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Doing Business in Romania

 

The purpose of this publication is to offer insights into the process of developing a business in Romania, by covering the main aspects related to doing business and investing in Romania.  The data presented hereby are not exhaustive, therefore professional assistance from a lawyer in order to make informed decisions is recommended.

Romania is a member of the UN and NATO, as well as an EU member state since 1 January 2007 and currently in the process of joining the Schengen area.  Having an estimated population of 19,579,050 inhabitants and a surface area of 238.4 thousands of square kilometers (which makes it the 9th biggest EU country by surface area), Romania is a market with excellent potential, educated workforce, a thriving economy and rich natural resources.  Due to the country’s strategic location in the south-eastern part of central Europe, bordering the Black Sea, Romania is a perfect match for companies pursuing access to European, Central Asian and near East markets.

In terms of the income level, Romania is classified by the World Bank as an upper middle income country.  The crime rate is especially low in Romania, even by cross-referencing with other EU countries.  Most crimes against visitors are limited to crimes of opportunity or scams. Violent crime is rare.  Romania’s health care system is rapidly developing, providing a public healthcare system, along with a fast expanding private medical system.

Romania’s ability to attract foreign direct investment (FDI) has taken a dramatic improvement in the past years.  According to the National Bank of Romania, FDI in Romania is characterized by a considerable stability.  From a territorial point of view, FDI went mainly to the BUCHAREST-ILFOV region (59.9 percent). Other development regions, which attracted significant FDI inflows, were the CENTRE region (9.1 percent), the WEST region (8.0 percent), the SOUTH-MUNTENIA region (6.9 percent), and the NORTH-WEST region (5.9 percent).

Legal System

The Romanian legal system is based on the Civil Law system.  The country’s statutory system relies on the codified law, while the Romanian Constitution occupies the first position within the hierarchy of legal acts.  As an EU member state, Romania’s national legislation was aligned to the European legislation, prior to the EU accession.  Since then, EU law has been constantly implemented and the decisions of the Court of Justice of the European Union have a decisive effect on the rulings of the national courts.

Starting a Business

The Romanian legislation provides a number of options when considering the legal form a new investment may take.  The available types of legal entities range from limited liability companies (“Societate cu Raspundere Limitata”, “SRL”) and joint stock companies (“Societate pe Actiuni”, “SA”) to partnerships (general partnership, limited partnership, limited partnership by shares).  
 
The general set-up procedure of a company requires the fulfillment of certain legal formalities such as registration with the Trade Registry and with the tax authorities.  Companies can be set up by individual or legal entities and there are no special requirements with respect to the citizenship of the company’s shareholders/administrators.  The main document needed for incorporating a company is the Articles of Incorporation.

The most used forms of incorporation in Romania are the SA and the SRL.  That is in particular due to the fact that the responsibility of shareholders for the company’s liabilities is limited to the value of the subscribed and paid-in share capital. Also:

  • The SRL is the only type of company that may have a single shareholder.  The main advantage of an SRL is its simple administration.  According to the Romanian Company Law, no more than 50 shareholders (individuals and/or legal entities) are allowed to own shares in a SRL.  The shareholders’ liability for the company’s debts is limited to the value of the share capital of the company, including the case of the limited liability company held by a sole shareholder.  The minimum share capital of a SRL is RON 200 (representing approximately EUR 43.5 at an average exchange rate of 1 EUR /4.6 RON ), divided into shares with a nominal value of at least RON 10 each (representing approximately EUR 2.17 at the exchange rate afore-mentioned).

  • SAs are companies with limited liability, requiring a minimum of two shareholders for the purpose of incorporation.  There is no maximum number of shareholders an SA may have.  Shareholders’ liability for the company’s debts is limited to the value of the share capital of the company.  The minimum share capital required for the lawful incorporation of an SA is RON 90,000 (that is approximately EUR 19,565 at the exchange rate above-mentioned), which may be modified by the Romanian Government every 2 years in order to be the equivalent of EUR 25,000.

