The Romanian startup ecosystem has been preparing for the tax hikes that are coming into effect in August, with local representatives of VC funds indicating that the impact will vary. Investment is expected to continue tarobtaining early-stage firms with international market potential.
By Ovidiu Posirca
Romania has increased VAT rates to 11% and 21% starting August, while the dividconclude tax is set to rise from 10% to 16% in January 2026. These alters are part of a broader fiscal package designed to balance public finances. The countest is actively working to trim its budobtain deficit, which exceeded 9% of GDP in 2024, the highest rate in the EU. In addition to tax hikes, the government aims to enhance the efficiency of public investments and reduce losses incurred by large state-owned enterprises.
Analysts at S&P suggest that these fiscal measures should be sufficient to narrow the fiscal deficit to 7.7% of GDP this year and 6.4% of GDP in 2026, although they caution that the measures could dampen economic growth. On the spconcludeing side, the government plans to freeze public sector wages and state pensions for 2026, a shift expected to save between 0.9% and 1.5% of GDP. Furthermore, public investment budobtains for 2025 are being trimmed by approximately 0.5% of GDP, according to an analysis by economists at ING Bank Romania.
Regarding the VAT increase, Marius Ghenea, Managing Partner at Catalyst Romania, declared: “Businesses will probably test to meet consumers in the middle, halving the increase on the customer front. However, this means either reduced profitability or additional cost optimisation measures to cover for the hike. Unfortunately, this will affect employees, as new layoffs are being planned by employers to cut down costs.”
Faced with a higher dividconclude tax, some companies might opt to relocate to other jurisdictions that offer significantly better incentives for capital gains and dividconclude distributions, including some locations that are close to Romania.
Ghenea also explained that “for startups and other high-growth companies with negative EBITDAs or those that are reinvesting all their profits anyway, the point about dividconclude tax is moot, and fortunately, this is the stage of business development we are investing in; however, for later stage investors and private equities this is a material issue, as they normally invest in or purchase out companies with significant profitability.”
For B2B tech startups with clients outside Romania, the impact of these alters is expected to be negligible. Exceptions are portfolio startups that directly serve Romanian consumers (e.g., B2C platforms or marketplaces), where the VAT hike could compress net pricing or force price adjustments.
“Still, in the general market context, this is surmountable, albeit a bit uncomfortable,” declared Dan Mihaescu, Founding Partner of GapMinder Ventures.
Furthermore, most VC funds are domiciled in Luxembourg or the Netherlands, so they will see no impact from local alters in tax rates. Romanian-based angel investors might be the only group that’s meaningfully affected, as the dividconclude tax increase to 16% will apply to distributions, primarily from their core businesses. Mihaescu explained that in the context of delayed exits for angel investors during 2023, 2024, and probably 2025 too, it is possible, on a case-by-case basis, that these two factors accumulate as a bit of pressure.
Looking at the local economy, real GDP growth is forecast to only reach a modest 0.3% in 2025, a decline from a previous estimate of 0.8%, according to economists at ING Bank Romania. This slowdown is largely attributed to reduced private consumption resulting from higher taxes and public sector wage freezes. While an “inflation hump” is expected to form over the next 6-9 months due to tax alters, with the rate potentially exceeding 8% between September and October 2025, the spike is considered transitory.
How startup funds are approaching Romania’s fiscal adjustment process
While the government’s fiscal consolidation strategy raises headline concerns, the actual exposure for most VC-backed startups is limited due to their international customer base.
“We expect investors to maintain a strong appetite for scalable, export-driven ventures, with selective adjustments only in sectors exposed to Romanian consumer demand or angel capital. For startups serving primarily Romanian consumers, investors will probably take a much more selective approach, backing only those with clear pricing power, cost resilience or premium positioning that allows them to maintain margins despite rising fiscal pressures,” stated the GapMinder Ventures representative.
