Romania offers significant opportunities to international businesses for infrastructure projects, production, services, for technologies that meet the growing private demand and contribute to the country’s development priorities. All investors irrespective of whether they are Romanian or foreign citizens, resident or non-resident, enjoy the same rights (other than rights in relation to ownership of land) and incur the same obligations.
• The first step in developing a business in Romania is normally to incorporate a company. Investors only need to file all the company formation documents with one institution, the Office of the Trade Registry in the area where the headquarters of company will be located. Certain types of companies, such as banks and insurance companies, must obtain additional consents and licenses.
The normal business organizations are:
– A Sole trader
– Limited liability company – whose obligations are guaranteed with its assets. Social part holders are liable only for the payment of their contribution to the share capital
– Joint-stock company – whose obligations are guaranteed with the company’s assets. Shareholders are liable only up to the value of their shares.
According to Law no. 31/1990 on Trading Companies, a limited liability company (S.R.L.) may be set up by one or more persons known as social part holders. The number cannot exceed fifty. An individual and or a legal entity cannot be a sole social part holder in more than one S.R.L. A S.R.L. with one social part holder, cannot be the sole social part holder in another S.R.L. Under Romanian law, unanimity of social part holders is required for certain decisions in a S.R.L. If there is a dispute in a SRL the minority social part holder can obtain a ransom or blackmail position against the majority. Choose your minority sole social part holder with care. The minimum share capital of a S.R.L. is RON 200 with each social part being at least RON 10. There is no maximum capital requirement.
– A joint-stock company must be set up by at least two persons. The share capital cannot be less than RON 90,000, (equivalent to approximately €22,000) divided into shares. The minimum value of each share cannot be less than RON 0.1. All companies require at least one administrator. The administrator of a company may be a Romanian or a foreign citizen, resident or non-resident. An administrator cannot be the administrator in more than one company without the prior consent of the shareholders of the company. All companies have to comply with reporting requirements to the Trade Registry. These include annual and bi-annual financial statements, details of the ultimate beneficial owner, details of the directors, financial auditors and internal auditors. The articles of incorporation after any amendment must be lodged at the Trade Registry.
FOREIGN INVESTMENT RESTRICTIONS AND CONDITIONS
– Shares in Romanian companies can be owned by non- resident persons. There are no specific restrictions in the legislation regarding trading companies. The exception is for land ownership by foreigners in Romania.
– Foreign natural persons or companies cannot directly own land in Romania. If an investor owns a Romanian legal person, that company being a Romanian legal entity, can own land. There are no restrictions as to the ownership of the capital or the management of such a company.
– The most common method to own agriculture land in Romania is to own or incorporate a Romanian company, or to open a subsidiary. In Romania, a subsidiary is considered a Romanian company.
– All contracts concerning the buying or selling of land must be executed in front of a notary public. Failure to do so causes the nullity of the contract. Since 1 October 2011, the registration of the sale/purchase agreement with the local cadastral office is now the proof of ownership of land but not a guarantee of title. The taxes for owning agricultural land depend upon its location. Land can be designated by the local authority as either outside the town boundaries or inside the town boundaries, and this will affect the tax payable and the ability to develop the land.
– According Law No. 17/2014, Romanian citizens, EU citizens, citizens of EEA states and Switzerland can own agricultural land in Romania on the basis that the rules concerning the acquisition of agricultural land applicable to all persons have been fulfilled.
– There are no exchange control regulations. Regulations are issued by the Romanian National Bank, which takes measures related to the monetary capital operations. In certain circumstances, there is an obligation to notify the Romanian National Bank before the conclusion of capital operations.
– All payments between resident companies and businesses that concern the trading of goods and services, must be performed only in RON. According to Regulation no. 4/2005 regarding foreign exchange, several approved operations can also be performed in foreign currency by Romanians inside Romania.
– According article 7, paragraph 1 of Law no. 129/2019 regarding the prevention and control of money laundry as well as on measures to prevent and combat terrorism financing, cash operations, in lei or other currency, which exceed the equivalent of 10,000 euro must be notified to the National Office for Prevention and Control of Money Laundering within 10 working days of such operation. Romania has adopted in full the EU regulation concerning money laundering.
