Dbir 2004 Eng

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Doing Business
in Romania
2004
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Doing Business
in Romania
2004 edition
Ernst & Young Romania is a member of Ernst & Young Southeast Europe
that unies the practices of nine countries in the region including
Greece, Turkey, Bulgaria and Moldova.
Contents
Country Overview 1
Geographical overview 2
Population and language 2
Political and legal environment 3
The reform process and economic development 5
Romanias proposed accession to the European Union 8
Business Overview 11
Types of business presence 12
Accounting, auditing and reporting 14
Investment legislation 16
Foreign exchange regulations 22
Financial services industry 23
Capital markets 25
Labour force and employment regulations 26
Work regulations for foreigners 28
Intellectual property 29
Industrial property 30
Competition legislation 30
Environmental legislation 30
Taxation in Romania 31
Corporate taxes at a glance 32
Taxes on corporate income and gains 33
Withholding taxes 40
Value added tax 41
Customs duty 43
Excise duty 45
Local taxes 46
Stamp duty 47
Individual taxation 47
Fiscal sanctions 54
Ernst & Young in Romania 55
Appendix: Treaty Withholding Tax Rates 57
DOI NG BUSI NESS I N ROMANI A
Country Overview
1
2
Romania is a country of about
238,000 square km located
on the western shore of the
Black Sea in Southeast Europe.
Moldova and Ukraine border
Romania to its north, while
Hungary and Yugoslavia to its
west and Bulgaria to its south.
The country is roughly divided
into three areas: the central and
northwestern region comprising
Transylvania, Crisana, and
Banat and encompassing the
Carpathian mountains; the
southern region comprising the
Wallachian Plain with the river
Danube forming the countrys
southern border; lastly, the
eastern region comprises the
Moldavian Plain bordering
Geographical overview
As per the Census of
18 March 2002, Romanias
population was 21,698,181,
with an average density of 91
inhabitants per square km. Of
the total population, 91% are
ethnic Romanians and 6.7% are
Hungarians. Other minorities
include Rroma (1.1%), German
(0.2%), and Ukrainian (0.3%).
The Romanian language is
the common language used
throughout most of the country.
In the northwest and central
Population and language
Moldova and the Ukraine. The
capital city is Bucharest with a
population of nearly 2 million.
Other large cities include
Constanta, Iasi, Cluj-Napoca,
Timisoara, Galati, Brasov
and Craiova. Romania has a
continental European climate,
with warm summers and cold
winters.
regions, Hungarian and German
are also commonly spoken.
Moreover, under the recently
amended Constitution, ethnic
minorities are now allowed to use
their mother tongue in certain
circumstances (e.g. in court).
DOI NG BUSI NESS I N ROMANI A 3
Romania is a Constitutional
Republic. The present
Constitution was adopted by the
Parliament on 21 November 1991
and was subsequently amended
and ratied by Law 429/2003,
such amendment being effective
as of 29 October 2003. The
Romanian Constitution conrms
among its aims a multi-party
system, a free-market economy
and the respect of human rights.
Legislative power is vested in
a bicameral Parliament that is
made up of a lower house of 345
seats (Chamber of Deputies)
and an upper house of 140 seats
(Senate). Parliamentary elections
are held every 4 years while
presidential elections are held
every 5 years.
The President is elected by
direct universal vote and has
powers that are limited by the
Constitution. The President is
required to:
: act in compliance with the
provisions of the Constitution;
: nominate the Prime Minister
following consultation with the
majority party;
: promulgate laws passed by the
Parliament;
: co-operate with the National
Security Council on
relevant issues.
COUNTRY OVERVI EW
Political and legal environment
Under the Constitution, private
property is equally guaranteed
and protected by the Romanian
State. Foreign nationals and
stateless persons may obtain
the right of ownership over land
under the conditions resulting
from Romanias accession into
the European Union or by virtue
of domestic laws and other
international treaties to which
Romania has become a party.
All statutory provisions pertaining
to civil, commercial, criminal,
administrative and tax matters
are enacted by the Parliament.
International treaties are binding
only if ratied by the Parliament.
Since the revolution in 1989, the
reformation and harmonisation
of laws with EU standards has
become a key driver in Romanias
efforts of joining the EU. The
association treaty signed with the
EU in 1993 stipulates Romanias
obligation to adopt the regulations
issued by EU bodies and to
integrate them into domestic
legislation. The signing of this
treaty was followed by Romanias
ofcial request for accession into
the EU, which was presented in
June 1995. The formal deadline
envisaged by Romania for full
membership into the EU is 2007.
In 1994, Romania ratied the
European Convention for the
Protection of Human Rights and
Fundamental Freedoms. In
accordance with the relevant
ratication law, Romania has
agreed to enforce the rights
guaranteed by this convention,
including among other things the
right of individual petition, and
to recognise the competence
of the European Court of
Human Rights. To this end, any
Romanian citizen may bring a
case against the Romanian State
before the European Court, the
rulings of which are binding upon
the Romanian State.
Through the legislative initiatives
of the recent years, many of the
laws that are typical for a market
economy have been enacted
and have led to the relative
stabilisation of Romanias legal
system. The laws concerning
dispute resolution and related
procedures are well established
in Romania. The concept of
arbitration is also widely spread.

4
The court system is organised
at the national, county and local
levels and is divided into civil and
criminal. The High Court is the
highest judicial forum of Romania.
Unlike the US Supreme Court,
the Romanian High Court
cannot exercise judicial review,
adjudicating on the conformity
of laws with the Constitution
and other regulations of the
Parliament to the same effect.
This competence is attributed
to the Constitutional Court of
Romania. Moreover, judicial
precedent does not constitute a
recognised source of law.
Type of economy
Since the beginning of 1990,
Romania has had a free
market economy countered
by a continuous government
presence in the industrial sector.
Successive governments have
made strides in liberalising and
privatising the economy.
Romania sits at the crossroads
of many traditional commercial
routes that allow access to a
further 200 million consumers
within a 1,000 km radius of
Bucharest. The main focus
of these routes is the Danube
River and the port of Constanta,
the largest port on the Black
Sea, which is currently linked
to the North Sea through a new
permanent navigation route
formed by the Rhein-Main-
Danube Canal. The country
boasts of a workforce which is
experienced in areas such as
Particulars 2004 2003 Change
GDP (%) 5.2 4.8 + 0.4
Ination rate (%) 9.0 14.0 - 5.0
Cons. Budget Decit (%) 3.0 2.7 + 0.3
Domestic Demand (%) 5.5 5.1 + 0.4
Unemployment (in thousands) 700 720 - 20
COUNTRY OVERVI EW
The reform process and economic development
engineering and manufacturing
and is relatively cheaper
compared to most other Eastern
European countries. There is
a large industrial infrastructure
in many of the countrys leading
cities, which together with the
countrys considerable natural
resources possess substantial
potential for exploitation and
development.
General economic trends
Like many countries in Eastern
Europe and the former Soviet
Union, Romania has been
struggling to switch its previous
central economy into a
market economy. Successive
governments have found it very
difcult to turn the economy
around because of the lack of
hard currency and because of
the inability to secure external
funding of the country due to
its high budget decits, mainly
accrued from the continuous
nancing of loss-making state
industries. It has been hard to
change many of the old economic
and nancial mechanisms, as
well as the bureaucratic culture
that was inherent in many of the
old institutions. In the last 3 to
4 years the overall economic
environment has improved and
the indicators look healthier.
The table below illustrates
the main economic indicators
(estimates) for the year 2004 in
comparison with the year 2003.
6
Leading industries
Romanias main industries are
primarily manufacturing and
engineering. The country also
possesses energy resources
and substantial surfaces
of agricultural land. Most
areas of the economy remain
underdeveloped and offer great
potential, particularly in the
industrial, agricultural and tourism
sectors. The technology sector
continues to play an increasingly
important role in the economy
due to the employees high level
of education versus their low
employment costs.
Preferred sectors which attracted
foreign investment in the recent
years have included oil and gas
exploitation, car manufacturing,
metallurgy, banking and
nance, food processing, heavy
engineering, telecommunications,
commercial construction and
consumer goods production.
Investors have shown a
willingness to invest in newly
privatised industries as well as in
green-eld investments.
Government-owned
industries and privatisation
Strategic interest activities
are established in national
companies where the State
holds the majority or the entire
share capital. The main areas
of interest comprise the postal
services, radio communications,
airport services, coal activities, oil
and gas, harbour, water supply,
electricity, energy, nuclear,
defence and tobacco activities.
The Romanian Government
has declared its commitment to
privatise state-owned companies.
In executing this commitment,
the relevant privatisation strategy
is being formed, approved and
executed by the competent
Ministries in cooperation with the
State designated Privatisation
Authority (APAPS) on a yearly
basis. Most of the companies to
be privatised are listed on the
two Romanian capital markets
(i.e. Bucharest Stock Exchange
and RASDAQ). The privatisation
process is often carried out
on these markets through
electronic auctions, public selling
offers and/or rm commitment
underwriting. Moreover, in cases
of large companies undergoing
privatisation, where the State
holds the majority stake, direct
negotiations constitute a common
practice.
In 2003, privatisations and
restructurings marked an
outstanding progress with the
government selling three major
state enterprises, namely Roman,
Tractorul and ARO, and tendering
for sale the countrys largest
oil company, Petrom. More
activity is expected in this eld
over the forthcoming months
as the countrys two distributors
of natural gas (Distrigaz Nord
and Distrigaz Sud) as well as
two more electricity distributors
(Banat and Dobrogea) are
undergoing privatisation. The
privatisations in the energy sector
are anticipated to attract large
foreign investments.
Regional and international
trade agreements and
associations
Romania has been a contracting
party to the World Trade
Organisation (former General
Agreement for Tariffs and
Trade) since 1971. In 1994, the
Romanian Parliament ratied the
Marrakech Agreement, which
established the World Trade
Organisation.
Law 20/1993 ratied the
European Agreement that
established Romanias
association with the European
Union.
Law 19/1993 ratied the
European Free Trade Agreement
(EFTA) concluded with Romania.
Romania is also a party to the
Central European Free Trade
Agreement (CEFTA) since 1997,
which establishes different
customs facilities depending on
the merchandise trade exchanges
existing between Romania and
COUNTRY OVERVI EW
Particulars Imports Exports
FOB 2003 (USD million) 22,155.3 17,618.0
CIF 2003 (USD million) 24,003.1 N/A
Variation 2003 2002 (%) + 34.4 + 27.0
Itemised structure
(% of total imports/exports)
Industrial supplies 40.4
Capital goods 22.1
Current use goods 13.7
Fuels and lubricants 10.8
Transport equipment 7.1
Food and beverages 5.7
Industrial supplies 31.9
Capital goods 9.8
Fuels and lubricants 6.5
Transport equipment 7.3
Food and beverages 2.8
Main sources/destinations
(% of total imports/exports)
Italy 19.5
Germany 14.8
Russian Federation 8.3
France 7.3
Turkey 3.8
Hungary 3.6
Austria 3.5
United Kingdom 3.3
China 2.7
USA 2.3
Italy 24.2
Germany 15.7
France 7.3
United Kingdom 6.7
Turkey 5.1
The Netherlands 3.6
USA 3.5
Hungary 3.5
Austria 3.2
Greece 2.4
Source: National Institute for Statistics
the Czech and Slovak Republics,
Hungary, Poland and Slovenia.
Furthermore, Romania is a
member of other trade groups,
such as the P16 and the General
System for Trade Preferences,
and has signed bilateral free
trade agreements with the
Republic of Moldova, Turkey and
Israel.
Up to date, Romania has entered
into over 80 agreements for the
avoidance of double taxation and
the prevention of tax evasion on
income and capital (treaties).
A table of such treaties signed
by Romania is presented in the
appendix section of this guide.
Romania is also a member
of the International Monetary
Fund (IMF), the World Bank
(i.e. of the International Bank for
Reconstruction and Development
IBRD, and of the International
Finance Corporation IFC),
and the European Bank for
Reconstruction and Development
(EBRD).
Major trading partners
and leading imports
and exports
Imports/Exports
The following table contains a
comparative illustration of the
import/export ows of Romania
for the years 2002 and 2003,
and highlights both the main
categories of circulated goods
as well as the main sources/
destinations, respectively.
8
Evolution of negotiations
1
The negotiations for Romanias
accession to EU were ofcially
launched on 15 February 2000,
on the occasion of the
Intergovernmental Conference on
Accession.
Since then, Romania opened and
provisionally closed 22 of the 31
acquis chapters, as follows:
: in 2000: Small and medium-
sized enterprises (Ch. 16),
Science and research
(Ch. 17), Education and
training (Ch. 18), External
relations (Ch. 26), Common
foreign and security policy
(Ch. 27), Statistics (Ch. 12),
Telecommunications and
information technologies
(Ch. 19) and Culture and
audio-visual policy (Ch. 20);
: in 2001: Company Law
(Ch. 5), Consumers and health
protection (Ch. 5) and Fisheries
(Ch. 8);
: in 2002: Economic and
Monetary Union (Ch. 11),
Social policy and employment
(Ch. 13), Industrial policy
(Ch. 15), Telecommunications
and IT (Ch. 19), Culture and
audio-visual (Ch. 20), Customs
Union (Ch. 25) and Institutions
(Ch. 30); and
Romanias proposed accession to the European Union
: in 2003: Free Movement of
goods (Ch. 1), Free movement
of capital (Ch. 4), Taxation
(Ch. 10), Free movement of
persons (Ch. 2), Transport
(Ch. 9) and Financial Control
(Ch. 28).
The remaining 8 chapters
(i.e. Ch. 3 Free movement of
services, Ch. 6 Competition,
Ch. 7 Agriculture, Ch. 14
Energy, Ch. 21 Regional policy
and co-ordination of structural
instruments, Ch. 22
Environmental protection,
Ch. 24 Justice and home
affairs, Ch. 29 Financial
and budgetary provisions) are
regarded as difcult chapters,
with nancial implications,
requiring a high level of domestic
preparations.
Romanias objective is to
conclude the EU accession
negotiations in 2004, to sign the
Treaty of Accession in 2005, with
a view to full EU accession on
1 January 2007.
Current status
2
In the eld of free movement
of services, important progress
has been made, especially in
the eld of nancial services
(banking, insurance and nancial
securities).
In the eld of competition,
the Competition Law and
State Aid law were amended.
The legislative development
continued with the adoption of
the secondary legislation in the
eld of anti-trust, as well as in the
State aid eld.
In the agricultural eld, a large
part of the acquis communautaire
has been transposed in
the Romanian legislation.
Important milestones are the
implementation of the community
acquis at a higher pace, the focus
on adopting commercial and
quality standards, food safety and
public health, creation of the IT
market system and the customs
veterinary and phytosanitary
control, development of
the agricultural market and
strengthening the producers
association.
The energy market has been
exposed to privatisation in 2004.
The government states that the
State Budget for 2004 ensures
the necessary nancial resources
for the implementation of the
community legislation in the
eld of crude oil and petroleum
products stocks, nuclear safety
and coal sector restructuring
process.
