Law Firm Adela Diaconescu - Investing in Romania
Investing in Romania
Real Estate Acquisitions
Debt Collection
Accounting Rules
Taxation
Payroll Issues
INVESTMENT
INCENTIVES
Foreign
investors and Romanian investors are offered equal opportunities
to invest in Romania. In general, incentives are intended to enhance
the economic development of the country, particularly the acceleration
of industrialization in disadvantaged zones, as well as the development
of small and medium enterprises (SME), oil and gas industries, and
micro-enterprises.
However,
a foreign investor should be careful when planning business on the
basis of the current incentives granted by Romanian legislation
due to the frequent amendments of laws in this field that occurred
during the past several years.
Small
and Medium-Size Enterprises
Law
No. 346/2004 which abrogated Law No. 133/1999 provides incentives
for private investors that establish or develop small and medium-size
enterprises (SME).
Romanian law defines a small and medium-size enterprise as one that has fewer than 250 employees, whose annual turnover does not exceed 50 million EUR, or their total assets value more than 43 million EUR. If more than 25% of the share capital or of the voting rights of a company are owned/hold solely or cumulatively by a public entity, that company cannot be SME.
Banking
companies, insurance and reinsurance companies, companies managing
investment funds, financial investments companies (that is, security
trading companies) and companies which have external trade as sole
object of activity do not qualify as SME.
Incentives pertaining to custom duties exemption, income tax exemption
on reinvested profits, accelerated depreciation, and reduction of
income tax were abrogated by Law on VAT No. 345/2002, Profit Tax
Law No. 414/2002 (both of these acts presently abrogated as well)
and by the Fiscal Code.
Micro-Enterprises
The
Fiscal Code establishes the taxation regime for Micro-enterprises.
To qualify for this regime, the following conditions should be met
by Romanian legal entities by 31 December of the prior year:
a.
The enterprise produces goods, renders services, or carries-out
commercial activities; revenues from consultancy and management
activities ponder less than 50% in the total revenues;
b.
The annual turnover obtained is less than 100,000 EUR.
c.
The capital is 100% private.
The
following entities cannot benefit from the taxation regime established
for micro-enterprises:
- Banking companies;
- Insurance/reinsurance and capital markets companies (except for
brokers and intermediaries operating in these fields);
- Gambling and sport wager companies, casinos
- Those which have as shareholder a legal entity having more than
250 employees.
Qualifying enterprises will pay a tax( of 2% in 2007, 2.5% in 2008,
3% in 2009), according to the Fiscal Code,
applied on all income registered in their profit and loss account,
with the exception of certain income types which are tax exempted.
The tax is paid quarterly, and is due on the 25th of the first
month
following the reporting quarter. Nevertheless, companies complying
with the above conditions may opt to be taxed under the general
profits tax legislation.
If
the entity ceases to meet the conditions for micro-enterprises taxation
regime, it will be subject to general profit tax legislation without
the possibility to subsequently opt for the micro-enterprise tax
regime.
The
incentives regarding tax deductions and reductions, granted to micro-enterprises
in the basis of Government Ordinance No. 24/2001, were abrogated
by Profit Tax Law No. 414/2002 and by the Fiscal Code.
Preferential
Economic Zones
According
to Government Emergency Ordinance No. 24/1998, as further amended
for the establishment of preferential economic zones in disadvantaged
areas, these zones may be determined by Governmental Decision for
a period of at least three years, but no more than 10 years. Law
No. 507/2004 abrogated the provision granting the possibility of
extending the said 10 years period.
Currently,
there are 28 disadvantaged zones established in Romania, nearly
all for a period of ten years, and located largely in the mining
areas of the country.
The
fiscal incentives granted to this type of establishment were also
subject to various changes; presently such incentives include the
following:
a. Exemption from customs duties paid on imported raw materials
and spare parts to be used in the production process, except for
those raw materials and spare parts utilized for the production,
processing and conservation of meat;
b.
Exemption from land-related taxes (i.e., the land is removed from
the agricultural circuit);
c. Profit tax exemption for the new investments, while the area
is qualified by the law as disadvantaged, applies only to the legal
entities which obtained before 1 July 2003 the permanent investor
certificate for the disadvantaged area;
d.
Granting of funds for financing special programs, approved by Government
Decision, (the above-mentioned funds are granted from the Special
Development Fund, set up according to the Government Emergency Ordinance
No. 59/1997 regarding the destination of the sums cashed by the
State Ownership Fund during the privatization of state-owned commercial
companies or from other Governmental sources).
Industrial
Parks
Government
Ordinance No. 65/2001 (the Ordinance) as further amended has replaced
Law No. 134/2000 regarding industrial parks. These are considered
strictly delimited areas where economic, research and technological
development activities are performed. An industrial park may be
set up only by a joint venture (asociere in participatiune) between
the public authorities, legal entities, the research and development
institutes and/or other interested partners, as applicable. The
industrial park will be managed by a Romanian company to be established
in accordance with the Company Law, and whose shareholders can be
the aforementioned partners of the partnership.
The
incentives granted to industrial parks have suffered cancellations
and/or amendments during the time, and recently through the Fiscal
Code.