– The main taxes applied in Romania are as follows: profit tax; income tax; tax on micro-enterprises; dividend tax; income in Romania of non-residents; tax on representative offices; VAT; custom duties and excise; and local taxes;
– Corporate income tax is payable by Romanian companies, companies using a permanent establishment in Romania, companies and non-resident individuals who are parties to a joint venture. Tax is also payable on profit from real estate transactions or from transactions with shares arising in Romania as well as on profit from joint ventures derived in/ or outside Romania. The standard corporate income tax rate is 16%. Nightclubs and gambling operations are liable to a corporate income tax rate no lower than 5% of the revenues obtained from such activities. Companies with an annual turnover of less than the lei equivalent of €1,000.000 are taxed at the reduced rate of 3% on their annual turnover if they have no employees, and 1% if they have at least one full time employee. Voluntary registration for VAT is in certain cases permitted. If the turnover exceeds €63,000 VAT registration is mandatory.
– Any foreign legal person who obtains an income from real estate located in Romania or from the sale of land and securities has the obligation to pay profit tax of 10% on the realized profit and to submit a profit tax statement.
– There is a flat rate tax for individuals of 10% on all their income. Income includes salaries and profit from professions; the use of goods; investment income (i.e. dividends, and interest) and other income from sale/purchases of property and securities, pensions, agricultural activities, prizes and gambling, sale of properties, and from intellectual property rights. In certain circumstances, the payer of sums of money is required to retain and pay the tax to the relevant authorities.
– An individual is considered resident in Romania for tax purposes if they stay in Romania for at least 183 days total during a fiscal year (1st January to 31st December). Romania has adopted rules regarding worldwide taxation of income on all persons ta resident in Romania. Non-Romanians are required to formally register with the Romanian tax authorities.
– The VAT regime in Romania is generally in line with the EU VAT Directive 2006/112/EC. VAT applies to the import, domestic supply of goods and services and transfer of real estate properties. As of January 1st, 2017, the standard VAT rate is 19%. There are two reduced rates of VAT, 9% for tourism and drugs and 5% for constructions, but certain conditions apply. Romanian companies must register as VAT payers if their annual turnover exceeds €85,000. Registration as a VAT payer where turnover is under this threshold is optional.
TAX AND INVESTMENT INCENTIVES
– The general framework was established by Government Ordinance no. 85/2008 regulating stimulation of investments, types of incentives and subsidies available, and general eligibility conditions. State aid can be granted to large, small and medium sized enterprises, depending on the type of investment, and the provisions of the applicable state aid scheme.
– To benefit from the incentives, the investments must fulfil conditions concerning the amount, duration, objectives and eligibility criteria stipulated in the investment law. Incentives are not granted for investments made in the fields expressly excluded from the regulations issued by the Competition Council, irrespective of their value.
– The facility of tax exemption on reinvested profits in technological equipment and other eligible assets including computers, peripheral equipment, tax registers and software was extended through 2017.
– As of January 2017, another key investment incentive was introduced by way of exempting the companies currently engaged exclusively in innovation, research and development activities from paying corporate profit tax during the first 10 years of their operation.
– Other incentives are provided by the Romanian Government through Government Decision no. 718/2008 approving horizontal state aid scheme for regional sustainable development and reduction of emissions; Order no. 479/2008 issued by the Minister of Economy and Finance approving state aid granting support for the consolidation and development of the Romanian productive sector through investments of big enterprises; Government Decision no. 1165/2007 on stimulating economic growth by supporting investments and Government Decision no. 1680/2008 implementing a state aid scheme for ensuring sustainable economic development as well as Government Decision
no. 753/2008 regulating a state aid scheme on supporting regional development by stimulating investment.
– Foreign individuals working in Romania can conclude local employment contracts with Romanian companies, or they can work in Romania on the basis of foreign employment contract concluded with foreign employers (i.e. as a secondee).
– The conditions of employment are regulated by the Romanian labour law. The labour legislation as comprised in the Labour Code is quite strict with limitations on working hours and overtime. The relationship between the employee and employer is governed by an Individual labour contract, which includes the rules of the Code.