1 Source: www.mie.ro
2 Source: The Status of Romanias Accession Negotiations to the EU Vasile Puca, Minister Delegate Chief Negotiator of
Romania with the EU, speech in The Joint Parliamentary Committee Romania-EU-Brussels, 5 April 2004
The institutional framework
for regional policy and co-
ordination of structural
instruments was designed and
normative acts were adopted
with a view to ensure, starting
with 2004, the stafng of the
structures with responsibilities
in this eld. The Ministry of
Public Finance was designated
as Managing Authority for the
Community Support Framework
and for the Cohesion Fund.
The Romanian Government
is currently concerned with
the strengthening of the
administrative capacity in order to
ensure an efcient and effective
absorption and management of
the community funds.
At present, the level
of transposition of the
environmental acquis into the
national legislation has been
signicantly improved. Measures
were taken for strengthening
the administrative capacity and
allocating the necessary nancial
resources. The implementation
of the new legislation and plans
in key sectors (water quality,
waste management and industrial
pollution) is enhanced.
In the eld of justice and home
affairs, the amendment of the
Constitution in October 2003
created the bases for reform in
the eld of justice, which will be
completed by adopting a number
of additional laws.
A legislative package for the
reform of the judiciary (currently
subject to public debate) is to be
adopted by June 2004
(i.e. Law on judicial organisation,
Law on the statute of magistrates,
Law on the Superior Council
of the Magistracy). Preventive
measures country wide
concerning the security and
border control, the connection
to the early warning system and
the raise of exigency have been
intensied. A peer review mission
of the Commission and the
Member States took place at the
beginning of April in Bucharest.
The mission noticed the status
of preparation and encouraged
Romania to continue the reforms
in the eld.
Regarding the nancial and
budgetary provisions, Romania
has made progress as regards
the calculation of the nancial
ows to and from the EU
Budget. A primary evaluation of
Romanias contribution to the EU
budget was drawn up. Romanias
answers to the questionnaire
forwarded by the European
Commission for assessing the
administrative capacity regarding
the acquis implementation for
this chapter was submitted at the
beginning of March 2004.
COUNTRY OVERVI EW
10
Key areas to develop
3
As recommended by the
Commission of the European
Communities in the 2003 Regular
Report on Romanias progress
towards accession, Romania
still needs to develop a strategy
to address reform of the policy
and legislative process. The
judicial system needs to improve
the management of cases and
the consistency of judgements,
as well as to increase the
independence of the judiciary.
Also, Romania must enhance
its attention to developing the
overall capacity of the public
administration to implement
and enforce the legislation
harmonised with the acquis.
Although certain progress in
establishing new institutional
structures required by the
acquis has been attained,
this continues to represent a
major constraint on Romanias
accession preparations and to
address this issue will require a
comprehensive, structural reform
of both the public administration
and the judicial system. These
concerns also apply to the
management of EU nancial
assistance.
Also, restructuring and
privatisation in key sectors,
such as energy, mining and
transport, must be brought
forward. This would greatly
support the establishment of
a functioning market economy
and the development of
Romanias capacity to cope
with competitive pressure and
market forces within the Union.
The Romanian Governments
committment is that, by the date
of accession, Romania will fully
comply with all Copenhagen
accession criteria. After the
conclusion of the accession
negotiations, additional
measures are envisaged to
achieve the commitments
undertaken during the
negotiations.
3 Source: 2003 Regular Report on Romanias progress towards accession
Business Overview
11
12
There are no specic
investment approvals required
for establishing a business
in Romania. The procedure
requires the fullment of certain
legal formalities including a
delegated judges decision and
registration with the Romanian
Trade Registry and the Local
Fiscal Administration.
Limited Liability Company
The minimum equity capital
requirement for a limited liability
company (Romanian: Societate
cu Raspundere Limitata or SRL)
is currently ROL 2,000,000 and
the minimum value per part is
currently ROL 100,000. The
maximum number of equity
partners in such a company is 50.
An SRL is managed by one or
more administrators who may
have full or limited powers and
who may be either Romanian or
foreign nationals. There is no
distinction in Romania between
companies operating with or
without foreign share capital.
Joint Stock Company
The minimum share capital
requirement for a joint-stock
company (Romanian: Societate
pe Actiuni or SA) is ROL
25,000,000 and the minimum
nominal value per share is
currently ROL 1,000. When an
SA is established, at least 30% of
the subscribed share capital, or
100% in respect of contributions
in kind, must be immediately
contributed upon formation of
the company and all subscribed
share capital must be fully paid
in within 12 months of formation.
Shares must be held by a
minimum of 5 shareholders at all
times (there is no maximum) and
can be open to either public or
private subscription.
One or more Board of Directors
members, who may or may not
be shareholders of the company,
govern the daily operations of
the SA. Board members should
convene a meeting at least once
per month to decide on the topics
of the agenda, with decisions being
taken on the basis of the majority of
votes given by those members of
the Board who are present.
Representative office
Representative ofces can be
formed by foreign companies
in Romania to carry out
preparatory or ancillary
activities such as advertising
or market research on behalf
of their parent organisation.
Representative ofces cannot
carry out commercial activities in
Romania. In order to register a
Representative ofce, company
ofcials should apply to the
Department of Foreign Trade
within the Ministry of Trade and
Industry and pay an annual fee of
USD 1,200 to receive the licence.
Branches of foreign legal
entities
Branches of foreign legal entities
can be registered to carry
on commercial operations in
Romania.
A branch is subject to corporate
prots tax in the same manner as
other Romanian legal entities, but
currently no branch remittance
tax applies in Romania. The
use of branches is not widely
spread, given the poor legislation
Types of business presence
governing such vehicle type
as opposed to the clear and
extensive provisions existing for
SRLs and SAs.
Partnership
Under Romanian law,
partnerships may be either
limited partnerships or general
partnerships, as follows:
: general partnership the
partnerships obligations are
guaranteed by the capital and
by the unlimited joint liability of
all partners;
: limited partnership the
partnerships obligations are
guaranteed by the capital and
by the unlimited joint liability of
all unlimited partners; limited
partners are liable only up
to the value of their share
contribution.
The most signicant characteristic
of a general partnership is the
unlimited joint and several liability
of general partners for the debts
of the partnership. A limited
partnership is similar to a general
partnership except that it has
one or more limited partners who
are liable for the debts of the
partnership only up to the amount
of their capital contributions.
In Romania, partnerships are
not ow-through entities for
tax purposes. Tax is applied
at the entity level rather than
on the individual partner level.
Partnerships are not a preferred
medium for doing business in
Romania.
Consortium
The Romanian legislation allows
for the conclusion of a joint
venture agreement (Romanian:
contract de asociatiune in
participatiune). Under this
agreement, parties act together
for the accomplishment of a
common business goal. This
form of doing business in
Romania does not lead to
the creation of a legal entity.
Generally, one party is in charge
with the bookkeeping of the joint
venture.
Trust
The Romanian legislation does
not recognise the concept of a
trust.
Economic Interest Grouping
(EIG)
An EIG can be dened as an
association of two or more
individuals or legal entities, which
is set up for a denite period
of time, with its main scope
consisting in the development
of its members activity and only
secondary in the development
of the EIG itself. An EIG may not
have more than 20 members.
A key feature of EIGs is the
unlimited joint liability of its
members and the fact that it
may not, directly or indirectly,
own shares in one of its member
companies, or another EIG.
Equally, an EIG is not allowed
to issue shares, bonds or other
negotiable instruments.
European Economic Interest
Grouping (EEIG)
An EEIG is an association of
two or more individuals or legal
entities, set up for either a denite
or an indenite period of time,
its main scope consisting in the
development of its members
activity and only secondary in the
development of the EEIG itself.
This entity may be set up in
any EU Member State, but may
function in Romania by means
of subsidiaries, branches,
representative ofces or other
entities without legal personality,
provided that the domestic
legislation is being observed.
The subsidiaries and branches
of an EEIG are subject to
registration following the same
procedure as EIGs, namely
with the Trade Registry in the
jurisdiction in which the branches
or subsidiaries will be located.
Entities commonly used by
foreign investors
Limited liability companies (SRLs)
are the most popular vehicles for
carrying on business activities
in Romania by local and foreign
investors, because of the low
administrative requirements, the
greater exibility compared to
other types of companies and the
low initial capital requirements.
However, the number of joint-
stock companies (SAs) and their
attractiveness to investors is
increasing in Romania.
BUSI NESS OVERVI EW
14
Accounting
Harmonised accounting
The Ministry of Finance approved
new accounting regulations in
2001 (i.e. Order 94/2001) with
a view to harmonise the former
Romanian accounting rules
with both the Directive IV of the
Economic European Community
and the International Accounting
Standards (IAS). The purpose
is that, by scal year 2006, all
Romanian companies except
small enterprises should apply
IAS rules in their accounting. The
implementation process for this
project is gradual.
During 2003 2005, companies
satisfying two of the requirements
presented in the table below are
required to prepare harmonised
nancial statements.
During the rst year of
application, taxpayers must
draw up separate nancial
statements according to the
Romanian Accounting Standards
and the harmonised accounting
regulations. The nancial
statements prepared according
to the harmonised accounting
regulations must be audited
and submitted to the territorial
units of the Ministry of Finance
by 30 November of the year
following the one to which the
reporting refers.
Accounting, auditing and reporting
Year ending
31 December
Turnover in
prior year
Total book
value of
assets for
prior year
Employees
during prior
year (average
number)
EUR million EUR million No. persons
2003 7.3 3.65 150
2004 7.3 3.65 50
2005 7.3 3.65 50
Simplied harmonised
accounting standards
As of 1 January 2003,
simplied accounting standards
harmonised with the European
Directives (Order 306/2002)
are also applicable to micro-
enterprises and to companies
not applying the Accounting
standards harmonised with
Directive IV of the Economic
European Community and with
the International Accounting
Standards, as approved by Order
94/2001, based on the criteria
mentioned in the section above.
Simplied nancial statements
that need to be produced by
companies applying these
accounting standards at year-end
refer to the following:
: the balance sheet;
: the profit and loss account;
: the accounting policies and
the notes to the accounts; and
(optionally)
: the cash-flow statement.
Auditing
Statutory audits to be performed
by external auditors are not yet
mandatory under Romanian
law, except in the case of
companies which are required
to apply the Accounting
regulations harmonised with the
Directive IV of the Economic
European Community and with
the International Accounting
Standards, as approved by Order
94/2001.
However, externally audited
nancial statements are a
pre-requisite for companies
with the intention to go public.
Independent audits for banks and
other nancial institutions are
also mandatory.
In other cases, the compulsory
audit function is performed by
internal auditors (censors),
in accordance with the
Audit Norms issued by the
Romanian Accounting Experts
the scal authorities the latest by
the 25
th
of the following month.
The return captures the prots tax
due quarterly and the withholding
and salary taxes as well as
any other taxes payable by the
company, whenever applicable.
Half-year reporting
The half-year reporting comprises
the balance sheet, the prot and
loss account, the appendix and
the administration report and has
to be led with the Department
of Public Finance until 31 July of
every year.
Annual nancial statements
The annual nancial statements
comprise the balance sheet,
the prot and loss account, the
appendix and the administration
report. All of the above have to be
certied by internal auditors and
led with the Department of Public
Finance in Bucharest or any other
competent county (depending on
where the headquarters of the
taxpayer are located).
The deadline for submission of
the nancial statements to the
Romanian tax authorities is:
: 90 days following the end
of the financial year for
companies applying the
simplified harmonised
accounting standards
(Order 306/2002);
: 120 days following the end
of the financial year for
companies applying the
harmonised accounting
standards (Order 94/2001).
VAT return
Taxpayers must le VAT returns
with the tax authorities on a
monthly basis, specifying the
taxable amount and the tax
due. The tax return must be
led and the respective VAT
paid by the 25
th
of the following
month. Taxpayers with an annual
turnover of less than
EUR 100,000 le their VAT
returns with the tax authorities on
a quarterly basis.
Social security returns
Social security returns are led
with the local Department of
Labour and Social Security in the
district in which the employer has
its headquarters, within 25 days
following the end of the month for
which contributions (i.e. Social
Security Fund, Health Funds,
Unemployment Funds) are due.
and Chartered Accountants
Association (CECCAR). Limited
liability companies with more than
15 shareholders as well as joint
stock companies are required to
appoint censors.
Accounting evidence
According to the accounting
regulations, companies should
maintain the following accounting
registers:
: Journal recordings should
be made in chronological order
for all operations carried out by
the company.
: Counting Report recordings
should depict all assets and
liabilities of an entity-taxpayer.
: General Ledger in which the
recordings from the Journal are
made on a monthly basis. On
the basis of this register, the
monthly trial balances are drawn
up.
Furthermore, companies
also need to prepare monthly
trial balances and Sales and
Purchases Journals (for VAT
purposes). Fixed Asset Registers
are also required under the
depreciation laws.
Reporting
The main returns and statements
that must be submitted
periodically to the Romanian
authorities are:
Monthly tax return
Such returns have to be
submitted on a monthly basis to
BUSI NESS OVERVI EW
16
Investment incentives
Under the direct investment
regulations, investments are
encouraged by offering equal
opportunities to foreign as well
as to Romanian investors.
In general, incentives are
intended to enhance the
economic development of
the country, particularly the
acceleration of industrialisation
in disfavoured zones, as well as
the development of small and
medium enterprises, oil and gas
industries and micro-enterprises.
Under the direct investment
legislation (Emergency
Ordinance 92/1997, as
amended), legal entities and
individuals may invest in Romania
under a variety of forms. The
regulation denes certain types
of investments and provides a
level playing eld for foreign as
well as domestic investors. The
regulation establishes the general
legal framework regarding
guarantees and rights to be
granted to investors and direct
investments made in Romania.
To a large extent, tax incentives
(for investments) were cancelled
during 2000. However, certain
tax facilities are still available to
investments in free trade zones,
disfavoured zones and industrial
parks, as well as to small and
medium enterprises (see below).
Investment legislation
For most of the tax incentives
the legislation has specied that,
if an investor ceases production
or voluntarily liquidates the
company before the expiration
of twice the period for which
tax incentives were granted, all
previous exemptions enjoyed will
be retroactively cancelled.
Investments with a
significant impact on the
economy
Law 332/2001 regarding the
promotion of investments with a
signicant impact on the economy
provides certain tax incentives for
direct investments that exceed
the equivalent of USD 1 million
(or the equivalent in ROL or
other convertible currencies)
and which are contributing to the
development and modernisation
of Romanias economic
infrastructure, creating a positive
spin-off effect in economy and
creating new working places.
Under this law, direct investments
in a Romanian company, which
are to be effectively accomplished
within a maximum of 30 months
from the date of the statistical
registration with the Ministry of
Economy and Trade, will benet
of the following tax incentives:
: exemption from payment of
customs duties for certain
new technological tools,
installations, equipment,
measuring and control devices,
automation equipment and
software products imported
into Romania (manufactured
within maximum 1 year before
the importation date and
without being used prior to
their entering into Romania),
as specifically provided in a
list approved by the Ministry of
Economy and Trade and the
Ministry of Public Finance;
: for investments realised until
31 December 2006, one-
off allowance of 20% of the
investment value, granted as a
reduction of the taxable base
for profits tax purposes in the
month when the investment
was made;
: use of accelerated
depreciation, without prior
approval from the tax
authorities (depreciation in
the first year of activity of up
to 50% of the entry value of
the fixed assets, applicable
for all fixed assets, except for
buildings);
: local authorities may grant an
exemption or reduction of the
land tax for land related to the
afore-mentioned investments
for the execution period
until commissioning, up to a
maximum of 3 years from the
beginning of the works.
