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DOING BUSINESS IN ROMANIA – AN UP-TO-DATE MINI-GUIDE |
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Introduction
The severe consequences of the global financial crisis in Romania
affected the nation’s economy in an abrupt way which left no room for
delays or postponements in finding solutions to the grave situation that
confronted the country. Romania was thumped by a significant decline in
the real estate market, a high increase in unemployment, a precipitous
drop in manufacturing, and an unexpectedly huge number of bankruptcies
and reorganizations of commercial enterprises. Nevertheless, new areas
of economic development such as green energy, environmental protection
and infrastructure redevelopment became the stars of a struggling
economy, and investments in those fields grew. Romania is again
experiencing growth and is expected to recover faster than many of its
western European neighbors with more mature economies.
The notion of presenting an updated mini-guide on doing business in
Romania developed from the experience of recent investors determined to
find a simple way through the abundant legislation and bureaucratic
procedures that govern the formation of a business in the country. This
article is obviously not an exhaustive tool covering all areas of
business; it is a mini-guide to provide potential investors with the
up-to-date basic information which they need in order to start a
business in Romania. |
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Corporate |
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The actual form which an
investor should use to start a business in Romania will differ with the
type of business intended to be developed, the scope of the activity
envisioned and the nature of the collaboration and partnerships
contemplated. Different forms of doing business have different
requirements and are intended for differing purposes.
Legal Entities Set
Up as per the Romanian Company Law
A foreign investor in Romania can enter the Romanian market through the
various business entities permitted by Law no. 31/1990, as completed and
republished (the “Romanian Company Law”). For instance, it may choose to
establish a representative office (for non-transactional operations such
as marketing), a branch office (a legal entity which does not have a
Romanian legal character of its own), or a subsidiary (an autonomous
Romanian legal entity which has its own legal character).
The most common types of
companies which may be set up by foreign investors in Romania under the
Romanian Company Law are limited liability companies (“SRL”) and
joint-stock companies (“SA”). In both instances, in order to form
the company, the shareholders need certain required documentation that
must be submitted to the Trade Registry in the jurisdiction where the
new company will be headquartered. Among these documents, special
attention should be given to the articles of association of the new
corporation since it establishes every aspect of the operation of the
new entity, i.e. the object of activity, the contribution of
shareholders, the management structure, liabilities etc. On the other
hand, one of the main aspects which differentiate the two types of
companies is the level of the minimum share capital to be set up for the
creation of the new company. While the minimum share capital for limited
liability companies is RON 200, the minimum share capital for
joint-stock companies is RON 90,000. A joint-stock company can have an
unlimited number of shareholders while a limited liability company
cannot, and both have differing accounting, governance and reporting
requirements. Furthermore, companies intending to be listed on the
Bucharest Stock Exchange must also comply with the provisions of Law no.
297/2004 (i.e. the “Romanian Capital Market Law”) and the special
regulations adopted by the National Securities Commission.
Joint-Ventures
Another possibility used by foreign investors to pursue business in the
Romanian market is to create a joint-venture. This method of doing
business does not necessarily result in the creation of a separate
Romanian entity. It is based on a joint-venture agreement that sets
forth the particular type of arrangement in which two or more
individuals and/or legal entities, either Romanian or foreign, agree to
contribute certain assets for the purposes of performing jointly in a
pre-determined commercial activity so as to benefit from the profit
obtained. For further details on this particular type of arrangement,
please visit our Romanian Digest™ Archive at
/digest_archive.htm, the September 2009 article
called “Joint Ventures under Romanian Law”.
Public-Private Partnerships (“PPPs”)
The PPP is another way in which a foreign investor may enter the
Romanian market. PPPs are partnerships between public authorities and
private businesses concluded for the purpose of accomplishing projects
or performing services that are traditionally accomplished or performed
by the public sector. Such a partnership acknowledges the fact that both
sectors, public and private, are equally significant, and that both have
certain advantages that must be exploited for the benefit of the public
interest in an efficient economic manner. In Romania, PPPs are regulated
by the Law no. 178/2010. Under the law, a PPP can have as its scope the
design, financing, construction, refurbishment, rehabilitation,
operation, maintenance, development and transfer of an asset or public
service, as the case might be. |
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Foreign Investment |
Generally, there is no difference in the legal treatment between local
and foreign investors in Romania. Foreign investors may own 100% of
their Romanian legal entities and are not required to have Romanian
nationals as shareholders or partners.
