Our experience and longtime research on foreign investments confirm that Eastern European countries offer a wide variety of opportunities, especially for small and medium enterprises. Besides their strategic geographical position, the Balkans represent an economic bridge between Western and Eastern Europe: they benefit from very convenient tax and social security systems, with substantial tax breaks for investing enterprises and a very competitive cost of labor. Moreover, the establishment of companies is pursuant to European laws and regulations.
What follows is a summary of opportunities offered by Romania.
Romania is located in Central Eastern Europe, with a population of 20,121,641 inhabitants, and an area of 238,391 km2. Its capital is Bucharest, the official currency is the RomanianLeu. Romania is a semi-presidential Republic and became EU member state on January 1st, 2007.
The law nr. 571/2003, “Romanian Fiscal Code” regulates:
• Direct Taxes
1. Company income tax;
2. Natural persons income tax;
3. Non-resident income tax.
• Indirect Taxes
2. Excise taxes;
• Local taxes and levies.
The Romanian fiscal system was reformed in 2005 introducing a single income tax rate of 16%, the so-calledflat tax. This rate is applied both to company incomes and to natural persons incomes. As regards natural persons, residents (that is individuals living in Romania for more than 183 days per year) have to pay taxes on all incomes, wherever they are originated;otherwise they are subject to taxes on incomes made in Romania.
As regards taxation on other revenues, please see the following chart.
• 16% standard withholding tax
• 0% in case of dividends distribution to EU or Romanian legal entitiesholding at least 10% of the capital stock for at least 1 year on the earnings distribution date
Royalties and Interests
• 16% standard withholding tax
• 0%if the actual payeeis a legal entity residing in the European Union, and has held at least 25% of the capital stock for 2 years on the earnings distribution date
Services • 16 % standard withholding tax for counseling,marketing, technical assistance, R&D, professional services
Capital Gains – PEX
• 16% standard withholding tax
• 0% in case of sale to Romanian legal entitiesof at least 10% of shares held for more than 1 year on the earnings distribution date.
The regular VAT rate is 24%, and it is applied to all sales of goods and services, with the exception of those listed as VAT exempt.
There are two reduced VAT rates, namely at 9%and 5%. The 9% rate is applied to some specific cases expressly described by the law(i.e.pharmaceuticals, books, museums tickets, hotel services, etc.).
Exports and sales of goods within the EU are VAT exempt. There are other important exemptions, regarding for instance social, medical and educational services, and also some real estate transactions.
Cost of Labor
The average Romanian gross monthly wage (art. 16 of Law 340/2013), is € 515 (2,298 Lei gross), that is€ 364 net (1,627 Lei net). Social security contributions are mandatory in Romania, and are due both by the employer and by the employee.
The employee contribution rate is 16.5%, divided as follows:
– Retirement and disability 10.5%
– Unemployment fund 0.5%
– Medical 5.5%
The employer contribution rate is27.75, divided as follows:
– Retirement and disability 20.8%
– Unemployment fund 0.5%
– Medical 5.2%
– Warranty fund 0.25%
– Medical leave insurance 0.85%
– Labor safety insurance0.15%
European Funds and Tax Relieves
In order to reduce regional imbalances, the European Union has adopted for the 2014–2020 period its Cohesion Policy.Through such instruments as the European Regional DevelopmentFund (ERDF), the European Social Fund (ESF) and the Cohesion Fund (CF) the EU will finance:
• Economic growth and employment investments (drawing on all mentioned funds);
• European Territorial Cooperation(funded by the ERDF).
Structural funds for Romania will approximately amount to 22 billion Euros, and in addition to said funds, Romania will receive 7 billion Euros from the European Agricultural Fund for Rural Development (EAFRD).
Another opportunity is the currently open CIP tender (Competitiveness and Innovation Framework Program).The scope of this tender is to promote first presentation projects or renewableprojects on innovative technologies, products, processes and services with an environmentally oriented output. The proposed green innovation must be already proved upon presentation of the project.