In the event an investment
qualies for incentives under
several laws, the investor has to
opt explicitly for a single regime
of facilities. Investors choosing
to benet of incentives under one
specic law must waive the right
to benet of incentives provided
for the same investment by other
legal provisions.
In case of voluntary liquidation
of the companies which carried
out the investment before the
lapse of 10 years, the investor
can be liable to pay all taxes and
duties in relation to which the
incentives were granted for the
entire operating period, together
with late payment interest.
Such amounts are to be paid
with priority from the liquidation
proceeds.
Separately, investors will also
be liable to pay the equivalent
of incentives granted together
with late payment interest
stipulated by the law if the goods
imported under the customs
duty exemption provided by the
law are alienated within a period
shorter than 2 years from the
date of acquisition or entrance
into the country.
Small and medium-sized
enterprises (SMEs)
Romanian law denes a SME
qualifying for tax incentives as
a company that has less than
250 employees, whose annual
turnover does not exceed
EUR 8 million and whose
capital is 100% private (not
in state ownership). As an
additional condition, a company
qualies as SME for as long
as any of its shareholders with
an individual participation of
at least 25% is not employing
more than 250 employees.
Banking companies, insurance
BUSI NESS OVERVI EW
18
companies, companies managing
investment funds, security trading
companies as well as companies
performing foreign trade activities
exclusively do not qualify as
SMEs.
Presently, no incentives are
available for SMEs. However,
the certicates for deferral of
VAT exigibility obtained under
the provisions of Law 345/2002
(in force until 31 December
2003) are still valid for the
period they were granted. Such
certicates were issued for
purchases of industrial machines,
transportation means necessary
for the performance of productive
activities, technological tools,
installations, equipment,
measurement and control
devices, automation equipment
and software products,
manufactured within maximum 1
year before purchase and which
have never been used.
Micro-enterprises
To qualify for a micro-enterprise
regime the following conditions
should be satised as
at 31 December of the prior year:
: the enterprise has as object of
activity production of goods,
supply of services and/or trade
activities;
: the enterprise should have at
least 1 employee but not more
than 9;
: the annual turnover obtained
should not exceed
EUR 100,000; and
: the capital is 100% private
and the shareholder of such
company should not employ
more than 250 people.
Qualifying enterprises will pay
a tax of 1.5% applied on any
source income, except certain
items of revenues specically
provided (e.g. income from
stock variations, income from
provisions, etc.). The tax is paid
quarterly, by the 25
th
of the rst
month following the reporting
quarter.
Companies complying with the
above conditions and taxed under
the general prots tax legislation
may opt for the income taxation.
In such cases companies should
submit a declaration exercising
their option until 31 January.
Disfavoured zones
Emergency Ordinance 24/1998
regulates disfavoured zones, as
these are dened individually by
Government Decisions. Such
zones are for a duration of at
least 3 but not more than 10
years, with the possibility of
extension.
Currently, there are 38
disfavoured zones established in
the country mostly with a duration
of 10 years, especially in the
mining areas of the country.
A wide range of incentives has
been granted to investments in
disfavoured zones, which include:
: customs duty exemption for
imported raw materials and
components, necessary for the
realisation of own production in
the area, except for imports of
meat-related raw materials;
: profits tax exemption for profits
related to new investments,
for the period during which
the disfavoured zone status
exists only for legal entities
which obtained the permanent
certificate of investor in a
disfavoured zone before
1 July 2002;
: access to a special
development fund set up by
the government in accordance
with Emergency Ordinance 59/
1997 as amended, with funds
collected by the Romanian
government from sales of
state-owned companies; and
: income tax exemption for
allowances received by
individuals for their one-off
relocation to disfavoured zones
for purposes of employment.
Industrial parks
Based on Government
Ordinance 65/2001, industrial
parks are seen as strictly
delimited areas where research
and development, industrial
production and technological
development activities are
performed.
An industrial park may be set up
based on an association between
the authorities of the central
and local public administration
and companies, research and
development institutes and/or
other interested partners. An
industrial park is administered by
a Romanian legal entity, called
the administrator-company. No
shareholder company using the
utilities and/or the infrastructure
of the industrial park can hold
direct or indirect control over the
administrator-company.
The following incentives are
granted for the setting up and
development of industrial parks:
: exemption from taxes due on
conversion of agricultural land
to be used to the benefit of
industrial parks;
: for investments in constructions
or construction rehabilitation,
internal infrastructure and in
the utilities network, realised
until 31 December 2006, one-
off allowance of 20% of the
investment value, granted as a
reduction of the taxable base
for profits tax purposes;
: buildings, constructions and
land located inside industrial
parks are respectively exempt
from building tax and land tax;
: other incentives which may be
granted, in compliance with
the law, by the local public
administrative authorities.
Scientific and technological
parks
Based on Government
Ordinance 14/2002, as amended
by Law 50/2003 scientic and
technological parks are seen as
strictly delimited areas where
education and research activities
are performed, as well as the
technological implementation of
the results for the purpose of their
utilisation in economy.
A scientic and technological
park may be set up based
on a partnership agreement
between an accredited university
and/or another research
and development unit and
a consortium of companies,
associations or individuals,
Romanian or foreign. Upon set-
up, a scientic and technological
park needs to be authorised by
The Ministry of Education and
Research, who is further entitled
to monitor the activities of the
scientic and technological park.
The park is administered by a
Romanian company, designated
by the consortium, called the
administrator-company.
granted for the setting up and
development of scientic and
technological parks:
: advantageous conditions
regarding location and
usage of infrastructure and
communications, with deferral
of payments, ensured or
facilitated by the administrator
for a determined period of
operation;
: discounts or gratuities for
certain services supplied by
administrator;
: exemption from taxes due on
conversion of agricultural land
to be used to the benefit of
industrial parks;
: buildings, constructions and
land located inside scientific
and technological parks are
respectively exempt from
building tax and land tax.
BUSI NESS OVERVI EW
20
Free trade zones
Law 84/1992, as amended,
regulates the Free Trade Zones
regime. Currently, there are 7
free trade zones in operation in
Romania, located in Constanta
Sud-Agigea (at the Black Sea,
including the harbour area),
Sulina, Galati, Braila, Giurgiu
(along the Danube river),
Basarabi and Curtici-Arad (on the
Romanian-Hungarian border).
The range of activities that can
be carried out within a specic
free trade zone by individuals
or entities respectively, are
determined by law and should
be licensed by the administrative
authority of the zone.
available within free trade zones:
: profits tax exemption until
30 June 2007, for taxpayers
who, by 1 July 2002, performed
in the free trade zone
investments amounting to a
minimum of USD 1 million in
depreciable tangible assets
used in the processing industry.
This exemption does not apply
in case a change of more
than 25% in the shareholding
structure takes place within
one year;
: profits obtained from activities
performed inside free trade
zones on a licence basis
are subject to a reduced
profits tax rate of 5%, until
31 December 2004;
: excise duty exemption for
goods introduced in the free
trade zone;
: exemption from customs duties
for goods introduced within the
zone depending on the specific
operations taking place, for
as long as the goods are not
imported into Romania; and
: VAT exemption for operations
performed within the free trade
zone.
Mining
Mining Law 85/2003 regulates
the mining activities in
Romania to ensure maximum
transparency for mining activities
and fair competition, without
discrimination by the property
type or origin of the capital, and
nationality of operators.
Mining exploitations are
carried out based on a mining
concession granted by the
National Agency for Mineral
Resources (NAMR) for a period
of at least 20 years with an
extension clause in exchange
for a mining royalty and an
annual surface tax. Each mining
concession is established through
a Government Decision and
its provisions will remain valid
throughout the entire concession
period.
Foreign legal entities are liable
to set up a company in Romania
within 90 days from obtaining
the mining concession. Such
company will be maintained
throughout the licence period.
The titleholder of the licences
may benet from the following
incentives:
: exemption from the payment
of customs duties for the
importation of goods required
for the performance of mining
activities;
: exemption from the payment
of customs duties for newly
imported equipment and
installations, which are not
produced in the country but
are needed for environmental
rehabilitation; and
: other incentives that may be
granted by the local public
administrative authorities in
accordance with the law.
The incentives granted to the
titleholders are maintained
throughout the concession
period.
Oil and gas incentives
Petroleum Law 134/1995
regulates operations involving
oil and gas reserves within
Romania. Oil and gas operations
are carried out through
exploitation concessions or
exploration permits. Foreign
operators should create a
Romanian branch or company
within 90 days of obtaining the oil
and gas concession, which will be
maintained throughout the entire
period. Titleholders of an oil and
gas concession are liable to pay
a petroleum royalty to the State
Budget.
Titleholders of an oil and gas
concession benet from the
following tax incentives provided
by the law:
: exemption from payment
of duties on imports made
by the titleholders or their
subcontractors, relating to
assets required for the conduct
of petroleum operations;
: exemption from payment of
duties for imported household
and personal goods acquired
by the expatriate personnel
of the titleholder, its affiliated
companies and foreign
subcontractors; the goods so
exempt must be designated in
the annexes to the agreement.
In addition, foreign titleholders
benet from the following
incentives:
: to receive proceeds derived
from the export of their share
of petroleum in hard currency,
and retain such hard currency
abroad after payment of
liabilities to the Romanian
state; and
: in the event the sale of
petroleum to which the
titleholder is entitled takes
place in Romania, the
titleholder has the right to
convert the ROL amounts
obtained into foreign currency,
and dispose freely of such
hard currency amounts which
can be remitted abroad after
payment of obligations towards
the Romanian State.
BUSI NESS OVERVI EW
The incentives granted to
the titleholders of petroleum
agreements under this law
must be determined for
each agreement and remain
unchanged for the entire duration
of the agreement.
22
Currency
Romanias monetary unit is the
Romanian LEU (ROL). The
foreign exchange policy of the
National Bank of Romania
(NBR) had been partially
controlled, resulting in an almost
continuous over-valuation of the
domestic currency until 1997.
Subsequently, the currency has
been managed under a oat
system, whereby the NBR sets
targets for the exchange rate
and its devaluation. At times, the
NBR intervenes in the market
whenever these targets are
threatened or whenever there is
increased volatility.
The NBR has stated that it
may move from exchange rate
targeting to a policy of explicit
ination targeting during 2004, if
conditions are appropriate
(i.e. an ination rate below 10%
and stronger wage discipline in
state-owned enterprises).
The currency regime in Romania
is not governed by a currency
law, but rather by a Currency
Regulation issued by the National
Bank (Regulation 1/2004).
Foreign exchange control
In Romania, transactions
between resident companies
or between resident companies
and resident individuals must
be made in ROL, with certain
exceptions. Transactions between
Foreign exchange regulations
residents and non-residents must
be made in foreign currency,
with certain exceptions relating
to payment of Romanian taxes,
payments made by individual
non-residents during their stay
in Romania and payments
made by Romanian residents to
non-residents in form of prots,
dividends, interest or other
income, as explicitly provided by
the regulations. In the free trade
zones, most transactions must be
made in foreign currency.
Certain transactions that are
deemed by law to be capital
transfers require the prior
approval of the National Bank of
Romania (NBR). Such approval
will no longer be required
for certain capital transfers
(i.e. operations with securities
and other instruments usually
transacted in the monetary
market) by the time of Romanias
accession to the European Union.
Residents and non-residents may
open foreign-currency accounts
in Romanian banks or foreign
banks authorised to operate in
Romania. Residents may open
accounts in banks located abroad
only if they obtain the prior NBRs
approval, with certain exceptions.
The currency market is a free
market, but the reasons for
purchases of foreign currencies
must be disclosed. Under
Emergency Ordinance 92/1997,
foreign investors may transfer the
following items to their countries,
provided applicable taxes
are paid: benets, dividends,
proceeds from sales of shares,
proceeds from liquidations of
companies, and certain other
items relating to Romanian
investments.
Romanian banking, insurance,
securities and investment fund
activities are subject to special
laws, which regulate the terms
of conducting their business
operations, authorising the
operators on the market and
establishing the capital limits
for carrying out these types of
activities.
Since 1990, the Romanian
banking system has undergone a
major restructuring process. The
key elements of this restructuring
process have been the following:
: transformation of the National
Bank of Romania into what
is now effectively the nations
Central Bank;
: opening up of the banking
system to private and foreign
banks; and
: privatisation of state-owned
banks.
More than 60% of the banks
currently operating in Romania
are privately owned. In these
private banks, over 50% of the
ownership belongs to foreign
shareholders.
Banking
Central bank
The National Bank of Romania,
the countrys central bank, is the
sole issuer of notes and coins to
be used as legal tender on the
territory of Romania.
Financial services industry
The main objective of the NBR
is to ensure stability of the
domestic currency with a view to
maintaining price stability. To this
end, the NBR implements and
is responsible for the monetary,
foreign exchange, lending and
payment policies, as well as for
bank licensing and prudential
supervision within the general
policy of the Government of
Romania. The NBR co-operates
with the public authorities as
well as with foreign nancial
and banking institutions in its
capacity as a member of these
bodies. The NBR designs
and implements the foreign
exchange and monetary policies
by using specic procedures
and instruments; it discounts,
pledges, acquires or sells
claims and securities, it grants
loans and it opens deposit
accounts for keeping the banks
minimum reserves. The NBR
draws up and implements the
regulations governing currency
operations, and supervises the
implementation of the foreign
exchange regime in Romania.
Pursuant to the law, the NBR
may grant loans to banks, with
no longer than a 90-day maturity,
against collateral under certain
terms and conditions. Moreover, it
sets the modalities for performing
operations with banks, such
as opening accounts, payment
systems, clearing, depository and
payment services, and mitigating
and hedging risk. Operations with
the General Account of Treasury
(including government securities
operations) are jointly agreed
upon between the NBR and the
Ministry of Finance.
The NBR establishes and keeps
the ofcial reserves, and is
authorised to carry out operations
in gold and foreign assets.
The Board of Directors consisting
of 9 members, out of which 4
are executives, the governor, the
rst vice-governor, and two vice-
governors, heads the NBR. The
Parliament of Romania appoints
the members of the Board for a
six-year term. The statutory audit
committees are charged with
checking the observance of the
legal norms during the NBR asset
valuation and the drawing up of
the balance sheet and the prot-
and-loss account, as well as the
revenue and expenditure budget
execution.
Banking regulators
Law 58/1998, as amended,
regulates the Banking system.
This law establishes the
general rules and conditions of
conducting banking activities.
Under this law the NBR
establishes certain regulations
with regard to bank licensing
and operational requirements
in respect to the application of
the monetary, foreign exchange,
credit, payments and banking
prudential supervision policies.
BUSI NESS OVERVI EW
24
It also refers to fund transfers,
conditions under which the NBR
may revoke the licence granted
to banks, bank mergers and
divestments. The application
of the current law is supported
by specic norms issued by the
NBR in respect to conditions
existing in the economy and the
general economic policy of the
government.
