Information about the Romanian Business Environment

Romanian Corporate Entities


Company Law no. 31/1990, which has been modified several times since it came into force, allows and defines five forms of companies: This section outlines the various business organizations that exist in Romania and will provide you with the main characteristics of each of these forms of companies.

• Limited liability company (Romanian: "Societate cu raspundere limitata", or abbreviated "S.R.L.");
• Joint stock company (Romanian: "Societate pe actiuni", or abbreviated "S.A.");
• General partnership (Romanian: "Societate in nume colectiv", or abbreviated "S.N.C.");

• Limited partnership (Romanian: "Societate in comandita simpla", or abbreviated "S.C.S.");

• Limited partnership by shares (Romanian: "Societate in comandita pe actiuni", or abbreviated "S.C.A.").


The Romanian law allows also foreign investors to form, in Romania, branches, permanent establishments or registered offices.


Approximately 98% of the businesses in Romania are conducted via limited liability companies (the most common legal form of company), or joint stock companies. Investors, either domestic or foreign, usually prefer a limited liability company when they decide to set up a small or a middle sized business in Romania, especially if the company will be managed by its shareholders, while the joint stock companies are usually, but not always, large companies with more widely dispersed ownership.


Irrespective of its legal form, a company becomes a legal entity upon its registration with the Romanian Trade Register Office, where certain legal formalities have to be followed, including a delegated judge’s decision and the granting of the fiscal code of the new company.

2.1.1 Limited liability companies (S.R.L.)


A limited liability company may be established by one or more entities, either individual or legal. Restrictions exist with respect to the number of shareholders of a limited liability company (no more than 50), as well as the number of limited liability companies one can establish by himself (an entity may be the sole shareholder of only one limited liability company; also, the shares of a limited liability company cannot be owned entirely by another limited liability company who has, in its own turn, a sole shareholder).


Currently the minimum share capital requirement is ROL 2,000,000 (RON 200) and may be deposited either exclusively in cash or both in cash and in kind. The minimum value per share is currently ROL 100,000 (RON 10) and all shares should be fully paid upon the company’s registration with the Trade Register Office.


Usually, decisions are made by majority vote in the General Meeting of Associates. However, decisions involving changes of the company’s Articles of Incorporation should be agreed by all shareholders, unless otherwise stipulated by the company’s Articles of Incorporation.


The company is managed by one or more administrators, with no restrictions regarding their nationality.


2.1.2 Joint stock companies (S.A.)


A joint stock company can be formed by at least 5 shareholders (there is no maximum number of shareholders stipulated in the Company Law).


The minimum share capital requirement for this form of company is currently ROL 25,000,000 (RON 2,500). However, recent changes in the legislation provide that starting 1 January 2006 the minimum share capital requirement for a joint stock company will be EURO 25,000.


Shares should have a nominal value of no less than ROL 1,000 (RON 0.1) and at least 30% of their value should be paid upon the company’s registration (50% for companies incorporated by public subscription); the shares’ value should be fully paid within 12 months from the company’s registration with the Trade Register Office. In case of a share capital increase, the maximum period for paying the newly issued shares is 36 months.


Decisions are made by majority vote in the General Meeting of Shareholders, in accordance with the general principle that 1 share equals 1 vote. Shareholders may, however, impose restrictions on the number of votes that a shareholder owning more than 1 share is entitled to.

The company is managed by one or more administrators (again there are no restrictions on their nationality) and it should also have at least three internal censors (among which one should be a chartered or certified accountant), or an independent auditor.


Listed companies


A joint stock company may become listed on one of the two stock exchanges existing in Romania (BVB and RASDAQ), following the formal approval of CNVM (the Romanian Stock and Exchange Commission), under the conditions of a prior 3 years activity and a capitalization of minimum EUR 1,000,000. CNVM may grant an exemption from the above conditions, on case-to-case basis.


2.1.3 Partnerships


Under Company Law there are three types of partnerships:


General partnership


The major feature of a general partnership is that all partners are jointly and severally liable with the other partners without any limit. The liability exists only for the period the partner is a member. Two limited liability companies are allowed to form a general partnership.


Limited partnership


In the case of a limited partnership, at least one partner faces unlimited liability (see above on general partnerships) while at least one other partner must exist who is liable only for the amount

of its contribution to capital.