The following incentives apply presently to the establishment and
development of an industrial park:
a. Exemption from land-related taxes, when changing the destination
of land afferent to the industrial park or for its removal from
the agricultural circuit;
b.
Tax reduction may be approved by the local public administration
for the land and buildings destined for the use of the industrial
park;
c.
Other incentives that may be granted by local public administration
in accordance with the law.
Free Trade Zones
Law
No. 84/1992 as further amended regulates the free trade zones regime.
Free trade zones are precisely determined, being characterized by
a specific custom regime: the custom supervision is limited to the
borders of such areas.
Means
of transportation, products and other goods are admitted within
the free zones regardless of their country of origin, provenience
or destination. However, import of goods subject to prohibitions
under Romanian laws or under international agreements to which Romania
is a party, is forbidden.
Currently,
there are six free trade zones in operation in Romania located in
Constanta Sud-Agigea (at the Black Sea, including the harbor area),
Sulina, Galati, Braila, Giurgiu (along the Danube River), and Curtici-Arad
(along the Romanian-Hungarian border).
All
activities that can be carried out by the respective individuals
or entities within a specific free trade zone are determined by
the law, and should be licensed by the administrative authority
of the respective free trade zone.
The
profit tax exemptions initially granted through Law No. 84/1992
have been restricted through the subsequent legislation and further
amended by the Fiscal Code.
Based
on the provisions of the Fiscal Code, the following main incentives
are available in the free trade zones:
-
Exemption from profit tax for the investments in tangible depreciable
assets made in the free zone before 1 July 2002, on condition that
the investment value is at least USD 1 million and the ownership
structure does not change with more than 25% within a calendar year.
This incentive applies until 31 December 2006; the other investments
in the free zones were subject to a 5% profit tax applicable only
until 31 December 2004;
- Exemption from VAT payment for the import of goods into free zones
for storage purposes only, without the performance of custom formalities,
provided that such goods are subsequently removed from the free
zone;
- Exemption from VAT for the sale-purchase operations of foreign
goods between various operators from the free zone/free harbor or
between these ones and other persons outside the free zone/free
harbor;
- VAT exemption for services directly related to the operations
mentioned at paragraphs above;
- VAT exemption for goods introduced in free trade zones from abroad
and sold within the free trade zones.
When
liquidating or restraining the activity carried out in the free
zones, foreign individuals and legal entities are free to transfer
abroad both capital and profit, after paying all obligations towards
the Romanian State and their business partners.
The
legislation also permits the lease or concession, to Romanian or
foreign legal entities, of land or buildings located in the free
trade zones, for terms of up to forty nine years.
Financial
operations related to the activities carried out in free trade zones
should be made in hard currency.
Mineral
Resources
Romania
is rich in mineral potential, especially oil, gas, salt, gold and
silver ores, and non-ferrous metals. Recent geological and geophysical
studies have shown that there are many mineral deposits (gold, silver,
lead, zinc, copper, iron and manganese), as well as oil reserves
(both near-surface and at depth) that have considerable potential
for further investigation. These offer substantial opportunities
for foreign investors interested in the country's mineral resources.
Mining
Law No. 85/2003, as further amended which has replaced Law No. 61/1998,
regulates mining activities in Romania. Its defined scope is to
ensure the maximum transparency of mining activities and fair competition
without discrimination between operators, depending on the property
type or origin of the capital/operators.
Mineral
resources located on the ground and underground of the Romanian
territory as well as those on the continental platform and in Romania's
Black Sea economic area, belong to the State's public property.
Mining
is carried out through a mining license granted by the National
Agency for Mineral Resources (NAMR) for a maximum period of twenty
years, and the right to extend it for successive periods of 5 years
each in exchange for an annual mining royalty and surface tax.
Each mining license is established by Governmental Decision, and
its provisions will remain valid throughout the license period,
except when possible legal dispositions favorable to the license
holder might come into effect.
Foreign
operators should create a permanent subsidiary in Romania within
ninety days of obtaining the mining license which will be maintained
throughout the period.
Petroleum Law
Petroleum
Law No. 134/1995, regulating all operations involving oil and gas
reserves within Romania, was abrogated by Law No. 238/2004.
Oil
resources located on the Romanian territory are exclusive object
of the public property of the Romanian State.
The
interests of the Romanian State in the mineral oil sector are represented
by the National Agency for Mineral Resources. Through its representative
authority - NAMR, the Romanian State, by oil concession, grants
to a Romanian or foreign legal entity, for a limited period of time,
the right and the obligation to perform oil operations, based on
an oil agreement. The concession period may not exceed 30 years.
The oil operations can be conducted through exploitation licenses
or exploration permits only within some perimeters, as delimited
by NAMR. Titleholders of an oil license are liable to pay a petroleum
royalty in accordance with the provisions of Petroleum Law No. 238/2004.
Foreign
operators should create a Romanian permanent establishment (i.e.,
a branch or company) within ninety days of obtaining the oil and
gas license which will be maintained throughout the period.
Unlike
Law No. 134/1995, Law No. 238/2004 does not grant any incentives
to the titleholders of an oil license.
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