Doing Business in Romania Handbook 2009: Q&A

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Published in Doing Business in… 2009, published by Practical Law Company (PLC) and Lex Mundi

Legal system

1. What is the legal system (civil law, common law or a mixture of both)?
Romania has a civil law system.

Foreign investment

2. Are there any restrictions on foreign investment (including authorisations required by central or local government)?
There are few restrictions on foreign investment (for example, foreign persons cannot acquire land, subject to a limited number of conditional exceptions).

3. Are there any exchange control or currency regulations?
There are certain limited exchange control and currency regulations to deter money laundering. In addition, certain reporting requirements apply to foreign currency money market transactions and to loans from foreign lenders to Romanian private borrowers.

4. What grants or incentives are available to investors? Are any of these aimed specifically at foreign investors?
Generally, there is no difference in the legal treatment of local and foreign investors. Financial and/or tax incentives are provided for:

  • Small and medium-sized enterprises.
  • Foreign investments made through the purchase of treasury bonds.

Business vehicles

5. What is the most common form of business vehicle used by foreign companies to conduct business in your jurisdiction? In relation to this vehicle, please provide details on:

  • Registration formalities (including timing).
  • Minimum (and maximum) share capital.
  • Whether shares can be issued for non-cash consideration, such as assets or services (and any formalities).
  • Any restrictions on the rights that can attach to shares.
  • Any restrictions on foreign shareholders.
  • Management structure and any restrictions on foreign managers.
  • Directors’ liability.
  • Parent company liability.
  • Reporting requirements (including filing of accounts) and cost of compliance.

The most common forms of business vehicles used by foreign companies are joint stock companies and limited liability companies. The following apply to both:

  • Registration formalities. The shareholders must prepare the company’s by-laws (in a notarised form in limited cases). An original copy of the by-laws, together with a completed registration application form, and other various documents, must be submitted to the local Trade Registry Office. Registration takes about five working days from the submission of all required documents.
  • Share capital. The minimum share capital for joint stock companies is RON90,000 (about US$39,059) and for limited liability companies is RON200 (about US$87). There are no maximum share capital requirements.
  • Non-cash consideration. Cash consideration is mandatory when establishing any type of company. After the company is incorporated, shares can be issued for contributions in kind. Prohibited or restricted contributions include contributions of services or labour and contributions of accounts receivables.
  • Rights attaching to shares. Voting and dividend and distribution rights (under insolvency and tax laws) may be restricted, and agreements under which a shareholder undertakes to exercise voting rights in accordance with the instructions or proposals of the company or of the persons representing the company may be considered null and void.
  • Foreign shareholders. There are no restrictions on foreign shareholders.
  • Management structure. Joint stock companies can adopt a one-tier (that is, board of directors) or a two-tier (that is, directorate and supervisory board) management structure. Limited liability companies can be managed by a board of directors. There are no restrictions on foreign managers. Important decisions are made by the shareholders in their general meeting, which include:
    • decisions relating to the change of company’s legal form;
    • disposals of assets with value exceeding 50% of book value;
    • changes of nominal shares into bearer shares;
    • mergers;
    • division;
    • dissolution.
  • Directors’ liability. With certain exceptions, directors are jointly liable to the company for any mismanagement. They can be held criminally liable for embezzlement, forgery, use of forgery, bribery and fraudulent management.
    Shareholders’ liability in joint stock and limited liability companies is limited to their contribution to share capital. However, in certain conditions, a shareholder may be held jointly liable for financial obligations of an insolvent company. For example, a shareholder taking advantage of the limited character of the company’s liability and of its distinct legal personality has unlimited liability for the outstanding debts of the company in dissolution or liquidation.
  • Parent company liability. The parent company is generally liable in relation to actions undertaken by its branch, but not for the actions undertaken by its subsidiary (unless the subsidiary is insolvent under the Fiscal Procedure Code’s conditions), where the branch does not enjoy legal personality and the subsidiary does.
  • Reporting requirements. A company must submit to the Trade Registry and/or to the tax authorities:
    • its annual financial statement (bi-annual financial statements must be submitted to the tax authorities);
    • details of its directors, financial auditors and censors/internal auditors;
    • restated articles of incorporation after any amendment.