The privatisation process of the
banking industry is regulated
by Government Decision 458/
1997, as amended, which
makes reference, inter alia, to
the privatisation procedures and
the beneciaries of the amounts
resulting from sell-offs.
Insurance
The insurance industry is
regulated mainly by Law
136/1995 regarding insurance
and reinsurance, and by
Law 32/2000 regarding insurance
companies and supervision of
insurance. The implementation
and supervision of the law
as well as the control of the
observance of its dispositions are
incumbent upon the Insurance
Supervisory Commission, aiming
at safeguarding the rights of the
insured persons and promoting
the stability of the insurance
activity in Romania.
The law permits the
establishment of insurance
companies in one of the following
legal forms:
: joint-stock companies;
: mutual funds (companies);
: subsidiaries of foreign
insurance companies set up
as Romanian legal entities
authorised by the Insurance
Supervisory Commission; and
: branches of foreign insurance
companies authorised by
the Insurance Supervisory
Commission.
The paid up share capital (or, as
the case may be, the freely paid
up reserve fund) cannot be lower
than:
a) ROL 15 billion for the activity of
general insurance, excluding
compulsory insurance;
b) ROL 30 billion for the activity of
general insurance;
c) ROL 21 billion for the activity of
life insurance; and
d) the sum of values provided at
letter a) and c) or b) and c), as
the case may be, depending
on the insurance activities
performed.
The Romanian insurance market
is evolving as regards both the
number, as well as quality of
operators and from a regulatory
perspective. Currently, there are
around 50 registered insurance
companies in Romania, which
are authorised by the industrys
regulatory body, the Insurance
Supervisory Commission.
Stock exchange and
regulating authority
The Romanian securities
markets are functioning
according to the Romanian
Securities and Exchanges
Ordinance (Emergency Law
28/2002 approved and amended
by Law 525/2002), the Law
on commodities, services
and derivatives markets
(Ordinance 69/1997 approved
and amended by Law 129/2000)
as well as Emergency Ordinance
26/2002 regarding the collective
investment bodies. The main
regulations are applied in practice
according to the instructions and
norms issued by the National
Securities Commission (CNVM)
that is empowered to act as the
markets main rule maker and
watchdog.
The main securities markets in
Romania are the Bucharest Stock
Exchange (BSE) and the over-
the-counter RASDAQ market.
Additionally, the Monetary,
Financial and Commodities
Exchange in Sibiu (BMFMS)
should be mentioned as
Romanias rst nancial futures
and options exchange.
The BSE was established in 1995
with Canadian assistance and
uses an entirely computerised
trading system integrating the
brokers (connected to the Stock
Exchange by remote terminals)
the shareholder registry and the
Capital markets
clearing and settlement system.
The trading system is an order-
driven system that automatically
matches the orders. In its rst
trading session (in November
1995) shares of six listed
companies were traded. As of
November 2003, 62 companies
organised on two tiers were
listed on the BSE that had a total
market capitalisation of close to
USD 3,471 million. The BSE has
two ofcial indexes which are the
BET, based on the basket of the
ten most liquid stocks listed on
the rst tier, and an overall index
the BET Composite.
The RASDAQ has been
operational since 1996, using an
electronic quote-driven trading
system (Portal) developed by the
NASDAQ Stock Market of the
United States with the initial aim
of providing a trading ground for
the shares of companies which
were privatised under the Mass
Privatisation programme. As of
October 2003, 4,489 companies
were listed on the RASDAQ and
the market capitalisation was
around USD 2,210 million.
Established in 1994, BMFMS
currently provides the possibility
to trade futures and options
contracts in the most important
currencies (ROL/USD, ROL/EUR,
EUR/USD, etc.) and on BSEs
index BET.
BUSI NESS OVERVI EW
26
The employment relationship
between employers and
employees is governed by the
Labour Code (Law 53/2003),
which entered into force on
1 March 2003.
Applicability
The Labour Code covers
Romanian employees with
employment contracts who
perform services in Romania or
abroad for a Romanian employer,
as well as foreign individuals
with employment contracts who
perform services to a Romanian
employer in Romania.
Working relationship
Types of employment contracts
The law regulates individual
employment contracts with an
indenite duration as being the
general form of employment
relationships. In addition,
other forms of employment are
stipulated, such as:
: individual employment contract
with a definite duration,
: temporary employment,
: part-time employment,
: flexible working arrangements
(home-based work).
Under the Labour Code, service
agreements (Romanian:
conventii civile de prestari
servicii) are not considered as
employment.
Labour force and employment regulations
Special clauses in the
individual employment
contract
Before or upon conclusion of
a new or amendment of an
existing employment contract
the employer has the obligation
to inform the employee about
the general terms regulating the
employment relationship (term
of the agreement, leave periods,
allowances, etc.). Along with
the general terms an individual
employment contract may also
include special clauses, such as:
: non-competition clauses
by which the employee
undertakes the obligation
to refrain from competitive
activities against the employer.
For the application of this
clause the law also provides
for a negotiable consideration,
which is payable to the
employee and which equals at
least 25% of the salary.
: mobility clause by which
the employee accepts to
perform his duties under the
employment agreement in
different locations. In case
of existence of such clause
the employee is entitled
to additional out of base
allowances, which can be in
cash or in kind.
: confidentiality clause a
clause by which the employee
undertakes the obligation
not to disclose confidential
information obtained in the
BUSI NESS OVERVI EW
course of the employment.
Usually, the term of such
obligation goes beyond the
duration of the employment.
Furthermore, an individual may
only be employed if he/she
provides a medical certicate.
Failure to provide such a
certicate renders the contract
void.
General register of employees
Employers are obliged to keep
a general register of employees,
which must be registered with
the relevant public authority
within 10 working days from
the date of commencement of
the employment. The general
register of employees contains
all information regarding the
employees data and employment
records.
The registers are intended to
replace the current employees
workbooks. However, until
31 December 2006, employers
will be required to keep the
former workbooks with the
general register of employees, as
a proof of work seniority.
Working hours and paid
holidays
Normal working days have an
8-hour duration in regards to
full time employment. Maximum
working hours per week cannot
exceed 48 hours, including
overtime. According to the law,
overtime is to be settled with paid
leave or a minimum 75% bonus
calculated on the base salary.
The standard working week is
Monday to Friday, followed by
two resting days, Saturday and
Sunday.
In addition to the statutory
holidays, employees are entitled
to a minimum of 20 weekdays
annual paid vacation.
Work security and healthcare
The employer is liable to take
necessary measures ensuring
the security and health of its
employees. The employer is
obliged to ensure the access of
employees to health check-ups.
Moreover, the employer is
responsible to insure all its
employees against work
accidents and work-related
diseases in accordance with the
specic regulations.
Professional training
The employer needs to ensure
that adequate professional
training is being offered to the
employees on a continuous
basis. In this respect, the
employer must set up an annual
training schedule which should
be attached in the form of an
addendum to the individual
employment contract.
Moreover, employers are
responsible to grant employees
paid or unpaid leave for
professional training purposes.
Criminal sanctions
The Labour Code stipulates
that employers assume civil and
criminal liability for damages or
omissions. Specically, failure of
the employer to wire to the state
budget the amounts withheld
from employees as social security
contributions, within 15 days, may
lead to imprisonment between 3
to 6 months.
28
Romanian visa regime
In case of expatriates, the
Romanian legislation provides
for two main categories of visas,
i.e. short-term and long-term visa.
Both the short-term and the long-
term visa can be either single
or multiple-entry visas allowing
foreigners stay in Romania for
a period not exceeding 90 days
during any 6 months. While
the short-term visa cannot be
extended, the long-term visa can
be extended by the Romanian
authorities upon request by the
foreigner. Holders of long-term
visas may further apply for a
residence permit.
Romanian visas must be
obtained by foreigners from the
Romanian diplomatic missions or
consulates prior to their arrival in
Romania.
The following conditions must
be fullled in order to obtain
the long-term Romanian visa
by expatriates seconded to
Romania:
: to present a medical insurance
for the visa period;
: to secure accommodation in
Romania;
: to provide a crimine-free record
from their home country.
Work regulations for foreigners
Also, in order to obtain the
extension of the long-term
visa, the expatriate seconded
to Romania should prove self-
support, which is a minimum cash
equivalent of EUR 500/month.
EU citizens are not obliged
to comply with the conditions
imposed for visa issuance and
extension. EU citizens have two
alternatives to enter Romania:
: based on the ordinary multiple
entry short-term visa for
tourism purposes; this visa is
valid for an period of 3 months
and it can be extended for
consecutive periods: the first
extension is granted for up
to 2 years and the second
extension for a maximum
period of 5 years.
: based on their valid ID
cards issued by the relevant
authorities from their countries
of origin.
Apart from the EU citizens,
citizens from countries of the
European Economic Area (i.e.
Norway, Liechtenstein, Iceland)
and Switzerland may also enter
Romania based on their valid ID
cards.
Special conditions are stipulated
by the current legislation with
regard to foreigners who intend to
set up companies in Romania.
Work permits
All foreign citizens wishing
to work under Romanian
employment contracts must
obtain work permits issued by the
Ofce for Migration of the Labour
Force. However, work permits
are not compulsory for foreign
individuals meeting certain legal
requirements. Work permits are
issued for a limited period of 6
months and therefore need to be
extended regularly.
Residence permits
According to current Romanian
law, foreign individuals holding
long-term visas can apply for
extensions of such visas and for
the acquisition of a Romanian
Residence Permit that is valid
up to expiration of the visa
term. A similar residence permit
will be issued, at request,
for all members of the family
accompanying the individual
during the Romanian assignment.
An exception from this rule is
provided for citizens of USA,
Canada, Japan, Iceland, Norway
and Switzerland who are not
required to obtain a long stay visa
prior to their arrival in Romania.
As a result of political and
economic pressure on Romania
by the western countries,
intellectual and industrial property
has become a major concern
of the Romanian authorities
since 1990. As part of the major
international conventions and
treaties regarding the protection
of intellectual property rights that
have been ratied by Romania,
the internal legislation has been
subject to important changes.
Thus, major laws have been
enacted in elds such as Patent
Law (Law 64/1991 as amended
and republished in October
2002), Integrated Circuits Law
(Law 16/1995), Copyright Law
(Law 8/1996) and Trademark and
Geographical Indications Law
(Law 84/1998).
The relevant body in the eld
of registration and protection of
patents and trademarks is the
Intellectual property
State Ofce for Patents and
Trademarks (OSIM) in the sense
that, generally, patents and
trademarks are protected only
based on a certicate issued by
OSIM. For household brands
and trademarks protection may
be available also without such
certication.
There is also a regulatory body
in the eld of copyright the
Romanian Ofce for Copyright
(ORDA), whose director is
appointed by the Romanian
Government. There are also
private entities acting in this
eld under the form of non-
governmental organisations
established with the purpose to
ensure the collective protection
and the administration of
copyright, their establishment
being subject to prior approval by
ORDA.
Expatriates fiscal
registration
Foreign and Romanian
individuals without a domicile
in Romania earning income
from activities carried on in
Romania, are required to ll in
and submit scal registration
declarations within 30 days from
obtaining their rst Romanian-
sourced income. They will be
provided with a scal registration
certicate that includes their scal
identication number.
Non-compliance with this
deadline may trigger a ne
ranging between ROL 500,000 to
ROL 15,000,000.
BUSI NESS OVERVI EW
30
The Romanian legislation
specically regulates licensing
agreements and assignment
agreements (with regard
to patents, trademarks and
copyright). Such agreements
should observe the legal
framework established by each
applicable law.
Industrial property
Ownership rights on trademarks
and patents, as well as copyrights
can be contributed to the share
capital of Romanian companies
as contribution in kind, subject to
an independent valuation.
Since 2000, special attention has
been paid to e-business. Thus,
the Electronic Signature Law has
been enacted in 2001
(Law 455/2001), while in 2002 the
Romanian Parliament approved
Law 365/2002 on electronic
commerce.
Romanian competition
regulations (Law 21/1996
and subsequent application
methodologies) are well
harmonised with similar
European Union rules.
Competition legislation
In Romania, the Competition
Council is the authority
responsible for monitoring market
collusion (forbidden agreements)
between competitors on the
Romanian market and the
evolution of market structures
(mergers and acquisitions).
Collusive behaviour or anti-
competitive agreements between
competitors are strictly forbidden
but mergers and acquisitions are
authorised, provided that free
competition is not hindered in the
Romanian market.
In the context of the negotiations
for Romania joining the European
Union, environmental protection
represents one of the most
sensitive issues. From this
point of view, an environmental
strategy has been elaborated
in Romania, which stipulates
the priorities and institutional
responsibilities as well as
the structures involved in
environmental protection.
Environmental legislation
The main institutions responsible
for environmental protection are:
: the central environmental
authority is the Ministry of
Waters and Environmental
Protection;
: the local environmental
protection authority is the
Environmental Protection
Agency (LEPA) and the
Administration of the Danube
Delta Biosphere Reservation
(ARBDD).
Taxation in Romania
31
32
Corporate taxes at a glance
(a) See section related to profits tax.
(b) The withholding taxes referred
to below are levied on income
earned in Romania by Romanian
legal entities (referred to below
as residents) and non-resident
legal entities (referred to below
as non-residents), income which
is not attributable to a permanent
establishment of the non-resident
recipient in Romania. This section
does not cover withholding taxes
applied on income earned by
individuals.
(c) The 10% rate applies to residents
and the 15% applies to non-
residents.
(d) The 5% rate applies to non-
residents for interest income
related to term deposits, deposit
certificates and other saving
instruments provided by banks and
other authorised credit institutions
in Romania. The 15% rate applies
to non-residents for any other
interest income except the following:
interest income related to non-term
deposits in current accounts opened
with credit institutions in Romania;
interest related to debt instruments
issued and/or guaranteed by the
Romanian government, local
councils, the National Bank of
Romania, or by financial institutions
Particulars Rates Notes
Corporate Income Tax Rate (%) 25 (a)
Capital Gains Tax Rate (%) 25/10 (a)
Branch Tax Rate (%) 25 (a)
Withholding Tax (%) (b)
Dividends 10/15 (c)
Interest 5/15 (d)
Royalties 15
Trade commissions 15
Services 15 (e)
Commissions 15
Entertainment and sport activities 15
International air, water, railway, road transport 15
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward 5 (f)
acting as agent for the Romanian
government; and interest related
to debt instruments issued by a
Romanian legal entity which is not
affiliated to the interest recipient.
(e) Withholding tax generally
applies to services rendered in
Romania. However, income from
management, intermediation and
consultancy services is taxable
regardless whether the services
are rendered in Romania or
abroad, if such income is obtained
from a resident or if it is a cost
of a permanent establishment in
Romania.
(f) See section related to determination
of taxable income.
The Fiscal Code entered into
force on 1 January 2004. The
Fiscal Code for the rst time
unies key tax legislation and
provides a basis for stable
framework of tax legislation,
by requiring amendments to
necessarily follow the juridical
route.
Fiscal year
In Romania the scal year is the
calendar year.
Corporate income tax
Resident entities are subject to
tax on worldwide income. An
entity is resident in Romania if
incorporated in Romania or if
its effective management and
control are in Romania.