Limited partnership by shares


The obligation of the partners is restricted to the amount of their contribution to the registered capital of the partnership.


2.1.4 Branches


An alternative solution for doing business in Romania, commonly used for short term investments, is the establishment of a branch structure.


Under the Romanian laws, branches are deemed to be working units with no legal personality, and are subject to registration with the Trade Register prior to the commencement of their activity.


Branches should have at least one representative in charge of the management of the entity and they should keep their own accounting records, separated from those of the parent company. An overseas company may also operate in Romania via a permanent establishment, subject to registration with the tax authorities, for tax purposes.


2.1.5 Represantive Offices


Foreign corporations are also entitled to set up representative offices in Romania. However, a representative office is not a valid option for conducting business, since they cannot carry out commercial activities and are restricted to advertising and promoting the business of their parent company.

2.2 Employment regulations


2.2.1 Labour market


Romania’s labour force exceeds 3 million active workers.


The national minimum wage is established by the Government on a year-to-year basis and for the year 2005 amounts to ROL 3,200,000 (RON 320) per month. The average gross salary for February 2005 was ROL 8,750,000.


2.2.2 Labour legislation


The general legal framework for labour relations is the Labour Code of Romania, in force since January 2003. Under Labour Code regulations, parties can conclude employment contracts:


• for an indefinite period (most widely spread type), either for full-time or part-time employment;

• for a definite period, under certain conditions provided by law, or

• by using specialized companies (temporary work agents), for a specific task and for a limited period.


2.2.3 Contributions on salaries


Contributions on salaries are set out in Appendix 1.


2.2.4 Employment of foreigners


Foreigners entering Romania for working purposes are bound to obtain their working permit by the local labour authorities. For the transition period until Romania becomes a member of the EU, simplified procedures for obtaining this document are provided for citizens of the EU countries, who however will not be required a working permit once Romania joins the

European Union.


2.3 Investments Law And Investment Incentives


Investments with significant impact on the economy


Romanian law defines an investment with a significant impact on the economy as a direct investment that exceeds the value of USD 1,000,000 (or the equivalent in ROL or other convertible currency), contributing to the development and modernization of Romania’s economic infrastructure and the creation of new working places.


For investments accomplished by 31 December 2006, the law permits a one-time allowance of 20% of the value of the investment (only for fiscal purposes), granted as a reduction of the taxable base in the month the investment was accomplished.


Industrial parks


An industrial park is an individualized territory, fulfilling certain criteria, where industrial activities may be carried out by any company that whishes to set up its business in the respective premises. Up to date, there are 32 industrial parks operating in Romania.


Investors contemplating setting up their business within an industrial park should know that by 31 December 2006 they will benefit from a 20% reduction of the investment’s value in the month the investment was put into function. The 20% reduction applies only for buildings and other related expenses.


Buildings and land within an industrial park are also exempted from local taxes. Industrial park regime cannot be cumulated with the investments with significant impact regime.


2.4 Privatizations


With most of the attractive state-owned companies sold in the past decade, Romania approaches the end of the privatization process. However, AVAS (the public authority that administrates the state portofolio) still searches for an appropriate solution to privatize more than 520 small and middle-sized companies, whose main problem relates to huge debts towards tax authorities.


2.5 Accounting, audit and filling requirements


The Romanian accounting law sets out the general accounting and financial reporting principles and regulations. Thus, the records should be kept in Romanian language and denominated in Romanian leu, while reports should be submitted under standard formats provided by the legislation.


The reporting year ends on the 31st December for all companies.


An independent audit is mandatory for insurance companies, banks and listed companies, as well as for companies that fall under certain criteria stipulated by law (i.e. turnover, total assets, number of employees). Companies for which an audit is required are also bound to report in accordance with International Accounting Standards. Except for companies who voluntarily suspended their activities, all companies are bound to submit their annual financial statements to the tax authorities and the Trade Register Office, while companies with turnover exceeding ROL 10 billion should also publish extracts from

their annual financial statements in the Official Gazette.