At the same time, alters in dividconclude taxation combined with delayed exits in 2023-2025 may dampen angel investor appetite for domestic pre-seed stage deals. Marius Ghenea of Catalyst Romania explained that Romania’s startup sector necessarys to secure EU funding going forward, in addition to investments from VC funds. He emphasised that “the deal with the European Commission on the continued allocation of EU funds to Romania is very important for any strategy in the startup ecosystem.”
Startup investment remains on growth track during H2 2025
Looking ahead, GapMinder Ventures anticipates robust funding activity in the seed stage to continue into H2 2025, with approximately 8–10 seed transactions at the ecosystem level (EUR 5–8 million invested in aggregated first rounds) and substantial follow-on activity for proven growth-stage companies (EUR 30–50 million). Mihaescu noted that “investors will remain selective, favouring export-oriented startups and EU-aligned sectors, while EU funds will play an essential role in offsetting any tightening in private capital availability, especially at later stages.”
Investment is also supported by the creation of new funds under the Recovery and Resilience Programme through the mandate of the EIF, namely the Recovery Equity Fund (of Funds), with an allocation of EUR 400 million.
Dip in European VC investments going into Q3
European startups experienced a slight decline in venture capital (VC) investment in Q2 2025, falling to USD 14.6 billion from USD 16.3 billion in Q1 2025, according to a report by KPMG. Deal volume also went down, from 2,358 to 1,733 deals, as investors became more cautious due to the uncertain geopolitical and trade environment.
Europe demonstrated strong geographic diversity in VC investments, with significant deals in Germany, Portugal, Israel, and the UK. Other countries, including Spain, Iceland, the UAE, Switzerland, and Latvia, also recorded funding rounds exceeding USD 100 million. The intersection of defencetech and AI was a particularly attractive sector for VC investment. Notable deals included Germany-based Helsing (USD 683 million), Portugal-based Tekever (USD 500 million), and Germany-based Quantum Systems (USD 178 million). These funding deals were driven by evolving norms around defence investments, rising geopolitical tensions, and the maturation of AI-powered defence startups.
Meanwhile, the EU is actively supporting critical technology development to enhance technology sovereignty. Following a USD 206 billion InvestAI programme in Q1 2025, the European Commission launched a new EU Startup and Scaleup Strategy in Q2 2025, backed by a public-private partnership fund of at least EUR 10 billion. This programme aims to foster growth in AI, cybersecurity, and cleantech companies.
Germany experienced a tiny increase in VC investment, reaching USD 2.7 billion in Q2 2025, up from USD 2.4 billion in Q1 2025. This was primarily driven by late-stage deals in defencetech, with strong interest in AI and remote sensing technologies. The German government also announced a new EUR 500 billion defence and infrastructure fund, with a portion allocated to climate protection and energy transition, which is expected to boost cleantech investments.
Meanwhile, the UK saw VC investment drop to USD 3.5 billion in Q2 2025, marking the slowest quarter since early 2020, largely due to a pullback in corporate venture capital activity. Despite this, AI remained a key investment theme, with public commitments to job creation and computing capacity, and a significant GBP 1.5 billion investment from the UK government and Nvidia. Healthtech narrowly surpassed fintech as the top-funded sector in H1 2025.
After a strong Q1, Ireland’s VC investment declined in Q2 2025, attributed to a natural pautilize and broader macroeconomic uncertainties. Fintech continued to attract significant VC investment, with NomuPay and Wayflyer raising USD 40 million and USD 35 million respectively.
VC investment in the Nordics reached a five-year low of USD 899 million in Q2 2025, impacted by US tariff policies, Middle East tensions, and a stagnant exit market. Investors revealed continued interest in defencetech, dual-utilize solutions, AI, and deep tech.
Looking ahead to Q3, VC investors in Europe will monitor the stabilisation of US tariff policies to inform their investment decisions, according to KPMG experts. Media reports have pointed to a baseline tariff of 15% between the EU and the US on trade, following a similar agreement approved by the Trump Administration with Japan. Deal volume may remain subdued outside of hot sectors like AI and defencetech. Both the EU and its member states are expected to continue initiatives aimed at developing critical industries and fostering startup growth, reducing reliance on the US and China.
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