Associations or consortia
between Romanian legal entities,
which do not give rise to a legal
person, are taxable in Romania
separately at the level of each
partner. For such associations
between a Romanian legal entity
and individuals or foreign entities,
the tax must be computed and
paid by the Romanian legal entity
on behalf of the individuals or its
foreign partners.
Non-resident companies are
subject to tax on their Romanian-
sourced income only. Sale
of shares held in Romanian
companies by non-resident
companies and sale of real estate
Taxes on corporate income and gains
are also subject to prots tax in
Romania (see section related to
capital gains tax).
Non-resident companies are
taxed in Romania at the standard
rate of 25% on earnings derived
exclusively from their Romanian
operations (through branches,
other permanent establishment or
consortia). A foreign company is
considered to have a permanent
establishment in Romania,
without a legal presence here, if it
has any of the following types of
presence in Romania: an ofce;
a branch; an agency; a factory; a
mine; a place of extraction for gas
or oil; a building site that exists for
a period exceeding 6 months.
Rates of corporate income
tax
The standard rate of income tax
for Romanian companies is 25%.
Prots tax payable by companies
earning their revenues from night
bars, nightclubs, discos, casinos
and sports betting is computed at
the standard 25% rate, so long
as the tax amount is not less than
5% of the total realised revenues.
In case the prots tax payable
is below the threshold, the
taxpayer is liable to pay corporate
income tax computed as 5% of
the revenues realised from such
activities.
Exports are no longer taxed
at a reduced rate. Activities
performed within free trade zones
TAXATI ON I N ROMANI A
continue to be taxed at a reduced
tax rate of 5%, applicable until
31 December 2004.
Representative ofces are taxed
on a yearly basis, at a lump sum
of ROL equivalent of EUR 4,000,
payable in two equal instalments.
Capital gains tax
No separate capital gains tax
is payable by resident entities.
Capital gains related to income
from immovable property located
in Romania or from sale/transfer
of shares held in a Romanian
legal entity are currently taxed at
the standard corporate tax rate
of 25%. However, starting 2006,
such capital gains will be taxed at
a reduced rate of 10%,
if the following conditions are met
cumulatively:
: the taxpayer has owned the
immovable property or the
shares for a period of more
than 2 years;
: the acquirer of the immovable
property or shares is not a
related party;
: the taxpayer acquired
the immovable property
or the shares after
31 December 2003.
Income from immovable property
located in Romania includes the
following:
: income from rental of
immovable property located in
Romania;
34
: gain from the sale/transfer of
rights of ownership or other
rights related to immovable
property located in Romania;
: gain from the sale/assignment
of shares in a legal entity, if a
minimum of 50% of the value
of the fixed assets of that
legal entity comprise, either
directly or through one or more
persons, immovable property
located in Romania;
: income obtained as a result
of exploiting natural resources
located in Romania, including
gains from the sale/assignment
of any right related to such
natural resources.
Separately, any scal loss
resulting from the sale/
assignment of immovable
property located in Romania or
shares held in a Romanian legal
entity can be carried forward and
recovered from taxable prots
resulting from operations of the
same nature for 5 subsequent
years.
Dividends
Dividends paid out by a
Romanian legal entity to another
domestic entity are subject to
a 10% withholding tax, while
dividends paid out by a Romanian
company to a non-resident are
subject to a 15% withholding tax,
unless otherwise provided by
a treaty. Dividends paid out by
a Romanian entity to individual
resident shareholders are subject
to a 5% withholding tax.
Payments made by a Romanian
legal entity to any of its
shareholders, for goods or
services provided by the latter,
in excess of the market value of
the transaction, are assimilated to
dividends from a tax point of view.
The dividend tax must be
withheld and paid to the state
budget until the 20
th
of the month
that follows the one in which the
dividend was paid, in the event
recipients are resident entities
and by the 25
th
of the following
month in case the recipients
are individuals or non-resident
entities.
A participation exemption is
granted to the recipient of
dividends, Romanian legal
entity, provided a participation
of at least 25% in the share
capital of the paying Romanian
entity existed for a time period
exceeding two years. However,
such an exemption would only
be available after Romanias
accession to the European Union.
Equally, after Romanias
accession, dividends received
from EU resident entities would
constitute non-taxable income
at the level of the Romanian
recipient, if such Romanian
beneciary of dividends
participated in the share capital of
the EU entity with at least 25% for
a period of at least 2 years.
Foreign tax relief
Foreign income of Romanian
entities is included in the taxable
income. This includes passive
income as well as capital gains.
However, a credit is allowed with
respect to foreign taxes paid, up
to the level of the Romanian tax
on that income.
Determination of taxable
income
Starting point for determining
taxable income
Taxable income equals revenues
from all sources, including the
delivery of goods and the supply
of services, less expenses, less
non-taxable revenues, less other
deductible elements plus non-
deductible expenses.
The following items are
expressly considered as non-
taxable:
: dividends paid out by a
Romanian entity to another
Romanian entity. Dividends
received from a non-resident
are taxable (see also Foreign
tax relief and Dividends
sections);
: gains in the value of shares
held in other entities, caused
by increase of capital in those
entities through incorporation
of reserves, premiums, profits,
etc.;
: income related to debt
cancellation if a debt-equity
swap is performed;
: revenues from the reversal
of expenses and provisions
previously considered as non-
deductible;
: non-taxable income, expressly
provided as such by legal
norms.
Deductions
As a general rule, expenses
related to earning taxable
revenues, including those
regulated by legal norms in force,
are considered deductible.
The Fiscal Code also provides for
certain types of expenses which are
specically deductible, such as:
: expenses incurred for labour
protection, prevention of labour
accidents and professional
diseases;
: insurance premiums paid in
relation to the above;
: advertising and publicity
expenses incurred for the
promotion of the business,
products and/or services, if
properly documented, as well
as expenses for other goods
and services incurred with a
view to stimulate sales;
: transport and accommodation
expenses of management as
well as of other authorised
persons, based on contractual
clauses, provided that the
taxpayer realises profit in the
current and/or in the previous
years;
: subscription fees, dues and
other mandatory contributions,
as provided by legal norms in
force;
: contributions to the fund for
the negotiation of the collective
labour contract;
: expenses associated with
the professional training of
employees;
: marketing expenses, market
research and promotion
expenses in existing or new
markets, participations in fairs
and exhibitions, business
missions, publication expenses
for materials, if the taxpayer
realises profit in the current
and/or in the previous years or
is in a tax loss recovery period;
: research and development
expenses;
: expenses incurred for the
improvement of management,
of information systems, for the
implementation, maintenance
and improvement of quality
management systems, for
the acquisition of certificates
attesting the quality standards;
: expenses incurred for the
protection of the environment
and the preservation of
resources;
: losses incurred after
1 January 2007 in relation to
the write-off of bad debts as
a result of termination of the
bankruptcy procedures against
debtors, as attested by a court
decision;
: registration fees, dues
and contributions owed to
commercial chambers, unions
and owners associations.
Key items which are partially
deductibile, include, inter alia:
: provision expenses and
contribution to the reserve
funds exceeding the limits
described in the Provisions and
Reserves section below;
: protocol and entertainment
expenses (i.e. gifts to clients,
business lunches) up to 2% of
the adjusted accounting profit
before tax;
: employee-related expenses
(i.e. birth, death, incurable
disease support, expenses
aimed at the proper functioning
36
of certain units/activities of
taxpayers, e.g. kindergartens,
health units, canteens, sports
clubs, sponsorship for schools,
as well as Christmas gifts for
employees children, part of
employees transport costs,
treatment in health resorts)
currently up to 2% of the total
salary cost;
: meal voucher expenses within
the limits set by the relevant
legislation;
: perishable goods within the
limits provided by norms
approved by the government;
: fees paid to non-governmental
institutions or professional
associations within an annual
limit of the ROL equivalent of
EUR 2,000;
: interest expenses and foreign
exchange differences within
the limits described in the Thin
capitalisation rules section;
: expenses incurred on
behalf of employees, which
are in relation to optional
occupational pension schemes,
within the limits set in the law;
: health insurance premiums
within the limits set in the law;
: expenses for the maintenance
or repair of cars used by
the management and
administrative personnel,
limited to one car per person.
Key expenses, which are
expressly non-deductible,
include, inter alia:
: Romanian and foreign profits
tax (however, a tax credit is
allowed for taxes paid in other
countries please refer to the
Foreign tax relief section);
: sponsorship expenses
(however, a tax credit is
allowed for sponsorship
expenses, if certain conditions
are met please refer to
Sponsorship section);
: late payment interest, penalties
and fines paid to Romanian or
foreign authorities;
: losses from reduction in the
value of inventory and assets
which have not been insured,
including the corresponding
VAT;
: VAT related to goods granted
to employees as benefits in
kind, if they were not taxed at
employees level;
: any expenses performed in
favour of shareholders or
associates other than those
generated by payments for
goods and services at the
market value;
: insurance premiums that are
not related to the taxpayers
assets or its business scope,
except for rented and leased
assets or assets used as a
collateral for a business-related
loan;
: insurance premiums and other
employment-related expenses
which are not taxable at the
level of the employee;
: expenses related to non-
taxable income;
: service expenses, including
management and consultancy
expenses, which cannot
be substantiated by written
contracts and documents
proving the rendering of the
services;
: losses in the value of shares
held in other entities, except for
losses determined by selling
such shares;
: contributions paid in excess of
the legal limits or which are not
regulated by legal norms.
In respect of a permanent
establishments management
and administration expenses, the
deductibility is limited to 10% of
the taxable salaries relating to
such permanent establishment.
Sponsorship
Taxpayers incurring sponsorship
expenses performed in
accordance with the relevant
legislation, are entitled to a
tax credit (i.e. deduction from
the prots tax payable of an
amount equal to the sponsorship
expense incurred) if the following
conditions are cumulatively
fullled:
: the sponsorship expenses
do not exceed 0.3% of the
turnover; and
: the sponsorship expenses do
not exceed 20% of the profits
tax liability.
Provisions and reserves
Under Romanian regulations, the
following provisions and reserves
are deductible for prots tax
purposes:
: bad debt provisions within the
limit of 20% of the outstanding
value of receivables under
certain conditions. This limit
will be increased to 25%
Asset Years
Building and constructions (e.g., roads and fences) 10 to 50
Machinery and equipment 4 to 10
Furniture and ttings 5 to 10
Motor vehicles 5 to 9
starting 1 January 2005 and
30% from 1 January 2006.
Starting 1 January 2007 the
bad debt provision is entirely
deductible if certain conditions
are met;
: provisions for quality
performance guarantees
granted to clients;
: specific provisions and
reserves created by banks
and other credit institutions,
mortgage credit companies and
finance service companies, as
provided by the governing laws
of those entities;
: provisions set by guarantee
funds as provided by the
norms of the National Bank of
Romania;
: legal reserves and provisions
set by the National Bank of
Romania in accordance with
relevant legislation in force;
: technical reserves set by
insurance and re-insurance
companies, as provided by the
relevant regulatory laws;
: risk provisions for financial
market operations, as
provided by the regulations
of the National Securities
Commission.
Thin capitalisation rules
Generally, interest expenses
incurred by companies
(other than credit institutions)
are subject to the following
limitations:
: debt-equity ratio: interest
expenses are fully deductible
if the debt-equity ratio is lower
than 1. In case such ratio is
higher than the aforementioned
limits, interest expenses are
deductible up to the amount
of interest revenues plus
10% from the other revenues
of the taxpayer (excess
portion is carried forward for
future deduction). Starting
1 January 2006, interest
expenses would be fully
deductible in case the debt-
equity ratio is lower than 3.
: interest rate (for loans granted
by companies other than credit
institutions): interest rate
is deductible based on the
following limits:
the reference interest rate
of the National Bank of
Romania relating to the last
month of the quarter, for
loans denominated in ROL;
the annual interest rate of
9%, respectively 2.25% per
quarter for loans in foreign
currencies.
Deductibility of interest expenses
incurred by credit institutions is
not limited based on the above-
mentioned rules.
Separately, the positive difference
between foreign exchange
losses and foreign exchange
gains related to loans, if any, is
regarded as an interest expense
and is subject to the debt-equity
ratio limitation.
Tax depreciation
Three alternative methods may
be available for the computation
of tax depreciation, namely:
: the straight-line depreciation;
: the reducing balance
depreciation; and
: the accelerated depreciation.
These methods must be followed
consistently.
Buildings can be depreciated
only based on the straight-
line method. Land is not a
depreciable asset.
From a tax perspective, the
law prescribes the concept of
useful lives. In the chart below
the useful lives pertaining
to major categories of assets
are presented. Increases or
decreases in the useful lives of
assets by up to 20% are allowed,
if substantial justication is
provided.
Patents, licences, know-
how, manufacturers brands,
trademarks and service marks,
as well as other similar industrial
and commercial property rights,
are depreciated over the period
provided for their utilisation.
Goodwill is not considered as
a depreciable asset for tax
purposes.
38
The revaluation of xed assets
after 1 January 2004 will not
be taken into account for scal
purposes.
Special depreciation allowance
Taxpayers investing in
depreciable xed assets and/or
patents, meant for activities
they are authorised for and who
did not choose the accelerated
depreciation regime, may deduct
initial depreciation expenses
representing 20% of the assets
entry value. The remaining
depreciation would be allocated
for tax purposes to the years of
useful life of the asset, based
on the straight-line method.
Such tax allowance is also
applicable to xed assets subject
to a nancial lease, only if the
contract provides for a transfer of
ownership at the end of the lease.
The beneciary of the allowance
shall maintain the assets in its
balance sheet for a period of at
least half of the useful life of the
asset.
Reorganisation, liquidation,
other transfers
Capital contributions in exchange
of shares are not considered
as taxable transfers. The tax
value of the assets received as
contribution is equal to the tax
value of these assets when held
by the contributor. At the same
time, the tax value of shares
received by the contributor equals
the tax value of the contributed
assets.
Asset distribution to shareholders,
either as dividend or following
liquidation is taxable, except in
case of:
: merger, whereby the
shareholders of merging
entities receive shares in the
resulting entity;
: split-up, whereby shareholders
receive proportional stakes in
the resulting entities;
: acquisition of the business of
a Romanian entity by another
Romanian entity in exchange
of shares;
: acquisition by a Romanian
entity of at least 50% of shares
in another Romanian entity, in
exchange of its own shares,
and, as the case may be, for a
cash payment not exceeding
10% of the nominal value of
the newly issued shares.
In the above-mentioned cases,
the following rules apply:
: transfers of assets/liabilities
and exchange of shares held in
one Romanian entity with the
shares in another Romanian
entity are not taxable;
: in a split-up, distribution
of shares is not treated as
dividend payment;
: tax value of assets/liabilities
for the receiver equals the tax
value of the same items for the
transferor;
: fiscal depreciation for assets
continues in the same manner
as before the transfer;
: transfer of provisions/reserves
is not taxable if the receiver
takes them over and maintains
the same value as before the
transfer;
: in a share exchange (as
above), the tax value of
shares received equals
the tax value of the shares
transferred;
: in a split-up, the tax value
of shares held before the
distribution is allocated
between these shares
and distributed shares
proportionally with their
market value immediately
after the split-up.