3. Fiscal enviroment in Romania


This section covers recent tax developments in the region, as Romania has made significant changes in its fiscal legislation over the last few years. As a part of Romania’s efforts to adopt the EU taxation standards, the entire fiscal legislation of Romania was recently put together in one common law – The Fiscal Code of Romania, in force asfrom 1 January 2004.


3.1 Corporate Earnings


Two types of corporate taxation are possible under Romanian laws, respectively:


• Income tax, applied to companies qualifying for the micro-enterprise regime, or

• Profit tax


3.1.1 Income tax. Micro-enterprise regime


A micro-enterprise is a company that complies with the following requirements:


• Has 100% private capital

• Produces goods, renders services or carries out commercial activities

• Has 1 to 9 employees

• Has an annual turnover up to EUR 100,000.


A company that qualifies for the micro-enterprise regime will not pay profit tax, but an income tax of 3%, levied on its total revenues.


In case the company fails/is enable to comply with one of the above conditions, it becomes a profit tax payer, starting from the following year.


Choosing between the income tax regime and the profit tax regime is the investor’s option, upon the company’s registration with the Trade Register Office.


The tax is paid on a quarterly basis and it is due on 25th of the first month following the reporting quarter.


One should take into consideration that the micro-enterprise regime will disappear once Romania joins the EU.


3.1.2 Profit tax


Subjects of profit tax


• Romanian legal entities – for profits obtained worldwide;

• Resident or non–resident individuals – for profits obtained via partnerships with no legal personality established with legal entities;

• Non-resident companies – for income obtained in Romania via a branch office or a permanent establishment, for capital gains deriving from the sale of shares of a Romanian company or from the sale of real estate properties situated in Romania, as well as for profits obtained via partnerships with no legal personality.


Tax rates


The current rate of profit tax is 16%. Special rates are provided for companies that carry out activities such as night-bars, discotheques, casinos or sport betting, who will pay either 16% of their profits or 5% of their income, whichever is higher.




Losses may be carried forward for up to five years. In case of mergers, losses incurred by the absorbed company cannot be carried forward by the absorbing company.


Thin capitalization

Interests paid to banks and other financial institutions are fully deductible, while interests paid to other entities are completely deductible only in the case where debt/equity ratio is less than 3. Also, interest paid to other entities exceeding 9% is not deductible.




Fixed assets, including low value additions and improvements, are deductible under the rate provided by law by reference to the type of asset.


Due date


Profit tax is payable on a quarterly basis, by the 25th day of the month following the reporting quarter. Exceptions are provided for banks (profit tax payable on monthly basis) and non-profit organizations (on yearly basis).


3.2 Dividend tax


Dividends received by a Romanian legal entity from another Romanian company are subject to a 10% withholding tax.


After Romania’s accession to the EU, dividends paid by a Romanian legal entity to another Romanian company are tax free in case the beneficiary holds at least 25% of the payer’s equities for a minimum period of 2 years. Please refer to our section regarding taxation of non-residents for details regarding withholding tax on dividends paid to non-residents entities.


3.3 Value Added Tax

Standard and reduced VAT rates


Standard VAT rate is 19%. A lower rate of 9% is applied to daily newspapers, magazines, books, medicines, hotel accommodation, etc, while several services of public interest are VAT exempted.


Exports from Romania are also VAT exempted, while for imports VAT should be paid out front to the custom authorities, prior to the goods entering Romania. In case certain criteria are met, VAT due to imports may be registered as both input and out put, without being paid to the custom authorities. Registration for VAT purposes.


Companies with an annual turnover below ROL 2 billions are not required to register for VAT purposes; however they do have the possibility to request VAT registration, but once registered as VAT payers, entities cannot be VAT exempted even if after registration their taxable transactions fall below ROL 2 billions. Non-resident entities rendering a service or supplying a product, subject to VAT should also register for VAT purposes in order to charge VAT, by appointing a fiscal representative. Failure to comply with this obligation will bring about impossibility to charge VAT, which will be withheld and paid by the beneficiary.


Reverse charge mechanism


Reverse charge mechanism applies for transactions related to metal wastes, terrains, buildings, wood and living animals. For these types of transactions the payer and the recipient will register the due VAT both as input and output VAT, without the amount being actually paid to the recipient.


Due date


Companies with an annual turnover up to EUR 100.000 are paying VAT on a quarterly basis, while those exceeding this threshold are paying VAT monthly.