Projects must entail and be applied to the following sectors:
-recycling of materials;
-environmentally sustainable constructions and buildings;
– food and beverages market;
– water supply;
– green businesses.
Grants and tax relieves: there is a non-repayable grant covering up to 50% of admissible project costs.
Admissible activities and expenses: in order to become admissible, projects must entail promotional, dissemination and circulation activities to be applied to the green innovation market and, to a lesser degree, activities aimed at experimenting the final prototype.
Admissible costs, linked to the innovation activity, are the following:
• external consultants;
• travels and accommodation;
• tools, equipments and machinery (amortization);
• promotion, advertising and dissemination costs;
• business plan;
• patents and licenses;
• general expenses.
The incorporation of enterprises and companies is regulated by Law 31/1990, modified and updated with the following Laws: nr. 302/2005, n. 164/2006, nr. 441/2006, nr. 516/2006;there are also the Government Urgency Directives nr. 82/2007 and nr. 52/2008.
Commercial companies may be incorporated in one of the following categories:
- General partnership companies (Societate in nume colectiv): liabilities are guaranteed by the capital stock and by the unlimited and joint liability of partners;
- Limited partnership company (Societate in comandita simpla): liabilities are guaranteed by the capital stock and by the unlimited and joint liabilityof limited partners. Limited partners are liable onlyon the basis of their contribution percentage;
- Joint stock company (Societate pe actiuni, S.A.): liabilities are only guaranteed by the capital stock. Shareholders are required to pay for their stocks only. The minimum capital stock is 90,000 lei (€ 20,000);shares: registered or bearer shares; minimum number of shareholders: 2.Administration type can be of two categories:
– one-tier system (Board of Directors);
– two-tier system (with a Director and a Supervisory Board).
- Limited partnership on shares (Societate in comandita pe actiuni): the capital stock is distributed in shares, and liabilities areguaranteed by the capital stock and by the unlimited, joint liability of general partners. Limited partners are only required to pay for their shares.
- Limited liability company (Societate cu raspundere limitata; S.R.L.): liabilities are only guaranteed by corporate assets. Shareholders are only required to pay the company shares.Minimum capital: 200 lei(€ 45); number of shareholders: from 1 to 50; in case the incorporation deed does not mandate differently, the General Meeting decides with votes representing the absolute majority of shareholders and of company shares.
The following documentation is necessary, and must be filed at the Commerce Registry in order to establish a commercial company in Romania:
- availability of the company name and reservation thereof. This reservation is also necessary in order to sign the lease for the company registered office;
- office lease or free loan contract for the company legal office, plus a valid Real Estate Card;
- incorporation deed;
- a receipt proving that the capital stock has been deposited. If the capital stock has been deposited in-kind, shareholders must provide appropriate documentation proving that they are the actual owners of the in-kind capital.Upon incorporation signing, a symbolic amountmust be deposited; subsequently, non-cash assets are deposited, and in case this happens upon incorporation signing, said assets must undergo an appraisal. If non-cash assets are deposited as a capital increase, shareholders appraise their value and decide on relevant admissibility;
- for non Romanian residents it is necessary to have a Criminal Records Office clearance certificate, for each shareholder and/or director; Romanian citizens only need a self declaration of honorability under oath, duly signed by a notary public for each shareholder and/or director;
- a signature template for each director.
Moreover, in Romania it is not possible to have more than one registered office, that is to have a proxy office, as it is required to have at least one official headquarter.
For foreign natural persons it is necessary to make a copy of ID cards or passports;
For foreign legal persons it is necessary to provide the following:
- a document proving the legal existenceof said legal person, issued by the local Chamber of Commerce or similar authority;
- a decision of the shareholders’ meeting or similar boards;
- a certificate of commercial respectabilityissued by the local Chamber of Commerce;
- a special proxy.
Company incorporation expensesin Romania amount to € 600 approximately.