Invest in Romania

Romanian legislation in force specifically stipulates that all investors implementing and developing their investment projects in Romania enjoy the same rights and incur the same obligations, irrespective of whether their being Romanian or foreign citizens, residents or non-residents.

Following its accession to the European Union (January 1st, 2007), Romania enjoys EU financial assistance in the form of structural and cohesion funds allocated for a five consecutive year period, i.e. 2007-2013.

Romania’s general legal framework in the field of investment stimulation was adopted using Government Emergency Ordinance no. 85/2008, subsequently amended and completed, regulating principles of investment stimulation, investment fields, types of support available, general eligibility conditions, etc.

According to provisions in Government Emergency Ordinance, no 85/2008, incentives supporting investment in Romania are available in the form of grants awarded for tangible and/or intangible assets acquisition; financial support from the state budget for newly created job positions; interest subsidy for credit contracting, and other incentives regulated by special laws in force.

Romanian Government adopted a large number of state aid schemes supporting investment and thus stimulating economic growth.

State aid can be granted to large, small, and medium-sized enterprises (including microenterprises), depending on the type of investment, the field in which the investment is to be implemented, and the provisions of the state aid scheme applied for.

Government Emergency Ordinance no. 85 from 24 June 2008, subsequently amended and completed

General Legal Framework of Investment Stimulation

Under provisions of Emergency Ordinance no. 85 / 2008 issued by the Romanian Government, subsequently amended and completed, principles of investment stimulation are:

• Equality of treatment
• Transparency
• Efficient use of incentives
• Confidentiality
• Eligibility – criteria: sources of the financing funds

Objectives: Promoting investment aims to:

• Provide incentives for investments ensuring the development of the most important sectors of activity, as referred to in the governmental economic and social policies, and contribute to the achievement of one of the following objectives, as defined under state aid legislation:
• Regional development and cohesion
• environment protection and rehabilitation
• energetic efficiency increase and/or production and use of energy from renewable energy sources
• R&D and innovation process improvement
• workforce formation and employment
• implementation of innovative technologies and research results in the national production system
• development of new tourism infrastructures on national territory

Incentives are provided for investments in the following sectors:

• activities of agro-industrial processing
• top sectors in the manufacturing industry
• electric and thermal energy production and delivery; production of equipment for increasing energy efficiency and use of renewable energy resources
• environmental quality protection and improvement
• water distribution, sanitation, waste management
• informatics and communications
• research, development, and innovation activities or new products development
• activities providing workforce services

Incentives available – state aid type:

• grants awarded for material and immaterial assets acquisition;
• state-budget financial support for newly created jobs
• Interest subsidy for contracting credits, as well as other types of incentives provided by the legislation in force.

The responsible authorities draw up laws/state aid schemes / individual aids, in compliance with EU and national provisions regulating the state aid sector.

There are two groups of eligibility conditions:

• Conditions regarding the investment
• Conditions regarding the investor

The measures of support will apply to investments:

• located within poorly economically developed areas, i.e. areas where GDP rate /capita is lower than the GDP national average
• located within counties where the unemployment rate is higher than the national unemployment rate
• contributing to achieving new infrastructure objectives or modernizing already existing ones
• involving research, development, and innovation activities or high technology use
• leading to energy efficiency improvement, renewable energy resources capitalization
• ensuring environmental protection and rehabilitation
• ensuring human resources development and social inclusion by carrying on programs of professional formation and development

State aid schemes specifically regulate:

• sectors of activity
• investment categories, value, types of corresponding incentives, conditions for investment maintenance, as well as other investment granting criteria
• investment categories ensuring new job creation

Beneficiaries are investments and investors complying with the following conditions

• contribute to the achievement of at least one of the objectives mentioned above
• activities are carried on in the above-mentioned sectors
• have no unpaid debts to the funds of the general consolidated budget
• did not ask the Ministry of Economy and Finance to perform neither falling due payments for state-guaranteed foreign and domestic credits, nor payments to the risk fund
• did not contract any state-guaranteed loans
• are not subject to compulsory execution or insolvency, dissolution, or other situations regulated by the law
• there are no state aid recouping decisions issued against them or, in case there are, these decisions have been executed according to the law

Incentives granting is conditioned by obtaining the agreement-in-principle of the responsible authority, as preliminary to investment starting off.