Due dates for VAT is the 25th of the next month / quarter to which the VAT statement is referring.

Refund of input VAT


VAT input could be set-off as follows:


• by compensation with the amount remaining unpaid from the previous month’s statement or the next month’s statements, whichever is the case, without the prior approval of fiscal authorities being necessary;

• by compensation with other taxes owed, or

• by reimbursement.


3.4 Custom Duties And Excises


Custom duties apply to imported goods, with the rates set by the import custom tariff of Romania. Goods imported from the EU or from countries member of CEFTA (Central European Free Trade Agreement) are exempted from custom duties, as well

as the goods entering Romania under a lohn regime. Excises are special consumption taxes assessed on certain domestic or imported luxury items, with the rates provided by law.


3.5 Taxation of Representative Offices


A representative office of a foreign company is subject to a tax representing the equivalent in ROL of EUR 4.000. The tax is paid in two equal shares, until the 20 th of June and the 20 th of December of each year.


3.6 Taxation of Individuals


Income subject to taxation


The following incomes of individuals are subject to taxation:

• salaries

• pensions

• income from independent activities

• income from intellectual property rights

• income derived from renting movable and immovable property

• income derived from investments (interests, dividends, capital gains from selling shares or real estate assets)

• income from prizes and gambling


Tax rates


As from 1 January 2005 the previous progressive tax (ranging between 18% and 40%) was abolished. With the exceptions shown below, currently all incomes obtained by individuals are subject to a 16% flat tax.


For salary incomes there are personal deductions allowed by law, as set out in Appendix 2. Tax payers are also allowed to deduct the insurance for optional occupational pensions (up to 200 EUR/year) and union fees. 2% of the salary tax may be disposed of for sponsoring non-profit organizations.


Pensions are subject to taxation only if they exceed ROL 9 million, for the specific amount exceeding this threshold.


Free earners are not entitled to any personal deductions, while for incomes obtained from intellectual property rights there are deductible expenses amounting to 40% or 50%, depending on the type of activity.


Deductible expenses are also provided for lease-hold derived incomes, 25% respectively. For incomes deriving from investments, there is a transitional period until 1 January 2006, until when they will be taxed as follows:

• interests – 10% (except for interest due to current accounts that does not exceed BUBID for one month, which is and will remain tax free)

• capital gains from the sale of shares – 10% in case shares are sold within 1 year from the date they were acquired, or 1% for shares owned at least 1 year

• sale of real estate assets – 10% (except for real estate recovered from the state, dwellings owned more than 3 years or real estates inherited from or donated by close relatives minimum 3 years prior to the transaction, all of which are and will remain tax free).


As from 1 January 2006 all above intermediate taxes will be abolished and replaced with the 16% flat tax. Incomes deriving from prizes and gambling are taxed only if they exceed ROL 6 million/day/payer. Over and above this amount, prizes are taxed at 16%, while incomes deriving from gambling are taxed at 20% for incomes not exceeding 100 million ROL,

and 25% for what exceeds 100 million.

3.7 Local Taxes


The most important local taxes are the tax on building and the tax on land. Tax on building For individuals tax on building depends on the materials used to erect it, its surface and location. Unless rented, individuals holding more than one building suitable for accommodation are subject to an increased tax, respectively 15% increase for second building, 50% for third building, 75% for fourth building, and 100% for fifth and next buildings.


For legal entities the amount of the tax ranges between 0.5% and 1% of the building’s inventory value.


Tax on land


For land situated within the cities’ territorial limits, tax on land also varies depending on the surface, the location and the type of land.


Land situated outside the city limits is subject to a tax of ROL 11.000 (RON 1.1) / hectare.


3.8. Taxation of non-residents

Non-resident individuals


For incomes deriving from salaries and other incomes of similar nature, non-resident individuals are subject to taxation in Romania (at the standard 16% rate), in case any of the following conditions are met:

• the non-resident is present in Romania for more than 183 days during a 12 month period

• the salary is paid by or on behalf of a resident employer

• the salary represents a deductible expense of a Romanian based permanent establishment/branch.


For incomes deriving from exercising independent activities (doctor, attorney, architect, auditor, etc), non-residents are subject either to the 16% flat tax, in case they are operating in Romania via a permanent establishment, or a 15% tax, in case they do not fall under the “183 days” rule.