    Listed companies have stricter reporting rules in compliance with capital market legislation.

Employees

6. What are the main laws regulating employment relationships?
The main laws regulating the employment relationship are:

  • Labour Code (Law No. 53/2003), as amended.
  • Law No. 319/2006 on safety and health at work.
  • Emergency Governmental Ordinance No. 56/2007 regarding the employment and secondment of foreigners in Romania.
  • Law No. 130/1996 regarding the collective labour agreements.
  • Law No 168/1999 on settlement of labour conflicts.

Persons from Romania working abroad for a Romanian-based company are subject to Romanian employment laws to the extent the provisions of the country in which they work are less favourable. Foreign workers working in Romania are subject to Romanian employment laws to the extent they are more favourable. Employment agreements with an international component (for example, where the employer is a foreign company or the employee is a foreign citizen) may be governed by the law chosen by the parties, if the choice of law does not give less protection than would have been granted under Romanian law (as the law of the country in which the employee habitually carries out his work, the law of the country in which the place of business of the employer is situated or the law of the country to which the contract is more closely connected).

7. Is a written contract of employment required? Are any agreements and/or implied terms likely to govern the employment relationship?
An employment contract must be in writing and registered with the competent territorial labour authority. This obligation concerns the employer and the failure represents a minor offence, triggering fines. The relationship between the employer and the employees is governed by:

  • Employment legislation.
  • Collective labour agreements.
  • The internal regulations of the company.

8. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?
Employees cannot participate as a member of the company’s management bodies (there are no works councils). They are entitled, however, to representation in relation to the management of the company where they are employed, by trade unions or employees’ elected representatives. Employees’ representatives are usually elected in companies with more than 20 employees. Employers must inform and consult trade unions or employees’ representatives in relation to:

  • Any decision that could materially affect employees’ rights and interests.
  • Collective redundancies.
  • Transfer of undertakings.
  • The company’s financial and economic condition.

9. How is the termination of individual employment contracts regulated?
An employment contract may be terminated by (Labour Code):

  • The effect of the law.
  • Resignation of the employee.
  • The parties’ agreement.
  • Dismissal.

The termination of the employment relationships by the effect of the law occurs only in some cases expressly set out in the Labour Code, independently of the will of the parties. Termination by mutual agreement and the employee’s resignation are governed by very few rules. Dismissal is very strictly regulated and can occur only in some specific situations expressly provided by the Labour Code and must comply with procedural rules. Dismissals made without satisfying the legal requirements are null and void. An unfairly dismissed employee is entitled to the payment of an indemnity equal to the indexed, increased or updated salary or other entitlements the employee would have otherwise benefited from for the period of dismissal, and, at the employee’s express request, the reinstatement in the position he was dismissed from.

The following are considered fair grounds for dismissal:

  • Gross or repeated misconduct.
  • Professional or medical inadequacy.
  • Detention in police custody for more than 30 days.
  • Failure to ask for retirement if legal requirements are met.
  • Reorganisation of the company affecting the respective employee’s position (redundancy).

10. Are redundancies/mass layoffs regulated? If so, please give details.
Collective redundancies can only occur if the employer has more than 20 employees. A collective redundancy is the dismissal over 30 days, for one or more reasons not related to the employee’s person, of a minimum number of employees as follows:

  • At least ten employees where the employer has more than 20 and fewer than 100 employees.
  • At least 10% of the number of employees where the employer has at least 100 but fewer than 300 employees.
  • At least 30 employees where the employer has 300 employees or more.

In the case of collective redundancies, employers must:

  • Notify the trade unions or employees’ representatives and perform consultations.
  • Notify the local employment authority and workforce agency.
  • Adopt fair selection criteria.
  • Observe notice periods.
  • Make redundancy payments.
  • Give employees reasonable time off from work to search for a new job.
  • Not create any new employment in the positions of the dismissed employees for the following nine months following the collective dismissal. In this case, the employee must also offer the dismissed employees re-employment first.