Another aspect which should be taken into consideration is the establishment of the registered office.  In this regard, it is important to highlight a further great advantage with respect to the development of business in Romania, respectively the property values.  Although the Romanian real estate market is adapting to the continuously growing demand levels, the renting and selling prices of apartments and houses remain one of the lowest in the EU.  As such, in 2017 the median asking price for an apartment (regardless of its construction time) in Bucharest was EUR 1,200 per square meter.  In Cluj-Napoca it has reached EUR 1,260 per square meter, while in other cities of major importance the median asking price for an apartment was between EUR 900 (Iasi) and EUR 1,040 (Timisoara).  Additionally, according to Eurostat, the statistical office of the European Union, the cheapest arable land can be purchased in Romania, with a hectare costing an average EUR 1,958 in 2016 (only the Romanian companies and Romanian individual can acquire land in Romania).

Contracts and Commercial

In line with the Community acquis, the freedom of contract is the guiding principle underlying the Romanian legislation.  In this connection, the contracts are governed by the will of the parties, which are free to conclude any agreements and to determine their content.  The will of the parties is thus respected within certain limits, namely those imposed by the law, public order and good morals.  The parties can likewise conclude the agreements in any form.  However, there are certain cases in which the law requires a special form.

Moreover, taking into consideration that Romania is an EU member state and a member of the main International Organizations, the most important requirements contained within International Treaties regarding International Trade are complied with.

Labour

Romanian labour legislation has been changing quite often throughout the last 21 years, changes caused primarily by the dynamics of the labour market, but also by political climate swings.  Along with the majority of the European countries, Romania’s legislation provides a significant protection towards the employees.  The national courts have adopted a stringent approach in their practice, however in more recent times the courts have a more balanced approach, in order to ensure the stability of the business environment.  

One of the main employer-friendly changes approved by the Romanian Government was the transfer of the social security contributions from the companies to the employees as of 1 January 2018.  Subsequent to this change, Romania is the only EU member country to transfer all social contributions from the employers to the employees.

The normal length of the working time for the full-time employees is of eight hours per day and 40 hours per week.

The maximum legal length of the working time may not exceed 48 hours per week, including the overtime.

The annual leave shall have a minimum length of 20 working days.

The collective labour agreement may specify better conditions for employees, which shall be adhered to when concluding the individual employment contract.

Taxation

The standard Corporate Tax Rate in Romania stands at 16% of the taxable profit and the standard VAT rate is 19%. The income tax rate stands flat at 10%.

A minimum tax for nightclubs, sports betting and other such activities is specifically imposed.  Consequently, taxpayers that carry out such activities for which the corporate tax due is less than 5% of the revenues obtained from such activities are required to pay a tax equal to 5% of such realized incomes.

A reduced VAT rate of 9% applies to food and beverage industry, medical treatments and prosthesis, accommodation etc.

Extra-reduced VAT rate of 5% applies to supplies of social housing under certain conditions and to school books, newspapers, magazines, admission fees to castles, museums, sport events, cinemas etc.

Foreign businesses that have a permanent establishment are subject to the same income taxes as a Romanian company.  Representative offices of foreign businesses are subject to a fixed tax of LEI 18,000 (representing approximately 3,913.04 EUR at an average exchange rate of 1 EUR/4.6 RON) for each fiscal year.

Final Remarks

To conclude, we would like to point out some final remarks in order to emphasize why investing in Romania is unequivocally worth considering.  Romania persistently seeks to build and develop diplomatic relationships.  Its long lasting desire to maintain a permanent and active involvement in international affairs led to the fact that today Romania develops bilateral diplomatic relations with 184 out of 193 UN member states, plus the Holy See, the Sovereign Military Order of Malta and the Palestine.

Being an EU member state and consequently part of the European Economic Area, Romania not only gives effect to the statue and rules imposed by the European legislation, but also allows free movement of goods, capital, services and people between member states.

In terms of transport, it is important to underline that Romania's infrastructure is fairly expanded.  At the end of 2017, the public railway lines amounted to 10774 kilometers (6,694 miles) and the public roads totaled 86099 kilometers (53,499 miles).  Romania also has 16 airports, providing both international and domestic flights.  The main airports are the ones located in Bucharest, Cluj-Napoca and Timisoara, three of the most populated cities in Romania.