For pensions, lease-derived incomes and capital gains from the sale of shares or real estate assets there are no special rules applicable to non-residents, who are taxed the same as Romanian residents (please see above for details).


Prizes and gambling derived incomes – 20%.


The domestic law provides also a 10% tax rate on interest (except for interest due to current accounts that does not exceed BUBID, which is tax free) and a 15% tax rate for dividends, royalties, commissions and management and consultancy fees.

However provisions of double taxation avoidance treaties apply under the condition of providing the payer with the relevant certificate of fiscal residency.


It has to be underlined that in case the double taxation avoidance treaty provides a higher rate then the domestic law, then the domestic law prevails.


Romania has managed over the years to establish a wide network of double tax treaties enabling businesses to avoid being taxed twice on income earned from dividends, interest and royalties. Appendix no. 3 summarizes the double tax treaties concluded by Romania.


In order to receive a fiscal credit in the parent country, tax authorities may issue a formal certificate, following an application submitted by the payer, attesting that the taxes were withheld and paid in Romania.


Non-resident legal entities


Dividends, interest, commission and royalties received by a non-resident legal entity are subject to taxation in Romania either under domestic law rates or the rates of double taxation avoidance treaty (please see above on non-resident individuals). The condition for the tax treaty to apply is to submit a certificate of fiscal residency to the Romanian entity that is paying these incomes.


The dividends paid by a Romanian company to another legal entity residing in an EU country will be tax free after Romania joins the EU, under the condition of holding at least 25% of the Romanian entity’s shares, for a period of minimum 2 years.


Services rendered in Romania are also subject to taxation, with a 15% quota, while capital gain resulting from the sale of shares held with Romanian companies or sale of real estate properties situated in Romania is subject to a 16% tax.


Contributions on salaries

(1) – ranging according to the employer’s type of activity

(2) – lower rate applicable in case working books are kept by employer; higher rate applies in case working books are kept by labour authorities.


Personal deductions in case of salary tax

Payments from Romania to residents of the countries shown below:

(1) The lower rate is applicable if the beneficiary of dividends is a company owning at least 25% of the capital of the payer.


(2) The lower rate is applicable if the beneficiary of dividends is a company owning at least 10% of the capital of the payer.


(3) 0% is applicable in case the beneficiary of the dividends / interest is a certain financial institution or state authority, member of the contracting state.


(4) The treaty is ratified by the Romanian parliament, but it is not yet applicable.


(5) The 5% rate is applicable to patents, brands, designs and models as well as to know-how.


(6) The 2.5% rate is applicable to royalties relating to computer software or industrial equipment.


(7) The lower rate is applicable to dividends paid by companies resident in Romania.


(8) The lower rate is applicable in case of copyright royalties.


(9) The lower rate is applicable if the beneficiary of dividends is a company owning at least 40% of the capital of the payer.


(10) The lower rate applies to industrial royalties.


(11) The zero rate is applicable if the interest is paid in connection with the sale on credit of any industrial, commercial or scientific equipment, or on any loan of whatever kind granted by a bank or other financial institution (including an insurance company), or on any loan of whatever kind made for a period of more than 2 years.


(12) Applied since 1 January 2003.


(13) The 0% rate applies if the beneficiary of the dividends is a company owning at least 25% of the capital of the payer. The 5% rate applies if the beneficiary of the dividends is a company owning at least 10% of the capital of the payer. The 15% rate applies to other dividends.


(14) Romania will not impose withholding tax on interest and royalties as long as Dutch domestic law does not impose withholding tax on these types of payments.


(15) Under the Protocol to the Switzerland – Romania treaty the withholding tax rate is currently zero.


(16) Applied since 1 January 2004.


Contact details


Contact: Marios A. Klitou/ Mamas A. Koutsoyiannis

Baker Tilly Klitou And Partners SRL

52 Independentei Splai,

5 th District



Tel: 00 40 21 315 6100

Fax: 00 40 21 315 6102



Baker Tilly International World Headquarters

2 Bloomsbury Street

London WC1B 3ST


Tel: +44 (0)20 7314 6875

Fax: +44 (0)20 7314 6876




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