Reasons to Invest

When considering Romania as a possible location for developing their businesses, foreign investors take a close look at the advantages provided by our country:

Market & Location Advantage

• One of the largest markets in Central and Eastern Europe (ranking 7^th in the EU , with over 21 million inhabitants);
• EU unique market gateway (access to approximately 500 million consumers);
• Attractive location: situated at the turning point between the EU, the Balkans, and CIS countries, Romania is crossed by three important pan-European transportation corridors: corridor no. IV linking Western and Eastern Europe, corridor no. IX connecting Northern and Southern Europe and no. VII – Danube River, facilitating inland water transportation, at the same time connecting the Romanian Port of Constanta (the biggest Port to the Black Sea) to Northern Europe, through the Rhine.

Resource Advantage

• Highly skilled labor force at competitive prices (solid knowledge in foreign languages, technology, IT, engineering, etc);
• Rich natural resources, including surface and underground waters, fertile agricultural land, oil, and gas;
• High tourism potential.

Political Advantage

• Stability factor in the Area - NATO membership;
• Stability Guarantee in South Eastern Europe;
• EU membership.

IR Advantage

• Bilateral agreements between Romania and other countries on investments promotion and protection;
• Bilateral diplomatic relations with 177 out of the 191 UN member states, plus the Holy See, the Sovereign Military Order of Malta, and the Palestinian National Authority;
• Member of the UN and other international organizations, like OSCE, Council of Europe, and International Organization of La Francophonie;
• Free trade agreements with EU, EFTA countries, and CEFTA countries;
• WTO member since January 1995.

Economical Advantage

• State aid schemes for encouraging investors to take upon Romania;
• Major interest of Foreign Investors – leader destination for FDI in the region;
• Sound fiscal policy (16% flat tax).

Social Advantage

• Agreement between Government and major unions;
• No major union movements;
• Labor relations regulated by the Romanian Labor Code.

Legislative Advantage

• Similar legal provisions as in the EU (Acquis Communautaire implementation);
• Fiscal policy regulated by the Fiscal Code.

Other Advantages

• Continuously improving infrastructure (Executive’s commitment to improving the highway infrastructure to EU standards);
• Well-developed networks of mobile telecommunications in GSM systems;
• Highly developed industrial infrastructure, including oil and petrochemicals;
• Presence of branch offices and representatives of various well-known international banks;
• Extensive maritime and river navigation facilities.

 

International Acknowledgement

• Fitch upgraded Romania’s outlook

The prestigious rating agency Fitch upgraded the country ceiling up to BBB+ thus including Romania in the “investment grade” category, namely low risk for investment.
The outlook for long-term foreign currency loans has also been upgraded up to “BBB minus” as today the prospect for long-term ratings is stable.
Hence Romania has come back to an ‘investment grade’ type of rating giving a positive signal to the international business community and external financial markets where the country enjoys a much-needed boost in confidence considering the European economic context.

• European Commission report: Romania‘s fiscal risk is two times lower than Greece’s

Romania has a fiscal risk close to the EU average and two times lower than Greece, reflecting vulnerabilities related to the current and projected nefor of financing of the state according to a report of the European Commission.

A high fiscal risk demands substantial fiscal measures to be adopted without any delay as stated by the “Tax reforms in EU member states 2011”
For Romania, the indicator calculated by the EC is at 0.54 points, slightly above the EU average of 0.51 points. Greece has the highest risk in the EU, with 1.02 points, followed by Italy, with 0.88.

• AT Kearney: in 2011 Romania remains attractive for global services, ranking 25th among 50 countries worldwide included including the top.

Within the region, Romania has a better performance than its traditional competitors like Hungary (#31), the Czech Republic (#35), and Slovakia (#40).

• Romania ranks 21st within Ernst & Young's „Renewable Energy Country Attractiveness Indices 2011”

Although the study stands for one of the most prestigious in the field since it’s the first issue in 2003, Romania is almost a newcomer as it is in its second year of presence going one position up since it’s last performance. Among the assessed elements for Romania’s scoring 44 points: bio-diesel, wind energy and solar energy, hydro energy, and infrastructure.
 

• Bucharest one of the best European business destinations

Bucharest climbed eight positions to 27 within Europe’s top 36 business destinations chart, having the most noteworthy advance among assessed markets, according to Cushman & Wakefield’s „European Cities Monitor 2011”
 

As far as the cost evolution of the office spaces is concerned, Bucharest ranks 4th, up 17 places against last year performance.