 Potential
foreign investors should be familiar with incentive laws designed to
stimulate investments in order to benefit from the facilities granted
for specific purposes. For example, Government Emergency Ordinance no.
85/2008 for stimulating investments expressly states that in order for a
company to be able to benefit from the facilities granted by the
Ordinance, the investments must be performed in certain specific areas
of economy such as: production and supply of electricity and thermal
energy; protection and improvement of environmental quality;
distribution of water, waste management; informatics and communications;
research, development and innovation activities, or development of new
products and services regarding labor force. For more details on the
provisions of this law, please see our September 2008 Romanian
Digest™ article entitled “Romania’s
Targeted and Non-Discriminatory Investment Law”.
Potential investors should also be aware of the provisions of Law no.
346/2004 for the establishment of small and medium size enterprises,
defining SMEs and detailing the conditions in which such SMEs may
benefit from investment facilities in Romania.
As regards restrictions applicable to foreign investors in Romania, a
significant constraint is the limitation on foreign citizens and/or
foreign legal entities to acquire land in Romania. The law governing
these matters is Law no. 312/2005, which details the situations and
conditions in which foreign citizens and legal entities, members or
non-members of EU member states are allowed to acquire land in Romania.
There are no limitations imposed upon a foreign investor’s wholly-owned
Romanian corporation’s right to own land so long as that land is put to
use in support of the stated purposes of the company. Also, a new and
important restriction is found in Law no. 656/2002 regarding money
laundering, which imposes certain limits on foreign currency money
market transactions that are meant to deter money laundering operations. |
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Employment |
After forming a company in Romania, personnel hired by the new firm must
be engaged based upon individual employment agreements regulated by the
Romanian Labor Code. A new Labor Code became effective in May 2011, and
employers must closely observe all of its provisions including executing
individual employment agreements in writing, adhering to reporting
obligations, respecting their responsibilities in the field of health
and security in the workplace, and providing for the requisite
termination procedures. Sanctions for infringing upon the applicable
legal provisions are quite high. For more details, please see our May
2011 Romanian Digest™ article, named “Flexibility
and Transparency in the New Labor Code”.
With respect to employment agreements where the employer is a foreign
company or the employee is a foreign citizen, they may be governed by
the law chosen by the parties so long as that law does not provide less
protection to the employee than does Romanian law. This law may be
either the law of the country where the employee regularly carries out
his work, the place where the employer’s place of business is located,
or the place to which the contract is more closely related.
Foreign investors who intend to become employers in Romania must take
into consideration the specific tax and social contributions which must
be paid by them as employers under Romanian law. It is not our purpose
to name all of the contributions and detail their allocation, but just
to point out the fact that pursuant to the Romanian Labor Code, it is
the employer’s obligation to pay all of the contributions applicable
both to the employer and to its employees. This means that besides the
net salary given to its employees, an employer is also obligated to
cover such expenses as health and social benefits payments that are
applicable to its employees. |
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Competition |
 The
main law governing competition is Law no. 21/1996, as amended, according
to which the following are prohibited: agreements, decisions or
concerted practices having as their object or effect the prevention,
restriction or distortion of competition on the Romanian market or a
part thereof, especially those having as their purpose, among other
things, price fixing, distribution control or market sharing, and abuses
of a dominant position on the Romanian market or a substantial part of
the market. Exclusivity clauses, non-compete clauses, exclusive
purchasing and/or selling obligations and other similar contractual
provisions may fall under the category of prohibited agreements between
undertakings, so possible investors should closely assess all their
agreements in this regard. Moreover, entities that envisage a merger
should closely follow the provisions regarding merger control. For more
details on the most recent activity of the Competition Council, which is
the national authority that supervises the activity of entities in the
competition field and to sanction the infringement of competition
legislation, please see the Romanian Digest™ March 2011 article,
entitled “The
Competition Council’s Recent Impact on Business” |
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Intellectual property |
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Romania, like its fellow European Union member states, fully appreciates
the necessity to have intellectual property rights that are well
protected. Special laws ensure the protection of distinct intellectual
property rights, such as copyright, patents or trademarks. For more
details on the protection granted to such rights by Romanian law, please
see the Romanian Digest™ March 2007 article, entitled
“Intellectual Property Protections in Romania”.
