Question: Me and my business partners have been thinking about investing in business in Romania. What are your suggestions, as experienced lawyers in the corporate field? We are hoping for a non-biased response.
Answer: Romania provides some genuinely profitable investment opportunities in various industry fields and despite of the uncertain political climate, due to its surprising potential, it reveals remarkable possibilities proving highly advantageous especially for foreign investors.
At certain points, it seems that the economic fluctuations and the rather austere development left some areas unexplored, creating, through a paradox, a peculiar chance for advancement. However, treating this topic from an objective perspective requires a strict analysis of various legal and financial aspects that can effectively demonstrate the importance of investing in this Eastern European country.
The general trend is to stimulate the economic growth in disadvantaged areas and to encourage the development of micro, small and medium-sized enterprises. The decision to invest in Romania comes with certain specific benefits that apply to foreign investors. Our lawyers are ready to assist you if you want to open a new company in Romania, no matter if it's a micro company or a joint stock company.
Certain tax issues come to mind whenever one is interested in investing in a foreign country. These issues concern the right for repatriation of capital, profits and dividends obtained in Romania, and the provisions of the double taxation treaties signed by Romania with various countries. Several fiscal benefits are also in place in the form of tax reductions, labor related incentives and other incentives for the purpose of attracting investments.
The simple act of buying Romanian property, creating a company in this country or investing in renewable energy sector calls for an expert advice. A legal opinion is advisable in order to secure the investment process by verifying all judicial aspects that come with such a decision. Legal assistance is required in many cases because of the multiple legislative and political changes that lead to certain ambiguities.
Our law firm in Romania highlights four main reasons why Romania is attractive to foreign entrepreneurs. Starting with the taxation regime, which has unique characteristics among other European countries, and also mentioning the labor force and the industrial parks, we present solid reasons why foreign investors should look towards Romania when planning their investment in the EU.
If you want to invest in Romania, our lawyers can help you with detailed information about these benefits and can assist you throughout the company formation steps. It is useful to know that our team provides complete services for company formation in Romania so that you may rest assured that the company is incorporated as per the updated rules in force.
1. The taxation regime
The corporate income tax in Romania is a relatively low one, especially when compared to that in other EU countries such as Germany or Belgium. The standard corporate income tax rate is 16% and dividend income is taxed at a 5% rate starting with 2016. A particularity of the corporate taxation regime in Romania is that it includes a very low rate for qualifying companies, of only 1% or 3% when certain conditions are met (such as for the company to be considered a microenterprise that has at least one employee). Our team of attorneys in Romania can give you more information if you are interested in the corporate tax rates.
The value-added tax is also lower than in many other European countries, at 19% for its standard rate and with two reduced rates of 9% and 5% for selected goods and services. VAT registration is required for all companies that carry out taxable transactions, however, a special exemption regime applies in case of businesses with an annual turnover of less than 88,500 EUR.
2. The investment incentives in Romania
Question: What laws govern state aid for investments in Romania?
Answer: The legal framework concerning the encouraging measures taken by the Romanian State provided to support investments is represented by the Government Emergency Ordinance (GEO) No. 85/2008 concerning investments including subsequent amendments and additions. The normative act establishes the principles which support the encouraging measures, the domains which are taken into consideration, all types of incentives provided, the general conditions needed to benefit from these exemptions.
If you want to invest in Romania, you should know that the entities that benefit from the state aid for investments in Romania include corporate companies, small and medium enterprises and micro-companies as well. Each type of investment shall be treated uniquely according to the domain it represents and the corresponding support scheme.
Question: What are the main conditions to be met when applying for investments incentives in Romania?
Answer: The main goal taken into consideration when supporting investments brings to attention several general principles referring to the development of the primary sectors, in connection with the economic and social development policies. All these investments must fall within one of the following categories: regional and development cohesion, environmental protection and preservation, improving energy efficiency using alternative renewable resources, improving the research and developments processes, increasing job opportunities, introducing new technologies and applying research proven studies, developing new infrastructures intended for tourism.
The main sectors that are eligible to receive these incentives include the following: the agro-processing and process industries, electric and thermal energy generation and supply, equipment manufacturing for the exploitation of renewable resources, the usage of alternative energy resources in order to produce electricity and thermal energy, environmental protection, and preservation, water supply, sanitation, waste management, IT and communication services, employment services.
There are two types of conditions to be fulfilled in order to benefit from these investment incentives in Romania: the first category concerns the nature of the investment and the second one regards the traits of the investor.
These aids are provided to investments that comply with the following requests:
- the main activities are conducted as stipulated;
- there are no debts to part of the general consolidated budget,
- the investors did not request the falling due payment for internal/external loans contracted with state guarantee and risk fund (a request submitted with the Ministry of Finance and Economy);
- there are no writs of execution;
- there is no insolvency case.
Question: Can I apply for tax exemptions depending on the business I run in Romania? Is this one of the investment incentives offered by the state?
Answer: Concerning the corporate tax, one of the incentives scheme refers to the accelerated depreciation of licenses and of some other technological equipment such as machines, tools, installation works, computers and adjacent peripheral equipment. This method implies a deduction of maximum 50 % from the assets’ fiscal value, for the first year of usage and, for the next years, the straight line depreciation method must be used.
