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Differences between Branches and Subsidiaries in Romania

Differences between Branches and Subsidiaries in Romania --> Updated on Sunday 04th October 2020

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Question: What can I do if I want to extend my business in Romania?

Answer:  A foreign company has several options if being interested to organize its operations on the Romanian territory. The most important aspects regard the maneuverability that the mother company can exercise over the newly established enterprise.
 
Before going into details we would like to emphasize the importance of understanding of all legal terms describing this process and also the mandatory presence of a qualified lawyer able to assist you during this entire process. There are certain alternatives that might play an extremely significant role for the future of your business and becoming aware of all these options proves essential while examining all the possibilities that you have on the Romanian market.
 
Probably the crucial difference between these two concepts refers to having legal personality, and therefore managing to build strategies more or less connected to mother companies.
 
Our team of lawyers in Romania can provide a consultation before deciding which business form is more suitable for entering the local market.
 

The Branch - the extension of the foreign company

 
Branches do not have a legal personality and they become highly dependent on the entity which created them.  As an instrument for establishing the legal terms in this matter, the Law no. 105/1992 on the Regulation of the Private International Law Relationship dictates all responsibilities of a branch indicating that the governance must conform to national law under which the parent company was established. From an economic point of view, the branch is dependent on the mother company. Consequently, the branch does not possess an individual share capital while assets and liabilities are under the authority of the mother company. The issue of liability can be further discussed with our Romanian lawyers.
 
It is believed that the branch is somewhat easier to incorporate and that the foreign company can thus have an advantage in terms of the time it takes to start the business activities in Romania. While this may be the case for some companies, we highly advise investors to reach out to our agents who specialize in company formation in Romania when deciding to incorporate. Our team can provide complete details about the steps and requirements after an initial discussion.
 

Subsidiary - independent and autonomous entity

The subsidiary has legal personality and it is a separate entity with individual prerogatives as compared to the mother company. It represents a corporation that functions under Romanian law and it has its own share capital. The parent company may conduct activities which can be different from those carried out by the subsidiary. Being an independent and autonomous company, the subsidiary may conclude contracts and it is fully responsible for this. The parent company has the right to decide on three important features related to subsidiaries. It decides the setting up, the business activity and the termination moment. Creating a subsidiary actually translates into following the main steps which are common for company creation procedures. There are specific requirements to be fulfilled and also a minimum share capital imposed. The parent company must submit a set of papers including a certificate of good standing, its article of association, a document mentioning the designated administrator of the subsidiary and also proofs indicating the registered office.
 
One of our lawyers in Romania can offer you more in-depth information about the subsidiary apart from the succinct information presented above.
 

Question: What is a summary of the main differences between the branch and the subsidiary in Romania?

 
Answer: The table below highlights the main differences between a branch, dependent on the foreign company, and the independent branch. We do include the dependency in the table below, however, investors should remember that the differences include more than this aspect. 
 

Issue

Subsidiary

Branch

Incorporation

he subsidiary is incorporated as a locally registered company and needs to be registered as required with the Trade Register.

The branch generally has lighter incorporation requirements, however, it does need to be registered with the Trade Register but does not require minimum capital.

Taxation

Subject to the corporate income tax rate on its worldwide profits.

Subject to corporate tax on in Romanian-derived income.

Assets

The subsidiary owns its own assets.

The branch has fewer assets and they are attributed by the parent company.

Activity

The subsidiary can undertake any type of activities in Romania.

The branch is limited to performing the same activities as the parent company.

Contracts

The subsidiary will enter into agreements with third parties in its own name.

The branch enters into agreements in the name of the parent company.

 

All of these issues can be detailed upon request by our Romanian lawyers.

The two types of business establishments can easily be used for similar purposes. However, the issue regarding the branch’s dependence on the parent company, and the fact that the latter remains liable for its branch’s activities in Romania is an issue that prevails and should be carefully taken into consideration.
 
Please keep in mind that the table below is only a rough guide on the main differences between the branch and the subsidiary. Investors who are interested in finding out more can reach out to our team of lawyers and company formation experts. Our attorneys in Romania can offer more details about taxation and other important matters, such as the applicability of the double tax treaties.
 

Question: I would like to open a subsidiary or a branch in Romania. What taxes do I need to pay?

Answer: Our specialized team of lawyers in Romania is pleased to inform you about the taxation aspects involved when opening a subsidiary and a branch.

Before starting and operating the business itself, the branch must be registered with the Trade Registry in the county where it will be conducting its activities. For the subsidiaries the registration process with the Trade Registry is followed by the registration with the Public Finances General Directorate since it is subject to Romanian Tax Law. Various aspects may be taken into account based on the double taxation conventions involving Romania as a signatory state. There are also some in-depth analyses which should be made in order to identify best strategies sustaining your basic financial interests. Cooperating with a legal expert helps in determining very important features related to future approaches. It plays a fundamental role in discerning what is to be considered an avoidable risk and what can be defined as a necessary action; it builds a clear perspective on how to identify profitable niches able to guarantee full success.
 
Below is a list of commonly required documents when opening a branch in Romania:
  • - the application form, original;

  • - the statement of the parent company that the business is compliant with the ongoing regulations (for example, sanitary regulations, environmental protection regulations and others).

  • - the Board’s decision to incorporate the branch, original;

  • - the Board’s decision to appoint the branch representative, original;

  • - the parent company’s Articles of Incorporation and the business registration certificate.

  • - Specimen signature for the branch representative;

  • - Special powers of attorney, if required to empower another individual to handle legal matters concerning the branch;

  • - Proof of registration payment, as required.

 
One of the experts at our law firm in Romania can provide investors with a complete list of the documents required by the Ministry of Justice for registering the branch as well as with general information about registration with the Trade Register.
 
The decision to open a branch or a subsidiary in Romania is an important one. As seen in this article, investors are advised to keep in mind a number of issues, including independence, taxation, registration requirements and the management of the relationships with third parties in Romania.
 
There are many foreign companies that have opened branches in the country, such as banks, while others have preferred to open subsidiaries. Below, we provide some statistical data about the number of company incorporations in the country:
 
  • - 6,439 SRL companies;

  • - 10 SA companies;

  • - 1,175 sole traders;

  • - 7,674 total number of companies incorporated in Bucharest in 2019 (including the aforementioned business forms as well as others)

 
The data was provided by the Trade Register and it refers to registrations that took place between 01.01.2019 and 31.05.2019 in Bucharest. Other counties included in the report include Brasov, with a total number of 2,418 registrations or Cluj with 3,073 company registrations as well as Constanta with 2,525 companies.
 
The process of registering a company with the Trade Registry in Romania can be delayed if the person handling the issue is not an expert in legal matters. We want to help you avoid all the hassle when it comes to starting or expanding you business. Our Romanian law firm has a specialized team of lawyers in Bucharest that can help you open a branch or a subsidiary in Romania. Please contact us now for a free case consultation!
 

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