– Any contract must be concluded in a written form and can be for a limited or unlimited period. A working week is normally of eight hours per day/five days per week with two free days, normally Saturdays and Sundays. The working time may be varied but the maximum number of hours cannot exceed 48 hours per week, including overtime. Employees have the right to legal holidays as follows: 1st and 2nd January; 1st and
2nd day of Easter; 1st May; 1st and 2nd day of Whitsun;15th August (Assumption of Mary); 30 November; 1st December and 1st and 2nd days of Christmas. The minimum number of paid days for vacation is 20 days per year. Employees are also entitled to receive, upon request vacation time for training.
– There is a minimum wage guaranteed by the law. Employers are to calculate and withhold salary contributions and income tax of employees when paying salaries. The obligation to pay income tax on salaries is on the employees.
The state budget contributions are payable by the 25th of the following month.
– Employers’ are also required to make contributions towards the social security fund, unemployment fund, redundancy fund contribution, health fund, work accidents insurance, and labour office commission.
FOREIGN EMPLOYEES AND IMMIGRATION PROCEDURES
– Foreign individuals (depending on nationality/country of residence) may be restricted from entering Romania. Foreign individuals are non-EU and non-EEA country nationals. As a general rule, foreign employees require work visas, work authorizations and residence permits to enter, work and stay in Romania, which in some cases these must be applied for before entry in to Romania.
– Foreign individuals working in Romania may be able to do so based on a foreign employment contract, a foreign and a local employment contract or a local employment contract. As a general rule, foreign individuals working in Romania need to apply for a work authorization (before obtaining and taking up their residence here) in Romania.
– There are certain exceptions to this rule, namely EU individuals working in Romania as local employees; EU and non-EU national seconded to Romania by companies located in EU/EEA member states but whose secondment notification should be undertaken with the immigration and labour authorities; EU individuals seconded to Romania by companies located in third party countries can perform their activities in Romania without any restriction as they obtain rights through being a citizen of an EU country.
– Following Romania’s accession to the EU in January 2007, provisions were implemented for residence for EU/EEA nationals. EU nationals can legally stay in Romania for up to three months following their entry into Romania. To extend their stay over the 90 days, an EU national is required to obtain a certificate of registration. When the certificate of registration is issued, the individual is allocated a personal numerical code that enables them pay monthly taxes. This is normally for an initial period of five years. After five years an application can be made for a long stay residence of ten years.
– Non-EU individuals whose stay in Romania exceeds 90 days within a six-month period need to apply for a temporary residency permit, unless a relevant international agreement or special laws stipulate otherwise. The application procedure depends on the expatriate’s purpose of stay in Romania and their nationality.
– The Romanian State Office for Inventions and Trademarks is the authority that ensures that intellectual property protection is complied with according to the legislation and international conventions and treaties to which Romania is a party.
– Intellectual property is protected in Romania by Law 8 /1996 and regulates two main components:
A) Industrial property and
B) Copyright and related rights.
– In 2001, Romania ratified the latest international regulations in the field of copyright and related rights in the digital environment, namely the WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty signed in 1996 in Geneva. In accordance with the obligations in the EU Accession treaty, Romania became a member of the European Patent Organization 1 March 2003.
– Romania has a developed court system as well as arbitration and mediation procedures. As well as through the normal Courts the parties can resolve their business conflicts through the Court of International Commercial Arbitration attached to the Chamber of Commerce and Industry of Romania.
– The normal procedure to the tribunal courts and then to the judicature. Appeals from both courts are then to the court of appeal, and then as mentioned below to the Supreme Court.
– Disputes can also be resolved in a mediation procedure. The parties reach a consensus upon the object of the claim through mutual concessions. This is recoded through a written agreement or written decision.
– If the mediation procedure is carried out during a trial, the mediation agreement is made a part of the court decision and the case is closed. The mediation procedure can also be used in the criminal trial. This procedure is used for minor offenses and gives the possibility to reach a consent and either not go to trial or end the criminal trial.
– All decisions of the court of first instance are appealable to the next higher court which acts as a court of appeal. This decision can then itself be appealed to the next higher court. Thus, there are two appeals allowed on any court decision. Appeals are often appeals on both fact and law. Appeals are from the Court of Appeal to the Supreme Court on a point of law. Disputes in relation to the constitution are to the Constitutional Court whose decisions are final and binding.
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