In addition to the specific intellectual property rights whose
protection is ensured by law, a contractual right may be created that
protects confidential information, the significance of which is
substantial to certain businesses where the infringement of such a right
could be crucial to its survival. Companies that include this right in
their agreements must specify the duration for which the right will
exist and the sanctions applicable to the other party in case of a
breach of the protection obligation for confidential information. |
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Data protection |
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A potential investor in a business that entails the processing and/or
transfer of personal data abroad must adhere to the legal provisions
applicable to data protection set forth in Law no. 677/2001 on the
protection of individuals in regard to the processing and free movement
of personal data. Such businesses must file a notification with the
National Authority for the Supervision of Personal Data Processing.
Basically, personal data may be processed only if the individuals’
express and unequivocal consent has been obtained, in advance of
transmission, except for specific situations set forth in Law no.
677/2001 as an exception to the rule. |
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Environment |
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Romania’s accession to the European Union generated the adoption of the
EU Directives on environmental protection into national legislation. The
implementation of such newly adopted laws has forced businesses to
become much more aware of the environmental impact of their activity as
well as the potential sanctions applicable to them in case of their
breach.
The governing principle in the field is the “polluter pays,” meaning
that the entity harming the environment through its activity is the only
one liable to repair such harm and to bear the costs of repair. There
also are certain fields of activity where specific legislation for
environmental protection has been adopted. For instance, projects that
generate emission of greenhouse gases or noise. Furthermore, there are
specific requirements applicable in case of water and waste management
projects. For more details on such regulations, please see the
Romanian Digest™ February 2011 article, named “Implementing
Projects Having an Environmental Impact”. |
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Tax |
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is not the purpose of this article to fully identify the types of taxes
to be paid by companies in Romania. However, as a rule, it is important
to determine whether a company has been registered as a tax resident in
the country. Basically, the following are deemed to be tax residents:
any legal person incorporated in Romania; any foreign legal person with
a place of effective management in Romania; and any legal person
incorporated in accordance with European legislation and having its
headquarters in Romania.
In case of activities performed by tax residents in Romania, the
following taxes are primarily applicable: an income tax amounting to 16%
from taxable profits; VAT amounting to 24% (with certain exceptions of
lower rates for specific areas of activity); salary-related taxes and
contributions applicable both for employers and for employees, as
previously mentioned; and other specific taxes such as taxes on
property.
As regards taxes applicable to non-residents earning income in Romania
such as interest payments, dividends, or commissions, an income tax of
16% is generally applicable. As an exception, this percentage can be
reduced or even eliminated by claiming the provisions of an existing
treaty for the avoidance of double taxation provided that specific
documents have been obtained from the country of origin and that such
documents can be submitted to the competent Romanian fiscal authority. |
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Conclusion |
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Investors in Romania today consider issues that were not even
contemplated a few years ago. In addition to a basic understanding of
corporate and employment matters that are required for any type of
business, potential investors in modern Romania must pay particular
attention to the laws and regulations that govern the specific type of
activity in which they intend to engage including special environmental
regulations and laws governing the use of unique technologies. Breaching
the specific rules governing these activities can cause companies to
incur major sanctions and severely and irrevocably damage to their
image. Similarly, compliance with competition rules or intellectual
property rights protection is now a crucial aspect in the life of a
Romanian company. Avoid pitfalls and potential problems through the
clever use of competent advisors – Romania is no longer the wild east of
the 1990’s. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2011 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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RUBIN MEYER DORU & TRANDAFIR
societate civila de avocati
Str. Putul cu Plopi, Nr.7, Sector 1
Bucharest, Romania
Tel: (40) (21) 311 14 60
Fax: (40) (21) 311 14 65
E-Mail:
office@hr.ro
VISIT OUR WEB SITE:
http://www.hr.ro
The Romanian Digest Archive
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