These Top 10 points provides a key summary of some of the most important factors a foreign investor should take into consideration when deciding to invest in Romania. From a business standpoint, information on the following areas could raise the interest of a potential investor in Romania:
1. Corporate Governance of Companies
Under Romanian law, the most commonly used types of companies are limited liability companies (LLCs) and joint stock companies (JSCs). From a tax perspective, there is no difference between these forms of companies; all companies are subject to the same corporate tax (i.e., a flat rate of 16%) and payment of profits to shareholders are treated as dividends and may therefore be subject to dividends tax.
From the shareholders’ liability perspective, JSCs and LLCs offer a higher degree of protection; in both cases shareholders are liable only up to the value of their subscribed contributions to the share capital. Hence, provided that the entire subscribed contribution of a shareholder to the share capital of a JSC or an LLC has been paid up, the respective shareholder does not take liability for its company’s obligations towards third parties.
The LLC offers the advantage of very low share capital requirements (i.e., RON 200 – approximately EURO 45) as opposed to JSC for which the minimum share capital requirement is of RON 90,000 (i.e., approximately EURO 20,000).
Moreover, LLCs have a simpler corporate governance structure and thus a lighter operating and cost burden. JSCs involve more complex and formalized corporate governance structures, which therefore make them a suitable legal form for entities with a larger shareholder base and more extensive business.
2. Real Estate
Since 1 January 2014, foreign citizens and legal entities are allowed to acquire land in Romania under the same terms and conditions as Romanian citizens and legal entities. As for the agricultural land, the conditions of a pre-emption right require compliance. Additionally, foreign citizens and legal entities may own buildings under the same conditions as Romanian citizens and legal entities.
According to the new Civil Code, the authentic form of the sale-purchase agreement is not sufficient to ensure ownership right over real estate. Thus, registration with the relevant land book of the ownership transfer is mandatory. So, regardless of the moment the parties conclude the agreement, the ownership right will be transferred at the time of the inscription in the Real Estate Register. Nevertheless, until finalization of the cadastral works for each territorial unit, registrations shall be performed for third parties’ acknowledgement purposes only.
3. Public Procurement Regulations
To expeditiously resolve the numerous contestations, the Government Emergency Ordinance no. 34/2006 regarding public procurement procedures, as amended (OUG 34/2006) provides short terms in which National Council for Resolving of Contestations (NCRC) has to resolve the contestations (i.e., 10 days for deciding on reasons that would impede the analysis of the contestation on the merits, 20 days for regular contestations, with the possibility of prolongation, with a maximum of 10 days).
Through the Order of the European Funds Ministry no. 1120/2013 regarding the approval of the simplified procedure applicable to private beneficiaries of structural funds, the applicants for structural funds benefit from a simplified procedure (by way of request of offers) for the acquisition of assets or services for the contracts that exceed the thresholds provided by OUG 34/2006 within which the assets or services can be directly acquired.
Due to the specificity of each infrastructure project, the attribution of PPP contracts must follow either an open procedure or a competitive dialogue procedure. Any contestations regarding the PPP attribution procedure is resolved firstly by the NCRC and benefit from the same short terms as in the case of public procurement contestations.
The publication of calls for PPP projects and the announcement for the attribution of the PPP projects can be performed on the online platform for public procurement procedures – SEAP.
According to the latest tax provisions, dividend income, capital gains and liquidation proceeds derived by Romanian companies that qualify (i.e., 10% participation held for a continuous period of at least one year in a Romanian subsidiary or in a country which concluded a double taxation treaty with Romania) will be considered non-taxable.
Moreover, the general level of income and profit tax preserved at 16% is a favourable measure for new and stable investments.
6. Labour Law
Romania has a highly skilled workforce at competitive prices (the minimum gross salary actually being 190 EURO/month, while the average gross salary is 510 EURO/month).
Please note that the trial period is optional and that the law provides maximum 90 calendar days for executive positions and 120 calendar days for the managerial position. During the trial period, at any time, the employer can fire the employee without having to motivate its decision or give notice to the employee.
As for social security contributions, the employer contributions vary between 27.75%-38.45%, depending on working conditions, while the employee contributes 32.5%.
7. Debt Recovery
An efficient debt recovery method provided in Romanian legislation is the forced take-over of movable guarantees, where the creditor is granted the right to take over its guarantees directly from the debtor by bailiff, without having prior court approval.
The new standard enforcement procedure provides shorter terms (e.g., a maximum of 7 days in which the relevant courts are obliged to resolve the enforcement requests, 3 days in which the bailiff is under the obligation to register the enforcement file and submit it to the court). However, the law does not stipulate a preliminary conciliation procedure before the creditor can request the forced recovery of outstanding debt from its debtor.
In order to support small projects, Law no. 220/2008, regarding the promotion of renewable energy projects, provides the opportunity to sell the produced energy at regulated tariffs, in which case the investor can no longer benefit from green certificates (GCs).
For the producers that were accredited on 1 January 2014, a number of GCs will be reduced, out of the initially established number of GCs (e.g., 0.5 GCs out of 2 until 2017 and 0.25GCs starting with 2018, for each MW produced in wind power plants and 3 GCs out of 6 for each MW produced in photovoltaic power plants).
For the already accredited projects, the E-RES target for 2014 benefiting from the green certificates promotion scheme has been established by ANRE at 11.1%.
Another interesting incentive for holding companies is provided by the Government Emergency Ordinance no. 102/2013, which entered into force on 1 January 2014. According to this enactment, the dividends received by holding companies, the capital gains acquired by the holding companies from the sale of the shares in their subsidiaries, and the revenues obtained by the holding companies from the liquidation of their subsidiaries will not be taxable.
Additional incentives are offered for deductibility of expenses related to research and development activities, the reduced 5% VAT rate for the sale of buildings under specific conditions or the accelerated depreciation of certain assets.
10. New Romanian Legal Codes
The new Romanian Civil Code, which entered into force on 1 October 2011, expressly recognizes the legal value of the pre-contractual period and the principle of negotiating in good faith. Another interesting provision regards the penal clauses, which might be reduced by the court if they are manifestly excessive.
The new Civil Procedure Code which entered into force on 15 February 2013 provides a new procedure which is more predictable, and regulates new special procedures which are faster (e.g., for pecuniary debts actual, liquid and matured, a payment ordinance which enables creditors to obtain a writ of execution against their debtors in a rather short period of time – approximately 2 months – and with fewer costs) and a more efficient system of appeal. Of great assistance to investors is the acceptance of modern ways of communication and of evidence (e.g., the Internet, audio-video, photocopies, electronic devices).
Moreover, the new Criminal Code, which came into force on 1 February 2014, addresses the act of defrauding creditors if the act is realized through abuse of confidence. Thus, the debtor is punished if he alienates, hides, deteriorates or destroys, in total or in part, values or goods of its patrimony or invokes fictional deeds or debts, with the aim of defrauding creditors. In this situation, the punishment might be imprisonment between 6 months and 3 years, or a fine. The same punishment is applicable also for the person who buys a good or a service, although he knows he cannot pay for it, producing damage to the creditor; attempts at this are also punished.
BY ALINA RADU, LAURA SPATARU-NEGURA AND ANA-MARIA IONESCU, ACC.