The availability of office space placed Bucharest secondly after Berlin overcoming its previous position in 2010 when ranked only 24th.

Expenses on the labor force were considered a most valuable asset to Bucharest as it positioned the city on top of the list as regards the talent pool.

Business environment attractiveness set Bucharest in the 4th place, climbing 15 positions up compared to the 2010 one.
 

Romanian companies dominate the 4th issue of Top 100 companies in SEE in terms of revenues according to SeeNews, AT Kearney, and Euromonitor International.

OMV Petrom Group remained the unchallenged number one for the third year in a row, with EUR 3,627 billion in total revenues.

The Romanian companies in the SEE TOP 100 boasted EUR 40 billion the overall revenue of EUR 87.4 billion in 2010.

As far as the bank sector is concerned BCR Erste Bank ranks 1st with over EUR 16 billion in assets and a net profit of EUR 170 million in 2010. Among other domestic companies included in the chart, it’s worth mentioning Automobile Dacia, Romgaz, and Hidroelectrica.

According to the report, Romania is the biggest contributor to the SEE’s GDP.

• Romania is the first European country by internet connection speed and the 4th worldwide

Romania ranks first in Europe and 4th globally by internet connection speed within the “top of the fastest Internet connections” according to the State of the Internet Report published by the American company Akamai Technologies.

Romania registered a 7 Mbps in average Internet connection speed in 2010’s 3Q, 12% up as against the same period of 2009. Romania was surpassed only by South Korea (14 Mbps), Hong Kong (9,2 Mbps), and Japan (8,5 Mbps).

 

Key info

Romania is situated in South-eastern Europe, in the Northern part of the Balkan Peninsula, inside and outside of the Carpathians Mountains, on the Danube lower course, bordering the Black Sea.

Official name: ROMANIA
Form of Government: Republic
The Parliament: two-chamber Parliament: Chamber of Deputies and Senate
National Flag: three equal vertical stripes, next to the staff blue, yellow and red.
National Coat-of-Arms (since 1992): An eagle holding a cross in its beak and a sword and a scepter in its claws as well as the symbols of the historical provinces, Wallachia, Moldavia, Transylvania, Banat, and Dobrudja.

Geographical Location: South-eastern Europe
Neighbors: lies between Ukraine and Bulgaria and adjoins the Black Sea to the east. Romania is bordering Bulgaria (by the Danube), Serbia, Hungary, the Republic of Moldova, and Ukraine
Area: 238,391 sq. km (12th in Europe and 81st in the world).

Official language: Romanian
Standard time: GMT +2 hours
Currency: Romanian leu (RON); fractional coin - ban;

Capital city: Bucharest (1.9 million inhabitants);
Administrative distribution: 42 counties (including Bucharest), 319 towns, and 2851 communes.
Main cities: Iasi; Constanta; Cluj-Napoca; Timisoara; Galati; Craiova; Brasov; Ploiesti; Braila.
Airports: Bucharest-Otopeni, Bucharest-Baneasa, Constanta, Timisoara, Bacau, Baia Mare, Caransebes, Cluj-Napoca, Craiova, Deva, Iasi, Oradea, Satu Mare, Târgu Mures, Tulcea, Suceava, Arad, Sibiu.

Population: 21.6 million inhabitants
Density: 91 in./sqm.
Ethnic structure: Romanians 89.5%, Hungarians 6.6%, other 3.9%.

 

FAQ

1. What markets can I have access to if investing in Romania?

Taking upon Romania means investors gaining access at the same time to the EU internal market and Romania’s significant domestic market opportunities, our country is strategically positioned at the crossroads of the traditional, commercial, and energy routes connecting EU-27, Asia, and the Balkans. Romania has the biggest internal market in South-Eastern Europe, the second largest in Central and South-Eastern Europe, ranking 7th in the EU, with a population of 21.6 million inhabitants.

2. What were the GDP growth and the levels of inflation and unemployment rates in 2010?

Considering the international economic framework facing the biggest economic crisis over the last 60 years, Romania was not an exception from the general rule regarding the economic downturn, with a -1.3 %growth rate decrease in 2010 and an unemployment rate decelerated down to 6.87%. As far as the inflation rate is concerned in 2010, it reached 6.1%. An economic growth rate of 1.5% is foreseen for 2011.

Source: NBR

3. What is the level of the corporate tax?

Romania has a 16% flat tax as one of the lowest in CEE.