If a Romanian entity holds
more than 25% of the shares
in another Romanian entity,
which is transferring its
assets and liabilities to the
shareholder, the cancellation
of the shares is not a taxable
transfer.
Transfer pricing
According to Romanian
legislation, transactions between
related parties must be performed
in accordance with the arms-
length principle (i.e. transactions
should be performed at the same
levels of price as if concluded
among non-related parties).
Fiscal regulations stipulate
that, in case of transactions
between related parties, the
value accepted by the scal
administration will be the market
value of the transaction. The
methods for the assessment of
market value include in particular:
The Comparable Uncontrolled
Price Method, the Cost Plus
Method, the Resale Price Method
and any other method recognised
by the transfer pricing guidelines
issued by the Organisation for
Economic Cooperation and
Development.
Relief for losses
Tax losses may be carried
forward over 5 years and are not
updated for ination purposes.
Loss carry-forward is not
available for entities that cease
to exist as a result of split-up or
merger. The carry-back of losses
is not permitted.
Fiscal consolidation
The legislation regarding
consolidation of companies is at
an early stage of development
and so far only the consolidation
for accounting purposes is
regulated. Special norms
for consolidation of nancial
statements for credit institutions
are available since 2002 for
company groups headed by a
bank and since 2003 for those
held by a credit cooperative
house.
Currently, there are no provisions
in the legislation regarding the
consolidation for tax purposes.
Tax return filings
Taxpayers are required to le a
prots tax return and pay prots
tax quarterly (except for banks
which full such obligations
monthly), by the 25
th
of the rst
month of the following quarter.
The denitive annual tax return
should be led along with the
nancial statements.
Legal entities ceasing to exist
need to le a nal tax return and
pay the prot tax within 10 days
prior to the registration of such
event with the Trade Registry.
40
Type of payment
Withholding
tax rate (%)
Royalties 15
Interest (except for current account bank depos-
its, debt instruments issued and/or guaranteed by
Romanian government, or issued by a non-related
Romanian legal party and traded on a recognised
securities market, which are deemed as exempt)
5/15
4
Commissions 15
Dividends 15
5
Various services 15
Gambling income 20
Withholding tax is applicable on
a number of payments made by
Romanian tax residents to non-
resident recipients.
Types of payments which trigger
withholding tax are presented in
the table below.
After Romania joins the
European Union, a participation
exemption will be available for
dividends paid out to companies
incorporated in the European
Community countries, provided
that the beneciary of dividends
holds a minimum participation of
25% in the Romanian company
paying the dividends, for a
continuous period of 2 years,
ending at the date of the dividend
payment.
The withholding tax must be paid
to the state budget until the 25
th

of the month following the one in
which payment was made.
Companies are liable to le an
annual return until 28
th
(29
th
)
February of the year following the
relevant tax year.
Withholding taxes
Romania has concluded about
80 treaties since the 1970s,
which may reduce the applicable
withholding rate.
In order to apply the more
benecial provisions of the
treaty, the income beneciary
has to provide a certicate of tax
residence issued by the foreign
tax authority.
4 5% rate applies to non-residents for interest income related to term deposit, deposit certificates and other saving instruments
provided by banks and other authorised credit institutions in Romania. The 15% rate applies to non-residents for any other
interest income except the following, which are specifically exempt: interest income related to non-term deposits in current
accounts opened with credit institutions in Romania; interest related to debt instruments issued and/or guaranteed by the
Romanian government, local councils, the National Bank of Romania, or by financial institutions acting as agent for the
Romanian government; and interest related to marketable debt instruments/securities issued by a Romanian legal entity which
is not affiliated to the interest recipient.
5 Also see the participation exemption to be available after Romania joins the European Union.
Historically, the interpretation of
treaty provisions by Romanian
authorities has led to withholding
tax being applied on a wide
range of services contrary to
OECD principles. In view of
this practice, a foreign service
provider may be advised to
review the home country tax
credit mechanisms to ensure
availability of credit for the taxes
withheld in Romania.
Regime
The Romanian VAT system is
modelled on the basis of the
6
th
EU Directive, although less
complex and open to alternative
interpretations.
Taxable persons

General
Any person supplying taxable
goods or services in the course
of business, on a regular basis,
is considered a taxable person.
The term business refers to all
the activities of producers, traders
and suppliers of services, which
are carried out independently.
The activities of employees are
outside of scope of VAT.
VAT representative
Foreign entrepreneurs without
an establishment in Romania,
but making taxable supplies in
Romania are required to appoint
a VAT representative, who will
be responsible for fullling the
administrative obligations and
payment of the tax due on behalf
of the foreign entrepreneur. In
case foreign suppliers fail to
comply with such obligation,
beneciaries are liable to account
for/pay the related VAT.
Value Added Tax (VAT)
Taxable operations
Transactions subject to VAT
refer to the supply of goods
in Romania and provision of
services, as well as to the
importation of goods. To be
taxable, a supply must be made
for consideration.
Supply of goods
Supply of goods refers to the
actual transfer of the ownership
of the goods from one person to
another against payment, directly
or through an intermediary.
As a general rule, supply
of goods has the place of
supply where the goods are
located at the moment when
the delivery takes place, with
certain exceptions for goods to
be transported, installed, or for
goods to be delivered on board of
ships, aircraft, trains, etc.
Supply of services
As a rule, the supply of services
is taxable in Romania if the place
of supply is deemed to be in
Romania. The general rule is that
the place of supply is considered
place where the supplier has
his place of business, his scal
establishment or his usual place
of residence. However, there
are several exceptions, similar
to those listed in the EU 6
th

Directive (e.g. services related
to immovable property place
where immovable property is
located; renting and leasing of
movable goods and intangible
services place where the
recipient of the services is
located). The term services
applies to all transactions, which
are not treated as supplies of
goods.
Importation of goods
The introduction of the goods
from abroad to the territory
of Romania is considered as
importation of goods and it is
considered within the scope of
VAT with certain exceptions (i.e.
supply of goods under customs
suspensive regime).
Reverse-charge VAT
For certain services provided
by a foreign supplier for which
place of supply is deemed to
be in Romania (e.g. leasing
and renting of tangible assets,
marketing, e-services, banking,
non-competition assurance and
other specied services), the law
imposes the application of the
so called VAT reverse-charge
mechanism by the Romanian
beneciary.
42
Under the reverse-charge
mechanism, the beneciaries
(provided they are registered
for VAT purposes) have to
simultaneously recognise the
related VAT both as input and
output VAT in the return of the
respective month, based on a
self-invoicing system.
Taxable base
VAT is assessed on the total
amount received or to be
received by the supplier, as
consideration for the supply of
goods or services, including
taxes, commissions, packaging,
transport and insurance
expenses. The discount provided
to the client is not included in the
taxable base.
Tax rates
The following rates presently
apply in Romania:
: 19% standard rate, which is
applicable to supplies of goods
and services not subject to the
reduced rate; and
: 9% reduced rate, which is
applicable to the suppliers
of certain goods/services
specifically enumerated in
the Fiscal Code, such as
sale of medicines, hotel
accommodation services,
books, tickets to museums, etc.
Exempt operations
Supplies within the scope of
VAT are classied as taxable
operations and exempt
operations.
Exempt operations are divided as
follows:
: exempt supplies with credit for
input tax (exemption for exports
and other similar supplies,
international transportation,
as well as specific exemptions
related to international traffic
of goods, certain transactions
within the free trade zones);
: exempt supplies without credit
for input tax (i.e. medical
care services, educational
services, financial and banking
services, leasing and renting
of immovable property with
certain exceptions, etc.);
: import operations exempt from
payment of VAT (exemption for
imports).
Import of goods received as
donations for humanitarian,
social, religious, cultural, artistic,
sports, scientic purposes are
VAT exempt.
Also, the Fiscal Code provides
for specic rules regarding to
goods beneting from special
customs regimes. The following
transactions are VAT exempt
with credit for input tax, provided
they do not lead to a nal use/
consumption of goods within
Romania:
: supply of goods placed under
a bonded warehouse customs
regime;
: foreign goods imported in
free trade zones for storage
purposes only;
: foreign goods introduced in
free trade zones from abroad
and sold within the free trade
zones.
Persons with an annual turnover
in excess of ROL 2 billion are
required to register for VAT
purposes. Persons not meeting
the above-mentioned turnover
criterion have an option to
register for VAT purposes.
Credit for input VAT
General rule
As a general rule, the
performance of taxable supplies
allows offsetting output VAT
against input VAT. Exempt
supplies do not allow the
recovery of input VAT, except in
the event of VAT exempt supplies
with credit, for which input VAT
can be recovered. Companies
performing a combination of
taxable and exempt supplies
generally have the right to
recover the input VAT on a pro-
rata basis. The unrecovered
input VAT would generally
represent a cost.
Refund of VAT
If the input VAT exceeds the
output VAT, the recoverable
balance VAT (dened as
negative VAT balance) can be:
: carried forward to the next
period; or
: compensated/refunded by
the tax authorities, based on
the option expressed by the
taxpayer in the VAT return;
the option can be exercised
only for negative VAT balance
exceeding ROL 50 million.
The VAT refund/compensation
request should normally be
granted within a 45-day term,
during which tax authorities are
entitled to require additional
information from the taxpayer.
Hence, the term can be extended
with the equal of the number of
days elapsed between the date of
the additional information request
and the date of the information
receipt by the tax authorities. In
case the refund/compensation
request is not solved at the
expiration of such term, the
taxpayer is entitled to receive late
payment interest from the state
budget.
Foreign trade has been
liberalised in 1990 and it
generally follows the guidelines
set by the European Union. As
a result of this liberalisation
and an on-going process of
harmonisation of the Romanian
customs rules with the EU
system, imports and exports of
commodities are not generally
subject to special authorisation
requirements. Exceptions apply
to quantity restrictions or control
Customs duty
requirements imposed through
the different agreements entered
into by Romania. Licences
are also required for barter
transactions or compensations,
as well as commercial operations
performed using clearing
accounts or governmental lines of
credit.
Radioactive and explosive
materials, chemical products,
residues, weapons, nuclear
equipment and related materials
are subject to particular
legislation requirements. Specic
laws prohibit the import of
narcotics.
Customs duties
The customs duties are
expressed as a percentage of the
cost-insurance-freight (CIF) value
of the goods. Other taxes, duties
Payment and filing
requirements
Taxpayers must le VAT returns
with the tax authorities and
pay VAT on a monthly basis,
specifying the taxable amount
and the tax due. The tax return
must be led and the respective
VAT paid by the 25
th
of the
following month. In case of
taxpayers whose annual turnover
is less than EUR 100,000 the VAT
returns must be led with the tax
authorities on a quarterly basis.
44
and levies may be required to be
paid upon importation in addition
to customs duties, such as
import VAT, excise tax, customs
commission or clearance fees.
Preferential rates apply to a wide
range of products imported in
Romania based on certain free
trade arrangements (please
see section Regional and
international trade agreements
and associations). There are
certain internationally accepted
aspects that are essential for
determining the applicable
customs duty rates, including
the corresponding international
tariff headings, value declared in
customs and the country of origin
of the goods.
Romania has adopted the
Brussels Harmonised System for
the nomenclature of goods and
follows the valuation rules of the
World Trade Organisation for the
assessment and declaration of
the value in customs.
The law provides for two
denitive procedures import
for free circulation and export.
A denitive import triggers the
payment of import duties (unless
a specic relief is available); the
export of goods is exempt from
duties.
The Romanian Customs Code
provides for several customs
suspensive regimes, which may
be granted for denite periods of
time:
: inward processing;
: outward processing;
: bonded warehouse;
: temporary admission;
: transformation under customs
control; and
: customs transit.
The suspensive regimes do
not require payment of the
customs duties, although a bank
guarantee equal to the amount of
such duties may be required.
Besides the general customs
clearance system, Romania
has adopted simplied customs
clearance procedures similar to
those applied in the EU.
Temporary duty relief
Certain customs regimes may
defer, suspend or allow for the
refund of the customs duties and
other import-related taxes, under
specic conditions stipulated
in the domestic customs
regulations. Such temporary duty
relieves may include the bonded
warehousing regime, inward
and outward processing relief or
temporary admission regimes.
Individuals customs regime
Romanian customs regulations
provide for a specic customs
duty treatment for the personal
belongings introduced by
individuals establishing domicile
or residence in Romania, goods
introduced into Romania upon
marriage, inherited goods and
household goods used for
furnishing a secondary residence
in Romania, as well as goods
shipped by individuals via parcels
and postal services.
A specic import duty exemption
applies for the goods contained in
the personal luggage of travelers,
brought into Romania without
having commercial purposes.
This duty exemption can be
granted up to a total value of
EUR 175 per traveler, for goods
other than the following, which
should not exceed:

: tobacco products: 200 cigars
or 100 cigarettes (cigars having
the maximum weight of 3
grams per piece) or 50 cigars
or 250 grams smoking tobacco
or their proportional mixture;
: alcohol and alcoholic beverages:
distilled and spirit
beverages whose alcoholic
concentration exceeds 22%
of the volume; not processed
ethylic alcohol of 80% or
more: 1 litre;
distilled and spirit beverages
and appetizers based on
wine or alcohol, sake or
similar beverages whose
alcoholic concentration
does not exceed 22%
of the volume; sparkling
wines, brandy: 2 litres or
proportional mixture of such
products;
light wines: 2 litres;
: perfumes: 50 ml and eau de
toilette: 250 ml;
: medicines: the quantity
required to meet the needs of
the travellers.
The duty exemption mentioned
above for tobacco and alcoholic
beverages does not apply for
the travelers whose age is under
18 years.
Excise duty is a consumption tax
payable on certain categories
of goods including alcoholic
beverages, gasoline, tobacco
products, cars as well as
perfumes and certain other items.
The tax (also regulated by the
Fiscal Code) is payable on import
and sales of locally produced
items in the domestic market and
is set as xed EUR amounts per
unit (specic excises) or as a
percentage of a specied taxable
base.
Currently, the excise duties in
respect of the main categories of
goods is established in EUR as
presented in the table below:
Excise duty
Taxpayers are liable to submit
monthly tax returns and pay
the excise duties by the 25
th

of the following month. In case
of imported goods, the related
excise duty (if applicable)
should be paid at the moment of
registering the import declaration
in customs.
A special supervision and control
system is provided for the
production and distribution of
alcoholic beverages and certain
mineral oils.
The fiscal warehouse
regime
The scal warehouse regime
allows the production,
transformation and/or storage of
products subject to harmonised
excise duties (i.e. beer, wines,
other fermented beverages,
intermediary products, ethylic
alcohol, tobacco products and
mineral oils) without the payment
of the related excise duties.
Generally, the scal warehouse
regime cannot be used for retail
sale of such products.
Category of products Excise duty rates
Alcoholic products Up to EUR 150 per hl
Cigarettes EUR 4.47/1,000 cigarettes + 32% of the declared maximum retail price
Coffee EUR 850 - 5,000 per ton
Car fuel EUR 221 - 404 per ton
Vehicles 0 - 27%
Fur, jewels, crystal, perfumes 5 - 50%
46
Starting 1 January 2004, local
taxes in Romania are regulated
by the Fiscal Code. Local taxes
represent a distinct category
of taxes set by the local
administration, which are payable
by both individuals as well as
entities in Romania.