11. Do foreign employees require work permits and/or residency permits? If so, how long does it take to obtain them and how much do they cost?
Foreign employees are employees from outside the EU and the European Economic Area. Foreign employees require both work authorisations and residence permits to work in Romania. The fee for issuing a work authorisation is EUR200 (about US$315) and the fee for issuing a residence permit is about EUR70 (about US$110), along with other additional costs (stamp fees and notary fees, which total to about EUR180 (about US$284)). The time period for issuing a work authorisation is 30 days from the registration date of the employer’s request. The residence permit must be issued to the foreign employees based on the work authorization and issued within 30 days. European citizens only require the certificate of registration in this quality.

Tax

12. In relation to employees, what constitutes tax residency in your jurisdiction?
Irrespective of a person’s employee status, he is considered resident for tax purposes if he:

  • Is domiciled in Romania.
  • Has his centre of vital interests in Romania.
  • Is present in Romania for a period exceeding, in total, 183 days during any 12 consecutive months ending in the relevant year.
  • Is a Romanian citizen working abroad employed by the Romanian state.

13. What income tax or social security contributions must the following pay: Tax resident employees?, Non-tax resident employees?, Employers, in relation to their employees?

Tax resident employees: The tax rates for tax resident employees are as follows:

  • Income tax: 16%.
  • Healthcare insurance: 5.5%.
  • Retirement fund: 9.5%.
  • Unemployment insurance: 0.5%.

The tax year is the calendar year.

Non-tax resident employees: Non-tax resident employees employed by a Romanian employer pay the same taxes and contributions as tax resident employees (see above, Tax resident employees). Seconded personnel (non-tax resident) only pay income tax of 16% and healthcare insurance of 5.5%.

Employers

Employers are liable for the following contributions:

  • Healthcare insurance: 5.5% (5.2% starting 1 December 2008).
  • Retirement fund: between 19.5% and 29.5% (between 18% and 28% starting 1 December 2008), depending on working conditions.
  • Unemployment fund: 1% (0.5% starting 1 December 2008).
  • Vacation and sick leave allowances: 0.85%.
  • Disability fund: between 0.4% and 2%.
  • Taxes for the state territorial labour departments: 0.25% or 0.75%.
  • Fund for the guarantee of the payment of salary-related charges: 0.25%.

14. In relation to business vehicles, what constitutes tax residency in your jurisdiction?
A company is deemed a Romanian legal person and therefore tax resident in Romania if it is incorporated in Romania or if the place of its effective management is in Romania.

15. Please give details of the main taxes that potentially apply to a tax resident business vehicle (including rates).
Romanian companies (that is, tax resident business vehicles) are taxed on their worldwide income. Romanian companies generally pay the following taxes in Romania:

  • Corporate income tax: 16% of the company’s worldwide profits.
  • VAT: 19% (or 9% for certain activities).
  • Salary taxes and contributions (see Question 13, Employers).
  • Various local taxes (for example, building, vehicle or advertising tax).

16. How are the activities of non-tax resident business vehicles taxed?
Romanian withholding tax applies in relation to revenue generated in Romania by non-residents, such as dividends, interest, royalties, commissions, services and capital gains. The domestic tax rates may be reduced or eliminated where a double tax treaty exists.

17. Please explain how each of the following is taxed: Dividends paid to foreign corporate shareholders, Dividends received from foreign companies, Interest paid to foreign corporate shareholders, Intellectual property (IP) royalties paid to foreign corporate shareholders.