4. What is the VAT level?

Romania has a 24% VAT standard rate and a 9% reduced rate applicable to the supplies of certain goods/services as provided by the Romanian Fiscal Code.

5. What is the average gross monthly wage in Romania?

For 2011, the average gross wage per month in Romania is 2022 RON (approx. EUR 480), according to Law No. 287/2010 regarding the state social insurance budget.

6. What is the average number of students in Romania?

There are approximately 717 thousand students in Romania, enrolled in 160 higher education institutions
Source: National Institute for Statistics

7. What is the sector attracting the most inward FDI and why?

The sector attracting the highest rates of FDI is industry, due to the lower level of land price against other countries within the region, skilled labor force at competitive prices, as well as the availability of the production capacities and traditions within the sector.

8. What incentives are provided for direct investments?

Romania currently provides: carrying forward fiscal losses, accelerated depreciation, local taxes incentives, subsidies on employment and training stimulation, and incentives for economic growth support. Other financial incentives are provided by several state aid schemes.

9. What are the main advantages an industrial park can offer?

The main advantages offered by an industrial park are possibility to implement Greenfield and Brownfield projects; access to utilities; the package of services offered by the park administration; exemption from paying land and building taxes.

 

Taxation

By PricewaterhouseCoopers

January 2012

Taxation of individuals

• Most types of income earned by individuals are taxed at a flat rate of 16%.
• Romanians domiciled in Romania are subject to taxation on their worldwide income (except for salaries received from abroad for activities performed abroad).
• Foreign individuals (and Romanians with a domicile outside Romania) are generally subject to Romanian taxation only for income sourced in Romania. However, such individuals may be taxed on their worldwide income if specific criteria are met (new residency conditions starting in 2012).
• Individuals employed abroad and performing employment activities in Romania are required each month to calculate, declare and pay individual income taxes as well as contributions to the Romanian Social Security system (observing specific criteria) for salaries obtained from foreign employers.
• Salary tax exemption may be applied for employees working on software creation if certain conditions are fulfilled.
• Dividend income, income from prizes, and some other specific sources of income are subject to a final 16% withholding tax at source.
• Capital gains from transfers of securities are taxed at a 16% rate.
• Income from the transfer of immovable property is taxed based on the holding period and value and is subject to 1% - 3% tax.
• Interest income earned from deposits in Romania is subject to a 16% withholding tax.

Taxation of corporations

• The standard corporate income tax rate is 16%.
• Micro-companies may opt to pay a 3% income tax on income, instead of a profit tax.
• The dividend tax rate is 16% on dividends paid to Romanian companies and to non-resident companies. Non-residents may be eligible for a reduced rate under double tax treaties. The tax is reduced to nil if the beneficiary is a company resident in an EU (including Romania) or EEA member state that holds, for at least two years, at least 10% of the shares of the company distributing the dividends.
• Standard withholding tax on interest and royalties paid to non-residents is 16%, which can be reduced under favorable treaties. From January 2011 these payments are also exempt from withholding tax if the beneficiary of the income is a company resident in the EU or EEA and holds at least 25% of the taxpayer’s shares for a minimum period of two years.
• From 1 January 2012, credit institutions are required to apply International Financial Reporting Standards (IFRS). In connection with this, there are some specific transitional and ongoing rules for tax purposes.

Value Added Tax

• The standard VAT rate is 24%. Reduced VAT rates of 9% and 5% apply for certain goods and services.
• Rules determining the place of supply for goods and services (and hence the place for VAT taxation) are fully harmonized with EU Directive 112/2006 and EU Directive 8/2008 regarding VAT.
• Invoicing deadline is the fifteenth day of the month following that in which the supply was performed.
• VAT refund is available for EU and non-EU businesses.

Customs and International Trade

• Romania applies the EU Common Customs Tariff & EU customs regulations.
• Romania applies all EU free trade agreements concluded with third countries.
• Import licenses are required for commodities such as oil, certain chemical products, and weapons.
• No customs formalities are applied for goods with community status (goods produced in the EU or goods released for free circulation in the EU).
• Compensatory interest is due for Inward Processing & Temporary Admission regime goods released for free circulation in the EU.
• Security is required for suspensive customs regimes, with a few exceptions.

Excise duties

• EU “harmonized” excisable products and “non-harmonized” excisable products.
• Tax warehouse for production and storage purposes.
• Registered consignee and consignor.
• Excisable products can be produced, transformed, transported, and stored under excise duties and suspensive arrangements.