The local taxes include:
Building tax
Building tax is payable by owners
of buildings located in Romania,
regardless of their residence.
The tax rate ranges between
0.1% and 0.4% for individuals
and between 0.5% and 1%
for legal entities. For buildings
acquired by legal entities prior to
1 January 1998 and not revalued
since then, the tax may vary
between 5% and 10% applied on
the book value of the building,
resulted until its rst revaluation.
The tax is applied on the value
of the building (minimum
established values are provided)
for individuals and on the book
value of the building, for legal
entities. The tax must be paid
quarterly, the latest by the 15
th
of
the last month of the quarter.
Land tax
Land tax is payable by owners
of land. Generally, the tax is
established as a xed amount per
square meter, depending on the
location of the land within certain
determined zones, towns and
Local taxes
villages and also depending on
the use of the land. The tax must
be paid quarterly, the latest by
the 15
th
of the last month of the
quarter.
Vehicle tax
Vehicle tax is payable by
owners of land/water vehicles,
which should be registered in
Romania. The tax rate depends
on the engine capacity, and it
is computed as a xed amount
per 500 cubic centimetres. The
tax must be paid quarterly, by
the 15
th
of the last month of each
quarter.
Tax for construction
authorisations
The taxes are established
depending on the construction
value, land or installations,
usually as a percentage/xed
amount on the value/area.
Publicity and advertising tax
Advertising tax is payable by
the 10
th
of each month by
the suppliers of publicity and
advertising services rendered in
Romania, except for publicity and
advertising services performed
through audio-video and printed
mass media. The tax rate is
established by local councils and
ranges between 1% and 3%.
It is applied on the value of the
publicity and advertising services.
Users of outdoor advertising
means have to pay an outdoor
media advertising tax computed
as a xed quota per square
meter, depending on the surface
used for advertising. Such tax
should be paid in four equal
instalments by 15 March,
15 June, 15 September and
15 November.
Resort tax
The tax is due by individuals over
18 years for their stay in resorts
and it is included in the hotel
tariffs. The tax rate is established
by local councils and ranges
between 0.5% and 5% of tariffs.
Show tax
Show tax is payable by
individuals and entities
performing show-biz activities
at a quota ranging between 2%
to 5% of revenues, or a xed
fee depending on the surface of
premises (from ROL 1,000/sqm/
day to ROL 2,000/sqm/day). The
show tax is payable monthly in
arrears by the 15
th
of the month
following the one in which the
show took place.
Other local taxes
The local councils may impose
a daily fee of up to ROL 100,000
for the temporary use of public
places and for admissions to
museums, memorial houses,
or historical, architectural or
archaeological monuments and
also for the ownership or use of
equipment that is held for the
purpose of obtaining income.
An annual fee of ROL 300,000
may be established by the local
councils for a number of slow-
moving vehicles, specically
provided, which are normally
used in construction activities
(e.g. bulldozers, cranes, tractors,
etc.).
Stamp duty is payable on most
judicial claims, issuance of
certicates and licences, and
documentary transactions which
require notarial registration.
Currently there are three types of
stamp duties:
: notarial stamp duty;
: judicial stamp duty; and
: extra-judicial stamp duty.
Stamp duty
Notarial stamp duty is charged for
the authentication of documents
and other services rendered
by public notaries. The duty is
applied either as a regressive
tax or as a xed percentage
tax, or even as a xed amount,
depending of the type of notarial
service rendered.
Judicial stamp duty is levied
on claims and requests led
with Courts and the Ministry
of Justice and it is established
depending on the value of the
claim. Quantiable claims are
taxed under the regressive tax
mechanism. Non-quantiable
claims are taxed at xed amount
levels.
Extra-judicial stamp duty is
charged for the issuance of
various certications such as ID
cards, car registrations, etc.
As a rule, Romanian citizens
domiciled in Romania are taxed
in Romania on their worldwide
income. Also, foreigners and
Romanian individuals without a
Individual taxation
Romanian domicile, who become
Romanian tax residents, may be
subject to taxation in Romania on
worldwide income, as detailed in
the Taxpayers section.
Residence
An individual is considered as a
Romanian tax resident if he/she
fulls at least one of the following
conditions:
48
a) the individual has the domicile
in Romania;
b) the centre of vital interests
of the individual is located in
Romania;
c) the individual is present in
Romania for a period or
periods exceeding in total
183 days during any period of
12 consecutive months ending
in the respective calendar year;
or
d) the individual is a Romanian
citizen working abroad as clerk
or employee of the Romanian
state in a foreign state.
Taxpayers
Taxpayers of individual income
tax can be:
: residents, for incomes obtained
from any source, both from
Romania and abroad; a
fiscal credit may be granted
for tax paid abroad if certain
conditions are met;
: non-residents, who either:
carry out independent
activities through a
permanent establishment in
Romania, for the net income
attributable to the permanent
establishment; or
carry out dependent
activities in Romania, for
the net income from such
dependent activities; or
earn other types of income.
If a non-Romanian domiciled
individual complies with one
of the conditions mentioned in
Residence section at points b) or
c) for a period of 3 consecutive
years, starting with the 4
th
year
he/she becomes subject to
taxation on worldwide income.
Until the end of the 3-year period,
the respective individual is
subject to Romanian income tax
only for the Romanian-sourced
income.
Individuals tax resident in
countries that have concluded
double tax treaties with Romania
may benet from tax exemption
under the terms of the respective
treaties. Individuals tax resident
in countries that have not
entered into a double tax treaty
with Romania are subject to
Romanian taxation starting with
their rst day of presence in
Romania.
Categories of income
subject to taxation
Employment income
Taxable compensation includes
salaries, income in cash or
in kind, wage premiums,
rewards, temporary disability
payments, paid holidays, ination
allowances and any other income
received by an individual based
on an employment agreement.
Taxable compensation also
includes salaries received by
daily or temporary workers,
fees and compensation paid to
directors and managers of private
companies.
Progressive tax rates are
applicable with a marginal tax
rate of 40% for monthly gross
income exceeding ROL 13 million
(approximately EUR 325).
Employment income is subject to
globalisation.
Income from independent
activities
activities includes:
: income earned from freelance
activities;
: income from intellectual
property rights;
: income from other activities.
activities (as detailed below) is
subject to globalisation.
Income earned from freelance
activities
The net taxable income is
computed as gross income less
specic deductible expenses.
The law specically provides
deductible expenses within
a certain limit. Authorised
individuals are obliged to keep
single entry books.
Alternatively, income earned by
certain categories of freelancers
is subject to income tax based on
income quota(s), which are yearly
established by the Romanian
Ministry of Finance.
Income earned from intellectual
property rights
The net income from intellectual
property rights results after
deducting from the gross income
the following:
: deductible expenses
representing 60% of gross
income;
: compulsory social security
contributions.
The payers of intellectual property
rights have the obligation to
compute, withhold and pay a
15% advance income tax, by the
25
th
of the month following the
income payment.
Income from other activities
Income from the following
sources is taxed at 10% advance
income tax:
: income from sale of goods on
consignment;
: income from agent,
commission or commercial
mandate agreements;
: income from civil conventions
concluded based on the Civil
Code;
: income from accounting,
technical, judicial and extra-
judicial expertise.
Payers of such income are liable
to compute, withhold and pay the
advance income tax by the 25
th

of the month following the income
payment.
Rental income
As a rule, gross rental income
consists of amounts in cash or
in kind stipulated in the rental
agreements and related to a
scal year (regardless of the
moment of effective cashing), as
well as certain expenses borne
by the tenant and which, based
on the law, are the landlords
liability.
Net rental income represents
gross rental income less:
income, in case of buildings;
income, in all other cases.
As an exception, taxpayers may
opt for the determination of the
net rental income based on single
entry accounting.
Rental income is subject to
globalisation.
Investment income
Investment income includes:
: dividend income;
: interest income;
: gains from the transfer of
securities;
: income from futures/forward
transactions with foreign
currencies and other similar
operations.
Dividend income
Dividends are dened as any
grant of benets in cash and/
or in kind to shareholders or
associates from the annual
prot. For taxation purposes,
amounts received from holding
participation titles in closed
investment funds are treated in
the same manner as dividends.
The tax rate applicable to
dividends distributed to resident
individuals is 5% and it is
calculated, withheld and paid
by the payer of dividends. The
tax should be paid until the
25
th
of the month following
the month when the dividends
were paid; in case of dividends
distributed but not paid until
the end of the year, the tax is
payable by 31 December of that
year. The dividend tax is nal
(i.e. the income is not subject to
globalisation in Romania). The
withholding tax for non-resident
individuals is 15% (please see
section Withholding Taxes).
Interest income
The taxable income from interest
is any income in the form of
interest other than:
: interest from current account
deposits and deposits with
mutual assistance institutions;
: interest relating to debt
instruments, as well as
municipal bonds, bonds issued
by the National Agency for
Housing, and other entities that
issue bonds with respect to the
construction of dwellings.
The tax rate applicable to interest
income is 1% and it is calculated,
withheld and paid by the payer
of interest on a monthly basis,
until 25
th
of the following month.
The interest tax represents a nal
tax. The withholding tax applied
to interest income earned by
non-resident individuals varies
between 5% and 15%, depending
on the source of interest income
(please see section Withholding
Taxes).
50
Gains from the transfer of
securities
The capital gain represents the
positive balance between sale
price and the purchase price
of different types of securities,
reduced by intermediaries
commissions, as the case may
be. In case of transfer of shares
in a limited liability company,
the capital gain represents the
balance between the sale price
and the nominal value/purchase
price of such shares. In case of
redemption of investment titles
held in open-ended investment
funds, the capital gain is the
positive difference between
the redemption price and the
purchase/subscription price.
Capital gains from sale of shares
are subject to 1% tax. The capital
gains tax is nal (i.e. it is not
subject to globalisation). Also,
income from the sale of shares
acquired based on a stock option
plan is subject to a nal tax of
1%.
Generally, intermediaries are
liable to compute, withhold and
pay the capital gains tax at the
completion of the transaction.
The payment should be made by
the 25
th
the withholding date. However,
in case of a sale of shares in
limited liability companies or
closed-end companies, the
liability to compute and withhold
the tax belongs to the acquirer of
income if the latter is a Romanian
individual domiciled in Romania.
In this case, the deadline for the
payment of the capital gains tax
is the date when the documents
are led for the registration of the
ownership right with the Trade
Registry or in the shareholders
register. The ownership
registration cannot be completed
without the proof of the capital
gains tax payment to the state
budget.
Income from futures / forward
transactions with foreign
currencies and other similar
operations
Gains from contractual sale-
purchase transactions of foreign
currencies with subsequent term
settlement, as well as from any
other similar operations, are
taxable at the rate of 1%. The tax
is computed and withheld by the
intermediary of such transaction
(e.g. a bank), upon nalisation of
the operation. Subsequently, the
tax is payable by the 25
th
of the
month following the date when
the tax was withheld. The tax is
nal (i.e. the gain is not subject to
globalisation).
Income from pensions
Taxable income from pensions
comprises any amounts received
in form of pension from funds
created from the mandatory
social contributions made to
a social insurance system.
Taxable income from pension
also includes any amount from
optional occupational pensions
schemes and those nanced by
the state budget. All other types
of pensions are deemed as non-
taxable income. The monthly
pension income up to
ROL 8,000,000 is not taxable.
The tax is to be determined
based on the monthly tax
brackets available for the
anticipated payments on the
account of the global income
tax (please refer to Employment
income section). The tax is nal.
The tax computed as such is to
be withheld on the date of actual
payment of the pension and
remitted to the state budget by
the 25
th
the month in which the pension
income is paid.
Income from agricultural
activities
Taxpayers deriving income from
agricultural activities are granted
two alternatives to determine
the net income from agricultural
activities: either based on
single entry accounting records,
or based on standard income
brackets. The net income from
agricultural activities determined
based on either of the two
above-mentioned methods is
taxed at 15%. The tax is nal.
The reporting and payment
requirements are different for
each method of determination of
the net income.
Gambling income
Income from gambling and prizes
is taxed in Romania, as follows:
: 10%, in case of prizes from a
single contest;
: 20%, in case of income from
gambling.
The tax is applied on the
balance between gross realised
income and the tax free amount
(i.e. currently, ROL 7,600,000),
the tax being nal.
The tax is payable by the 25
th

of the following month and the
liability to compute, withhold and
pay the tax rests with the payer of
the income.
Income from other sources
Income from other sources
include, inter alia:
: insurance premiums borne
by a freelancer or any other
entity on behalf of an individual
who is not an employee of the
respective freelancer / entity;
such income is taxable in the
hands of the recipient at 40%,
through withholding, the tax
being final;
: income received by pensioners
or former employees arising
out of the employment
contracts concluded with their
former employers or based on
some special laws, in the form
of price differences for certain
goods, services or other rights;
such income is taxable in the
hands of the recipient at 10%,
through withholding, and the
obligation for the calculation
and withholding rests with the
payer of such income.
Tax on income from other sources
is payable by the 25
th
of the
month following the realisation of
the income.
Deductions
Deductible expenses
In order to determine the
worldwide taxable income, a
resident taxpayer may deduct
from the annual worldwide
income the following:
: personal deductions (see
section Personal Deductions);
: deductions for renovations of
domiciles within the limit of
ROL 15,000,000 per year;
: insurance premiums for the
dwelling of domicile within the
limit of the equivalent in ROL of
EUR 200 per year;
: contributions to optional
occupational pension schemes
within the limit of the equivalent
in ROL of EUR 200 per year;
: contributions for private health
insurance within the limit of the
equivalent in ROL of EUR 200
per year;
: trade union contributions;
: carried forward tax losses.
Personal deductions
Resident taxpayers may deduct
from the annual global income a
base personal deduction at the
amount of ROL 2,000,000 per
each month of the taxable period.
Also, several supplementary
deductions can be taken into
consideration in calculating the
taxable income. All deductions
for dependents (spouse, children,
other) represent 0.5 times
the base personal deduction.
However, the total amount of
personal deductions is capped
at three times the base personal
deduction.
Deductions for employees
For income tax purposes,
employees may deduct from
their gross monthly salary
social security contributions
(see section Social Security
Contributions), contributions to
the health fund and a nominal
amount considered professional
expenses (i.e. ROL 300,000).
52
Rates
The income tax rates are
established on an annual basis,
but the tax is collected monthly
from the various sources of
income.
The Ministry of Finance adjusts
the tax brackets annually so
as to reect ination and ROL
devaluation. The annual income
tax brackets in 2004 are as
follows:
Annual taxable income Tax on lower amount Rate on excess
Exceeding
ROL
Not exceeding
ROL

ROL

%
0 28,800,000 0 18
28,800,000 69,600,000 5,184,000 23
69,600,000 111,600,000 14,568,000 28
111,600,000 156,000,000 26,328,000 34
156,000,000 41,424,000 40
Upon globalisation, such brackets
will be adjusted with the ination
index available for 2004, based
on an Order of the Minister of
Public Finance, to be published
subsequently.
Filing and payment
requirements
Taxpayers who earn income
subject to globalisation have to
le a global income tax return as
well as special declarations with
the tax authorities by 15 May
of year following the year in
which income is earned. The tax
authorities compute the global
income tax on the basis of the
information provided in the global
income tax return. The taxpayers
are subsequently informed about
the tax payable/reimbursable and
the deadline for its payment.