  • Dividends paid. These are generally subject to a tax of 16% unless either:
    • paid to any company incorporated in EU and European Free Trade Association (EFTA) countries, in which case a 10% rate will apply (starting 2009);
    • a double tax treaty provides for a lower rate;
    • they are exempt as the recipient of dividends is a company established in the EU or EFTA (starting in 2009), which holds at least 15% (10% from 2009) of the equity of the company distributing dividends, for a period of at least two years before the distribution).
  • Dividends received. The dividend received from an EU subsidiary may be exempt from corporate income tax if certain conditions are met. Other inbound dividend is included into the general taxable basis subjected to the 16%. Under certain circumstances a tax credit may be obtained in Romania.
  • Interest paid. Interest paid is subject to 16% tax, unless either:
    • a double tax treaty provides for a lower rate;
    • the recipient is a company established in the EU and holds at least 25% of the payer’s equity for a period of at least two years before the payment date, in which case the rate is reduced to 10%.
  • IP royalties paid. This is the same as for interest paid to foreign shareholders (see above, Interest paid).

18. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)? If so, please give details.
Interest expenses related to loans taken from non-banking entities are deductible to the extent that the debt to equity ratio does not exceed 3:1. Where the ratio is higher or has a negative value, interest expenses are non-deductible for corporate income tax purposes. Another limitation of the deductibility is the interest rate payable to foreign affiliates, which is 7% for 2008.

19. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)? 
There are no controlled foreign company rules.

20. Are there any transfer pricing rules? If so, please give details.
Transactions between related parties (that is, an entity directly or indirectly controlling or being controlled or under common control by another entity, the relevant controlling percentage related to shares or voting rights being 25%) must be on an arm’s-length basis. Methods used to determine the market price for transactions between related parties include:

  • The comparable price method.
  • The cost plus method.
  • The resale price method.
  • Any other method recognised in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2001.

21. How are imports and exports taxed?
Imports and exports are taxed in accordance with EU customs regulations.

22. Is there a wide network of double tax treaties? If so, please give details.
Romania has an extensive network of double tax treaties (currently more than 80). For foreign investment purposes, the most favourable treaties are generally considered to be those concluded with The Netherlands and Cyprus.

Competition

23. Are restrictive agreements and practices regulated by competition law in your jurisdiction? If so, please give brief details.
Competition Law No. 21/1996 prohibits:

  • Express or tacit agreements or concerted practices having as their object or effect the prevention, restriction or distortion of competition.
  • Abuses of a dominant position.

Certain anti-trust practices are allowed if they fall within the scope of block exemptions or have been approved by the Competition Council. As an EU member state, Articles 81 and 82 of the EC Treaty apply to Romania.

Intellectual property

24. Please outline the main intellectual property rights that are capable of protection in your jurisdiction. In each case, please state: Nature of right, How protected, How enforced, Length of protection.

Patents

  • Nature of right. A patent may be granted for any invention having as object a product or a process, in all technological fields provided that it is new, involves an inventive step and is susceptible of industrial application. The patent holder has an exclusive right to exploit an invention for the duration of the patent. Unauthorised production, use, marketing, sale or import of the patented product or of the patented process or of the product directly obtained through the patented process is prohibited.
  • How protected. The patent is protected on registration with the Romanian State Office for Inventions and Trademarks (SOIT).
  • How enforced. Infringing the rights triggers either civil or criminal liability.
  • Length of protection. This is 20 years from the date of filing the application for patent registration and is not renewable.

Trademarks

  • Nature of right. The trademark represents a sign capable of graphical representation serving to distinguish the goods or services of a natural or legal person from those of other persons. The trademark holder has the right to:
    • use the trademark during the course of its business;
    • prevent others from using the trademark;
    • prevent others from registering a similar or identical trademark;
    • sell or license the trademark.
  • How protected. The trademark is protected on registration with SOIT.
  • How enforced. Infringing the rights triggers either civil or criminal liability.
  • Length of protection. This is indefinite, subject to renewal every ten years and payment of fees.

Registered designs

  • Nature of right. It can be registered the designs or models that are new and have individual character. The registered design/model holder has an exclusive right to exploit, sell and license the industrial design or model.
  • How protected. Register designs/models are protected on registration with SOIT.
  • How enforced. Infringing the rights triggers either civil or criminal liability.
  • Length of protection. This is ten years, renewable for a maximum of three successive periods of five years each.

