back in tax savings after two months.

Limits and Pitfalls of the 1% System

Now for the less rosy aspects:

Social security: You must also pay at least 12% for health and pension insurance. With €50,000 turnover, that’s another €6,000.

Residence requirement: You really do need to spend 183 days in Romania. The German tax office checks this closely.

Dividend payout: Want to take profits as a private individual? You pay an additional 5% dividend tax.

The realistic overall tax burden is about 18-20% of turnover. Still much better than Germany, but not the advertised 1%.

Let’s be honest: There’s quite a gap between the marketing claims and reality here.

Bulgaria’s 10% Flat Tax: The Classic Among EU Tax Havens

Bulgaria takes a different approach.

There are no marketing tricks here. 10% flat tax truly means 10% on profits. Period.

How the Bulgarian Flat Tax Works

The Bulgarian system is transparent:

• Corporate tax: 10% on company profit
• Income tax: 10% on your personal income
• Dividend tax: 5% on profit distributions
• Social security: About 15% (capped at a maximum of €3,000 per year)

The beauty? You can deduct all expenses. Office, car, laptop, business meals—everything reduces your taxable profit.

Example with €60,000 annual turnover, €40,000 profit:

The savings? Over €16,000 per year. That’s a nice vacation. Or a new car. Or both.

Additional Advantages for EU Citizens

As a German national, you benefit from further perks:

No minimum stay required: You don’t have to live in Bulgaria. A registered address and occasional visits are enough.

EU right of establishment: Your Bulgarian company can operate across Europe without issue.

Banking: Modern online banking systems, often available in English.

Double tax treaty: An agreement between Germany and Bulgaria prevents double taxation.

Registration and Fiscal Obligations in Bulgaria

Company formation is professionally organized:

1. Legal forms: EOOD (single-owner limited) or OOD (Bulgarian limited)
2. Minimum capital: 1 Lev (approx. €0.50) for EOOD, 5,000 Lev (€2,500) for OOD
3. Formation time: 5-10 working days
4. Costs: €800-1,500 including lawyer and notary

Ongoing obligations are manageable:

• Monthly VAT filings (if applicable)
• Quarterly profit calculation
• Annual financial report
• Bookkeeping (can be outsourced for €150-300/month)

This is more involved than Romania, but still much simpler than Germany.

Head-to-Head: Romania vs Bulgaria for German Entrepreneurs

Now let’s get specific.

Which country is the best fit for your business? The answer depends on three factors: your revenue, your lifestyle, and your growth plans.

Tax Burden in Detail

Here’s an honest comparison at different revenue levels:

Note: Romanian values include 1% turnover tax + social security + dividend tax. Bulgarian values based on 50% profit margin.

Surprised? Bulgaria wins in almost every scenario.

Romania’s 1% sounds sexy, but add-ons make the difference. Plus, the €100,000 revenue cap is a real limit.

Bureaucracy and Registration Effort

This is where Romania shines:

Romania:

• Minimal bookkeeping
• No complicated profit calculation
• Quarterly tax return (one page)
• Less compliance red tape

Bulgaria:

• Full bookkeeping required
• Monthly VAT returns
• Annual financial statement
• Higher compliance costs (€2,000–4,000/year)

For beginners, Romania is much simpler. For established entrepreneurs, the extra effort in Bulgaria is manageable.

Cost of Living and Infrastructure

Both countries offer great value for money:

Romania (Bucharest):

• Average rent: €400-800 for a 2-room apartment
• Dining out: €8-15 per person
• Internet: World-class (100 Mbit/s for €10)
• Flight connections: Good, but not as many as Sofia

Bulgaria (Sofia):

• Average rent: €300-600 for a 2-room apartment
• Dining out: €6-12 per person
• Internet: Very good (50 Mbit/s for €8)
• Flight connections: Excellent (direct flights to Germany)

Both capitals have vibrant expat communities. Sofia scores with better travel links, Bucharest with a modern IT infrastructure.

Which Option Suits Which Type of Entrepreneur?

Now for the crucial question:

Which country suits you?

From my experience, there are clear profiles. Here’s my honest assessment:

Romania: Ideal for Digital Solo Entrepreneurs

Perfect match for:

• Freelancers and consultants with under €80,000 revenue
• Digital nomads who travel frequently anyway
• Entrepreneurs who hate bureaucracy
• Those looking for an easy entry

An example: Sarah, a web designer from Hamburg, earns €45,000 a year. In Germany, she keeps €28,000 after tax. In Romania? €37,000. Plus a lower cost of living.

For Sarah, that means a better life with less stress.

Note: The residence requirement is serious. 183 days means 183 days. The German tax office checks this meticulously.

Bulgaria: The Better Choice for Growing Businesses

Perfect match for:

• E-commerce entrepreneurs with €60,000+ revenue
• Agencies with multiple employees
• Entrepreneurs with international clients
• People planning to scale

An example: Marcus runs an online marketing agency with €180,000 annual turnover. German tax burden: €78,000. In Bulgaria? €27,000.