Environmental Fund Contributions

• Contributions are due to packaging, tires, air-pollutant emissions from fixed sources, sale of ferrous and non-ferrous waste, standing wood, etc.
• Some contributions depend on compliance with waste management obligations.
• Registration of producers/importers / exporters of EEE (electrical and electronic equipment).
• Registration obligation for producers/importers of chemical substances and preparations (REACH).

 

Mergers and Acquisitions

by Ernst & Young

April 2012

After completing the first investment stage – establishing a Romanian legal entity – foreign investors may, during the business, restructure their activities through mergers and acquisitions as stipulated by Romanian law.

Law 31/1990 (the Romanian Company Law), as amended and republished, and the methodological norms approved under Order 1376/2004 (regarding accounting procedures for mergers, spin-offs, dissolution, liquidation of companies, withdrawal and exclusion of shareholders, as well as the fiscal regime of such operations) represent the general legal framework for mergers and acquisitions in Romania. The Romanian Companies Law regulates both mergers by absorption (whereby one or more existing companies are absorbed by another existing company) and merger by fusion (whereby a new company is created by integrating two or more existing companies), as well as spin-offs. The merger/spin-off should be decided separately, by each participating company voting in the General Meeting of Shareholders. Following this, a merger/spin-off plan is prepared and registered with the Trade Registry, for it to be examined by an expert and to get the approval of the delegated judge, as well as to have it published in the Official Gazette.

Regarding the completion of the merger/spin-off operation, two situations may arise:

a) where under the merger/spin-off new companies resulted, the operation takes effect upon the incorporation date of the new company or the last of the new companies;

b) for the other cases (e.g. merger by absorption, spin-offs where the transfer is made to already existing companies), the operation takes effect on the date when the resolution of the last company approving the operation is registered with the Trade Registry, save for where the participating companies jointly agree on a different date. However, this date cannot be before the end of the last financial year of the company/companies that transfer its/their assets and liabilities and cannot be later than the end of the current financial year of the absorbing or the beneficiary companies.

The government’s Emergency Ordinance 52/2008 amending Romanian Company Law regulates both cross-border mergers and Societas Europaea.

The amendments regulate the cross-border mergers involving limited liability companies (Romanian: societati cu raspundere limitata – SRL), joint stock companies (Romanian: societati pe actiuni – SA), joint stock partnerships (Romanian: societati in comandita pe actiuni – SCA) and Societas Europaea having their registered office in Romania and companies established pursuant to the law of a member state and having their registered office, central administration or principal place of business within the European Union.

Supplementary obligations are provided for the delegate judge and for the Romanian Trade Registry that shall undertake cooperation duties with similar institutions of the member states where companies involved in the merger process are headquartered, in order to verify the legality of the procedures.

Furthermore, the implication of the employees in the decision-making process of the companies that are parties to the cross-border merger is evidenced.

The cross-border merger procedure (meaning terms, conditions, documents, and information to be provided and included in the respective documents) is more or less the same as the procedure provided by Romanian Company Law with respect to local mergers. Therefore, there are several steps that should be considered whenever such a project is envisaged, as follows:

a) Drafting the merger project, containing specified information, shall be published at least 30 days before the date of the general meeting to decide upon the merger;

b) Drafting the report of the management, and report of an independent expert;

c) The approval of the merger by the general meeting is also required;

d) Publicity formalities related to the merger project and the merger resolutions.

The Romanian Company Law provides simplified procedures in case of (i) merger by absorption when the absorbing company wholly owns or at least 90 % of the absorbed company’s shares and in case of (ii) spin-off when the beneficiary companies own together all the shares of the spun-off company.

With regard to acquisitions, Company Law regulates the acquisition of shares in any type of company. In the case of limited liability companies and joint-stock companies, the acquisition procedures are different as shares in a limited liability company are not freely transferable to third parties (a special quorum and a majority in the General Meeting of Shareholders are required), whilst shares in a joint-stock company are not subject to specific restrictions regarding their transferability to third parties if not otherwise provided for.

There are also some instances where companies involved in a merger or acquisition are subject to certain competition regulations. However, as a general rule, there are no competition issues to be considered when companies participating in a merger and/or acquisition are part of the same group of companies. Mergers and acquisitions involving at least one public company must be done in accordance with Capital Market Law 297/2004 and by observing the regulations issued by the National Securities and Exchange Commission (CNVM).