Some other fiscal investment incentives in Romania are stipulated for encouraging the research and development activities, by providing to companies which conduct such activities certain supplemental deductions when calculating the gross profit with 20% of eligible expenses.
In order to encourage the establishment and the development of industrial parks (especially science and technology parks), tax exemptions are granted for activities conducted within the limits of the parks. These include reduced taxes for tangible and intangible assets, tax exemptions for lands, development programs for infrastructure, donations and development funds.
In order to encourage reinvestments of the companies’ profit used to increase job opportunities for the improvement of activities conducted by Romanian legal persons distributing dividends, the Romanian legislation specifies that dividends reinvested in this manner are not subject to taxation.
3. The industrial parks
Question: How many industrial parks are there in Romania?
Answer: There are currently 88 industrial parks across the country and these are both private and publicly owners. Here are some figures about the park, as per data available in August 2019:
66 parks are operational, 8 are still under development and 14 are greenfield parks;
24 parks are located in the southern region of the country and 15 of these in Prahova county, making the south of the country the region with the largest number of industrial parks;
other 18 parks are located in the central part of the country and individuals who invest in Romania can choose one of the 9 parks located in Brasov county;
7 parks are located in the north east region, 7 more in the south west and 6 in the west part of the country;
the total area of the parks is around 3,154.41 hectares and 45% of this area is currently available for use.
Industrial parks are the place to be if you want a large-scale investment and our team of Romanian lawyers can provide you with more information about the existing regions, the facilities and the main conditions.
Companies planning a large-scale investment in the Romanian industry might be interested in the alternative represented by industrial parks.
Industrial parks are well-delimited zones dedicated to industrial activities and scientific research, services related to industry, as well as offices and warehouses.
They are usually located in the vicinity of localities, outside residential areas, but well-connected to utilities and the road network.
Industrial parks are set up through the association between:
Investors who choose to invest in Romania and locate their factories or warehouses in these parks enjoy a number of incentives:
- exemption from the tax on buildings;
- exemption from the tax on land (in case they wish to purchase land);
- additional incentives granted to direct investment that will have a significant influence on the economy:
1. the possibility to resort, to accelerate allowance for depreciation of assets,
2. deferred payment of financial losses from the taxable profit over the next 5 years,
3. tax-exemption of the reinvested profit;
- all land plots available within an industrial park have urbanism and environment certificates, topographical and geological studies, which can be made available to investors;
- a complete infrastructure support suitable for industrial operations (access roads, running water, sewer, electricity, natural gas, communications, lighting, heating);
Due to the fact that local authorities are also included in the administrative structures of such parks, the process of obtaining various licenses and of extending the existing permits is facilitated.
The industrial park management company assists investors in their relations with local and fiscal authorities and in obtaining state aid if such aid is possible under local and European laws.
The industrial park management company supports investors in obtaining non-refundable financing for subsequent development;
The industrial park management company also provides various services that contribute to the good operation of investor companies, such as:
· hiring and training employees;
· relations with customs authorities;
· guarding and cleaning the premises;
· booking/ticketing etc.
Businessmen who want to invest in Romania should know that several state aid schemes for investors in industrial parks are in effect currently:
- Government Decision 1680/2008 regarding the implementation of a state aid scheme for ensuring sustainable economic growth, with subsequent modifications;
Decision 753/2008 regarding the implementation of a state aid scheme regarding regional development by means of investment stimulation, with subsequent modifications.
4. THE LABOR AND BUSINESS COSTS
Another main reason to invest in Romania has to do with the labor costs in the country, compared to those in other western European countries. When discussing the labor costs, the comparison is made with the hourly labor cost at the EU level, which was of 26.8 euros in 2017. In Romania, the mean hourly labor cost in the business sector was 6.1 euros, more than 4 times lower than the EU average. In other business sectors, the hourly costs were even lower, such as 4.8 euros in the construction sector.
Employers in Romania are among those that pay the lowest minimum wages in Europe, at approximately 460 euros per month. This means that entrepreneurs who choose to invest in Romania and open a company here will have to include relatively low labor costs compared to other EU Member States.
As far as the costs for company incorporation are concerned, the minimum share capital for one of the most commonly used business forms in the country, the SRL or private limited liability company, is only of 42 euros. By comparison, the minimum share capital that is required to open the German limited liability company (GmbH) of 25,000 EUR (with at least half of the amount, 12,500 EUR submitted at the time of the registration).
Apart from these four clear reasons to invest in Romania, entrepreneurs also have the advantage of being able to explore various business fields that present important opportunities for development. Be briefly list four of these below:
- the IT&C sector: many global software companies have already opened their headquarters in Romania; Bucharest and Cluj-Napoca are the two major hubs for companies in the software industry; tech start-ups benefit from a welcoming business climate in Romania;
- the food sector: Romania has important potential for the development of the food production and processing sector; a focus can be on agriculture but also on other essential foodstuffs;
- automotive: Romania is an important automotive manufacturer and the sector is an important contributor to the country’s exports;
- biotechnology: the biotechnology sector is an emerging one, with important potential in areas such as waste management and renewable energy.
Together with our professional consultancy team, we tried to offer some extra options especially for investors who skeptically regard the opportunities to invest in Romania. Our offer clearly serves as a brisk statement for the unique investment possibilities that Romania can provide. Contact us for a free consultation about the main reasons why Romania should be on your list of countries that are worthy for investment purposes.