Copyright

  • Nature of right. Original works from the literature, artistic or science field, regardless of the manner of creation, manner or form of expression and independent of their value and destination are protected by copyrights. The copyright holder has the right, in relation to the copyright work, to authorise or prohibit its:
    • reproduction;
    • distribution;
    • marketing;
    • renting;
    • import in order to market;
    • lending;
    • public communication;
    • being used to make derivative works.
  • How protected. The right is automatically protected on creation of the original work.
  • How enforced. Infringing the rights triggers either civil or criminal liability.
  • Length of protection. There is unlimited protection for moral rights. Economic-related rights benefit from protection during the lifetime of the author and for 70 years after death.

Confidential information

  • Nature of right. This is a contractual right.
  • How protected. Its protection is agreed in the contract.
  • How enforced. Its enforcement is agreed in the contract, either through the court or arbitration.
  • Length of protection. The length of protection is agreed in the contract.

Geographical indications

  • Nature of right. A geographical indication is the name serving to identify a product that originates from a country, region or locality of a state, in those cases where a quality, reputation or other determining characteristics may be essentially attributed to this geographical indication. The right holder can use and prevent unauthorised use only in connection with the products for which the geographic indication is registered.
  • How protected. The right is protected on registration with SOIT.
  • How enforced. Infringing the rights triggers either civil or criminal liability.
  • Length of protection. This is indefinite, subject to renewal every ten years and payment of fees.

Marketing agreements

25. Are marketing agreements regulated in your jurisdiction? If so, please give brief details in respect of the following arrangements: Agency, Distribution, Franchising.

  • Agency. Agents can negotiate and conclude business arrangements for or in the name of another undertaking under the Permanent Commercial Agents Law No. 509/2002. Agents are entitled to minimum termination notice periods and compensation for termination of the agreement.
  • Distribution. There are no specific rules on distribution, except for restrictions under competition regulations.
  • Franchising. Franchise agreements are regulated under Government Ordinance No. 52/1997. The franchisor must provide potential franchisees with specific disclosures, while the franchisee must provide the franchisor with certain information regarding its financial situation.

E-commerce

26. Are there any laws regulating e-commerce (such as electronic signatures and distance selling)? If so, please give brief details.
Law No. 365/2002 on e-commerce sets out the legal framework for e-commerce. The law applies to service providers whose registered offices are located in Romania.Electronic signatures. Law No. 455/2001 on electronic signature sets out the legal framework for electronic signatures, documents in electronic format and the conditions for the supply of electronic signature certification services. Documents having attached a certified electronic signature have the same legal force as signed-by-hand documents. The provisions of the Law No. 455/2001 are supplemented by the legal provisions regarding the conclusion, validity and effects of the legal acts.

Distance selling
Government Ordinance No. 130/2000 regarding consumers’ protection when concluding and executing distance contracts, as republished, approved by Law No. 51/2003 sets out the legal framework for the protection of consumers that conclude distance contracts, imposing a number of mandatory obligations on the suppliers.

Data protection

27. Are there any data protection laws? If so, please give brief details.
Law No. 677/2001 regarding the protection of personal data regulates processing and conditions for collecting personal data. Processing personal data and transferring the data abroad must be notified in advance to the National Authority for Personal Data Processing. The express consent of the data subject must be obtained by any data controller before processing, except in the following cases:

  • To protect the life, physical integrity or health of the data subject.
  • To observe the data controller’s legal obligations.
  • To meet a public interest.
  • When the data is publicly accessible.
  • When the data is to remain anonymous for the entire period of the processing.

Product liability

28. Are there any laws regulating product liability and product safety? If so, please give brief details.
Product liability is mainly regulated by:

  • Government Emergency Ordinance No. 21/1992 regarding consumer protection.
  • Law No. 449/2003 regarding the sale of goods and associated guarantees.
  • Law No. 245/2004 regarding the general safety of products.
  • Law No. 240/2004 regarding liability for defective products.

Under this legislation, manufacturers, importers and, under certain circumstances, distributors, are liable for defective products. Any contractual clause excluding or limiting manufacturer liability for damages caused to consumers by defective products is null and void. Special rules apply for certain categories of products.

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