Savings of €51,000 justify any compliance effort.

The bonus: No residence requirement. Marcus can live in Germany and run his Bulgarian company remotely.

Combination Strategies: The Best of Both Worlds

Here’s where things get exciting:

Advanced entrepreneurs use both systems. How does that work?

Strategy 1: Staged transition

1. Start in Romania (low revenue, little bureaucracy)
2. Switch to Bulgaria once you hit €80,000 revenue
3. Optimal tax rate at each growth stage

Strategy 2: Functional split

• Romanian company for operational activities
• Bulgarian holding for retained earnings
• Combine different tax advantages

These strategies are legal—but complex. You’ll definitely need professional advice here.

Still, it goes to show: With creativity, you can get the best from both systems.

Practical Steps to Implementation

Enough theory. How do you actually put this into practice?

Here’s my step-by-step, real-world guide:

Preparation in Germany

Step 1: Assess your tax situation

• Calculate your current tax burden
• Identify the potential of the Eastern option
• Consult with your German tax advisor
• Check exit tax and capital gains implications

Step 2: Understand the legal framework

• Study double tax agreements
• Utilize EU right of establishment
• Watch out for CFC (Controlled Foreign Corporation, AO § 7-14)
• Clarify minimum substance requirements

Most important tip: Invest in professional initial advice. €2,000 for a specialist can save you €20,000 in hassle later.

On-site registration: What to Expect

Romania – Timeline:

1. Day 1-2: Arrival, viewing apartment
2. Day 3-5: Set up company, open bank account
3. Day 6-7: Register residence, tax registration
4. Day 8-10: First business contacts, set up infrastructure

Bulgaria – Timeline:

1. Day 1-3: Lawyer appointments, company formation
2. Day 4-6: Bank account, tax registration
3. Day 7-10: Find accountant, set up compliance
4. Day 11-14: Start business operations

Cost overview:

Avoiding Tax Pitfalls

The biggest mistakes (and how to avoid them):

Mistake 1: Sham foreign connection
Problem: Company abroad, but all business still in Germany.
Solution: Create real substance—office, staff, local clients.

Mistake 2: Ignoring CFC rules
Problem: German tax authorities tax passive foreign income.
Solution: Prove active trading, relocate your operative functions.

Mistake 3: Underestimating exit tax
Problem: If you move your residence, you could be taxed on unrealized gains.
Solution: Relocate in stages, plan professionally.

Mistake 4: Neglecting compliance
Problem: Failing to report to German authorities.
Solution: Fulfill all reporting obligations, keep proper documentation.

My tip? Work with experts who know both legal systems. That investment pays off in the first year.

My Personal Verdict

After everything we’ve covered, here’s my candid take:

Both options work. But they work for different types of entrepreneurs.

Romania’s 1% is perfect for getting started: little bureaucracy, quick results, manageable costs. But the residence rule and revenue limit restrict flexibility.

Bulgaria’s 10% flat tax is the more professional solution: more work, but more opportunities. No residence requirement, unlimited scaling, full EU integration.

My recommendation?

Start small, think big.

If you have less than €60,000 in revenue and love to travel: Romania.

If you’re earning more than €60,000 and want to grow internationally: Bulgaria.

If you’re unsure: get advice. The €2,000 for a professional initial consultation is the best investment you can make in your business.

Because let’s be honest: €16,000 in yearly tax savings justifies every effort.

Questions about your specific situation? Write to me. Together, we’ll find the optimal solution for your business.

Yours, RMS

Frequently Asked Questions (FAQ)

Is moving to Romania or Bulgaria legal?

Yes, absolutely legal. Both countries are EU members and freedom of establishment is a fundamental EU right. Just make sure you fulfill all reporting obligations and create real substance.

How does health insurance work in Romania and Bulgaria?

As an EU citizen, you’re entitled to local health insurance. Premiums are much lower in both countries than in Germany. Alternatively, you can take out private EU-wide health insurance.

Do I really have to spend 183 days in Romania?

Yes, it’s important. The German tax office checks this using flight records, card statements, and other evidence. There’s no such requirement in Bulgaria.

What happens to my German tax liability?

Once you officially deregister, your unlimited German tax liability ends. However, you must continue to declare and pay tax on German-sourced income. The double tax treaty prevents double taxation.

What are the ongoing costs in Bulgaria?

Expect to pay €2,000–4,000 a year for bookkeeping, tax advice, and compliance. In Romania, it’s just €800-1,500, but with less flexibility.

Can I simply relocate my existing German company?

It’s possible, but complicated. Often, it’s easier to set up a new company in the destination country and gradually shift business operations. Get specialist advice on this.

Which legal form should I choose?

In Romania, the micro-enterprise (SRL) is standard. In Bulgaria, most opt for an EOOD (single-member limited) or OOD (limited liability company).

How quickly does the move pay off?

With €60,000 annual revenue, you save about €10,000-15,000 in taxes per year. The relocation costs of €3,000-5,000 are covered in 3-6 months.