Taxpayers earning only salary
income throughout the entire
scal year satisfy their tax
liabilities through employer
withholdings. Employers withhold
the salary income tax on a
monthly basis.
Expatriates employed abroad but
performing an activity in Romania
should le monthly tax returns
and pay monthly tax in Romania
by the 25
th
of the following
month.
Social security
Under a Romanian employment
arrangement, both employers
and employees are required to
contribute to the social security
system.
Social security contributions at
the individual level
: Social security contribution
9.5% applied to the gross
salary, capped at the level of
five times the national average
salary (for the respective
year
6
);
: Health fund contribution
6.5% applied on the monthly
gross income subject to income
tax; and
: Unemployment fund
contribution
1% applied on monthly base
salary.
Social security contributions at
the employer level
: Social security contribution
between 22% and 32%
(depending on working
conditions) of the total salary
fund, which is capped at the
level of five times the national
average salary, multiplied
by the average number of
employees;
: Health fund
7% of total salary fund;
: Unemployment fund
3% of total salary fund;
: National insurance fund
for work accidents and
professional diseases
0.5% of the total salary fund.
Starting 1 January 2005, the
contribution will range between
0.5% and 4% of the total salary
fund, depending on the risk
category; and
: Labour Chamber commission
0.25% or 0.75% of total
salary fund, depending on
whether the company or the
Labour Chamber keeps the
workbooks.
Contribution to the health fund
by foreign individuals
According to the current
regulations regarding the health
fund, foreign individuals having
established their residence in
Romania could become liable to
contribute to the health fund an
amount of 6.5% calculated at the
level of the Romanian taxable
income.
However, foreign individuals
who are temporarily present in
Romania may opt to contribute
to the Romanian health fund
an amount equal to 13.5%
calculated on the value of two
national minimum gross salaries.
6 For the year 2004, the national average salary is of ROL 7,682,000.
Citizens of European Union
countries, as well as individuals
resident in countries which
have concluded with Romania
totalisation agreements, benet
from the coverage of medical
expenses incurred on the
Romanian territory, according to
the provisions of the respective
agreements.
54
Failure to submit tax returns, as
well as failure to pay the taxes
in due time, entails penalties as
detailed below:
Failure to file tax returns
Non-ling of tax returns by the
respective deadline may attract
the following nes:
: ROL 500,000 to
ROL 15,000,000 for individuals
and ROL 100,000 to ROL
1,000,000 for the income tax
return of individuals; and
: ROL 5,000,000 to
ROL 100,000,000 for legal
entities.
Taxpayers remain liable for the
payment of the nes for late
ling of returns regardless of the
payment of the tax due.
Interest and penalties on
delays in payment of tax
due
Failure to pay the taxes at the
prescribed dates is penalised
with late payment interest, which
is currently at 0.06% per day of
delay. An additional penalty of
0.5% per month or fraction of
month is also payable in respect
of the liabilities not paid in due
time.
Fiscal sanctions
Separately, failure to pay taxes
withheld at source (taxes on
salary-type income, dividend
income and non-residents
income) within 30 days after
the deadline is considered as
criminal offence and can be
punished with imprisonment
from 6 to 24 months or ne
between ROL 100 million to
ROL 500 million.
Ernst & Young
in Romania
55
56
Ernst & Young Romania is
a member of Ernst & Young
Southeast Europe that unies
the practices of nine countries
in the region including Greece,
Turkey, Bulgaria and Moldova.
Since 1992, Ernst & Young
Romania has been a leading
company in the professional
services market, delivering real
added value to our clients. Our
more than 200 professionals
have extensive knowledge and
deep technical skills. They have
years of relevant experience in
specialised industries in which
Ernst & Young is acknowledged
as a market leader in Romania:
nancial services, manufacturing,
telecommunications, oil and gas,
energy and utilities.
Ernst & Young professionals in
Romania are experienced in all
aspects of business services,
particularly in the following areas:
: Assurance and Advisory
An Ernst & Young audit is
individually tailored, cost-
effective and focused on the
clients areas of highest risk.
We provide suggestions for
improvement in controls,
productivity and management.
: Tax
We design and implement
domestic and international
tax planning solutions, which
complement our clients
business strategy. Whether
our clients look for advice on
tax matters in connection with a
key business decision, ongoing
advice in relation to their
activities or full outsourcing of
their tax functions, we provide
assistance for an effective
operation and minimisation of
their taxes.
: Global Financial and
Accounting
We provide accounting, payroll,
management reporting and
other related services in the
field of finance and accounting.
We help develop and improve
accounting, financial and
reporting systems, comply
with industry requirements, as
well as changing regulations,
and we account for complex
transactions.
: Legal
We provide legal assistance
in the fields of corporate law,
real estate, mergers and
acquisitions, privatisations,
capital markets, fiscal
and commercial litigation
and arbitration, employee
benefits, intellectual property,
information technology
law, telecommunications,
competition (antitrust) law and
labour law.
: Transaction Advisory
We assist companies initiate,
structure and manage
transactions, raise money
through debt, equity and
development capital, negotiate
joint ventures and strategic
alliances, conduct business
valuations, and conform to
stock market requirements. We
help our clients locate suitable
business partners, targets for
mergers or acquisitions, or
purchasers for all or part of
their companies. We assist with
integrating acquired operations
into existing companies.
: Human Capital
We provide advice on all issues
affecting employers, including
employment law and contracts,
human resources policy,
income tax and social security
withholding, compensation
and pensions, employee share
schemes and profit-related
pay schemes. Also, as market
leaders in expatriate services,
we have the expertise to assist
clients with a broad range of
issues confronting individuals
working and living abroad.
: Business Technologies and
Risk
Business Risk
We generate ideas, which
improve processes, enhance
revenues and save costs,
while at the same time manage
issues more effectively. Our
professionals are specialised
in offering internal audit,
operational support, corporate
governance and fraud and
forensics services.
Technology and Security Risk
We help clients improve their
information technology systems
and build and maintain the
trust and credibility they need
to succeed in a connected
economy. Leaders of our
Technology and Security Risk
services team in Romania are
certified information system
auditors (CISA) with the IT
Governance Institute (ISACA).
In Romania, Ernst & Young
serves organisations of all
sizes, from major multinational
corporations to emerging local
companies. Our clients comprise
entities in many legal forms,
including public and private
companies, cooperatives,
partnerships, non-prot
organisations, mutual funds, and
public bodies.
The following table shows the applicable withholding rates under Romanias bilateral tax treaties.
Appendix
Treaty Withholding Tax Rates
Country Dividends Interest Royalties Commissions
% % % %
Albania 10/15
(1)
10 15 15
Algeria 15 15 15
no specic clause
Armenia 10/15
(1)
10 10 15
Australia 5/15
(2)
10 15
no specic clause
Austria 15 10
(3)
10
no specic clause
Azerbaijan
(4)
5/10
(1)
8 10
no specic clause
Bangladesh 10/15
(2)
10 10
no specic clause
Belarus 10 10 15
no specic clause
Belgium 5/15
(1)
10 5 5
Bulgaria 10/15
(1)
15 15
no specic clause
Canada 15 15 15/10
(9)
no specic clause
China 10 10 7 5
Costa Rica
(4)
5/15
(1)
10 10 5
Croatia 5 10 10 5
Cyprus 10 10 0/5
(5)
no specic clause
Czech Republic 10 7 10
no specic clause
Denmark 10/15
(1)
10 10 4
Ecuador 15 10 10 10
Egypt 10 15 15
no specic clause
Finland 5 5 2.5/5
(6)
no specic clause
France 10 10 10
no specic clause
58
% % % %
Georgia 8 10 5 5
Germany
(7)
5/15
(2)
0/3
(27)
3
no specic clause
Greece 20/45
(8)
10 5/7
(9)
5
Hungary 5/15
(10)
15 10 5
India 15/20
(1)
15 22.5
(28)
5
Indonesia 12.5/15
(1)
12.5 12.5/15
(11)
10
Ireland 3 0/3
(12)
0/3(9)
no specic clause
Iran 10 8 10
no specic clause
Israel 15 5/10
(13)
10
no specic clause
Italy 10 10 10 5
Japan 10 10 10/15
(9)
no specic clause
Jordan 15 12.5 15 15
Kazakhstan 10 10 10 10
Korea 7/10
(1)
10
(29)
7/10
(11)
10
Kuwait 1 1 20
no specic clause
Latvia
(14)
10 10 10 2
Lebanon 5 5 5
no specic clause
Lithuania
(14)
10 10 10 2
Luxembourg 5/15
(1)
10
(3)
10 5
Macedonia
(14)
5 10 10
no specic clause
Malaysia 0/10
(15)
0/15
(16)
0/12
(17)
no specic clause
Malta 5/30
(8)
5 5 10
Mexico 10 15 15
no specic clause
Moldova 10 10 10/15
(11)
no specic clause
Morocco 15 10 10
no specic clause
Namibia 15 15 15
no specic clause
Netherlands 0/5/15
(18)
0/3
(19)
0/3
(19)
no specic clause
Nigeria 12.5 12.5 12.5
as per Romanian law
North Korea 10 10 10
no specic clause
Norway 10 10 10 4
Pakistan 10 10 12.5 10
Treaty Withholding Tax Rates (continued)
% % % %
Philippines 10/15
(1)
10/15
(13)
10/15/25
(20)
no specic clause
Poland 5/15
(1)
10 10
no specic clause
Portugal 10/15
(1)
10 10
no specic clause
Qatar
(4)
3 3 5 3
Russian Federation 15 15 10
no specic clause
Singapore 5 5 5
no specic clause
Slovak Republic 10 10 10/15
(11)
no specic clause
Slovenia
(26)
5 5 5
no specic clause
South Africa 15 15 15
no specic clause
Spain 10/15
(1)
10 10 5
Sri Lanka 12.5 10 10 10
Sudan 15 10 10 15
Sweden 10 10 10 10
Switzerland 10 10 0(21)
no specic clause
Syria 0 7.5 10/15
(22)
15
Thailand 15/20
(1)
10/20/25
(23)
15 10
Tunisia 12 10 12 4
Turkey 15 10 10
no specic clause
Ukraine 10/15
(1)
10 10/15
(11)
no specic clause
United Arab Emirates 3 3 0/3
(24)
3
United Kingdom 10/15
(1)
10 10/15
(9)
12.5
United States 10 10 10/15
(9)
no specic clause
Uzbekistan 10 10 10
no specic clause
Vietnam 15 10 15
no specic clause
Yugoslavia
(25)
5 7.5 10 10
Yugoslavia 10 10 10
no specic clause
Zambia 10 10 15
no specic clause
Non-treaty Countries 15 0/5/15
(30)
15 15
APPENDI X
60
(1)
The lower rate is applicable if
the beneficiary of dividends is a
company owning at least 25% of
the capital of the payer. In case of
Denmark, dividends distributed to
partnerships are taxed at the higher
rate, irrespective of the participation
share.
(2)
company owning at least 10% of the
capital of the payer
(3)
0% if paid to an Austrian bank
or Luxembourg bank or financial
institution.
(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)
A new treaty has been ratified by the
Romanian Parliament. The treaty
applies starting 1 January 2004.
(8)
The lower rate is applicable to
dividends paid by companies
resident in Romania.
(9)
The lower rate is applicable to
intellectual royalties.
(10)
company owning at least 40% of the
capital of the payer.
(11)
The lower rate applies to payments
received for the use of, or the right
to use, patents, trademarks, designs
or models, plans, secret formulas
and processes, or industrial,
commercial or scientific equipment,
and for information concerning
industrial, commercial or scientific
experience. In cases of Moldova
and Ukraine, payments received
for the use of, or the rights to use,
equipment are taxed at the higher
rate.
(12)
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.
(13)
The lower rate applies to interest
related to bank loans or interest
paid on loans used to purchase
machinery and equipment for
purposes (except for transport
means, in case of Philippines, for
which the higher rate applies). In
case of Israel, the lower rate also
applies to interest paid on credit
purchase of merchandise.
(14)
Applicable starting 1 January 2003.
(15)
The 0% rate applies to dividends
paid by a company resident in
Malaysia to a Romanian resident;
the 10% rate applies to dividends
paid by a company resident in
Romania to a Malaysian resident.
(16)
The 0% rate applies to interest paid
on long-term loans to a Romanian
resident.
(17)
The 0% rate applies to industrial
royalties paid in Malaysia by a
Romanian resident.
(18)
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.
(19)
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.
(20)
The 10% rate applies to royalties
paid by a company that is registered
as a foreign investor and is engaged
in an activity in a priority economic
field. The 15% rate applies to
royalties related to film or television
production. The 25% rate applies to
other royalties.
(21)
Under the Protocol to the
Switzerland-Romania treaty the
withholding tax rate is currently
zero.
(22)
The 10% rate applies to cultural
royalties.
(23)
The 10% rate applies if the
beneficiary of the interest is a
financial company, including an
insurance company. The 20% rate
applies to interest with respect
to sales on credit. The 25% rate
applies to other interest payments.
(24)
The 3% rate applies to royalties
for copyrights and artistic rights;
other royalties are not subject to
withholding tax.
(25)
The provisions of this treaty are
currently applicable only for Bosnia-
Herzegovina. Macedonia applied
the provision of this treaty until 1
January 2003, while Slovenia until
1 January 2004.
(26)
Applicable starting 1 January 2004.
(27)
The zero rate is applicable if
the interest is paid to German
Government, Deutsche Bundesbank
Kreditanstalt fur Wiederaufbau
or Deutsche Investitions und
Entwicklungsgesellschaft (DEG)
or interest paid in connection with
a loan guaranteed by HERMES-
Deckung. The zero rate is also
applicable in case of interest
paid to Romanian Government, if
they are obtained and effectively
detained or guaranteed by the
Romanian Government or it one
of its agencies. Also, as long as
Germany does not levy taxes
on interest, Romania may not
tax interest, unless such interest
derives from rights or debt-claims
to participate in profits or the rate is
linked to the borrowers profits.
(28)
The 22.5% tax also applies to
technical services.
(29)
Interest related to purchase of
equipment is not taxed.
(30)
The 5% rate applies to non-
residents for interest income related
to term deposit, deposit certificates
and other saving instruments
provided by banks and other
authorised credit institutions in
Romania. The 15% rate applies to
non-residents for any other interest
income except the following, which
are specifically exempt: interest
income related to non-term deposits
in current accounts opened with
credit institutions in Romania;
interest related to debt instruments
issued and/or guaranteed by the
Romanian government, local
councils, the National Bank of
Romania, or by financial institutions
acting as agent for the Romanian
government; and interest related
to marketable debt instruments/
securities issued by a Romanian
legal entity which is not affiliated to
the interest recipient.
APPENDI X
Ernst & Young
in Romania
Peter de Ruiter Country Managing Partner
Assurance and Advisory Services
Christos Seferis, Partner christos.seferis@ro.ey.com
Tax Services
Venkatesh Srinivasan, Partner venkatesh.srinivasan@ro.ey.com
Global Financial and Accounting Services
Camelia Horlaci, Partner camelia. horlaci@ro.ey.com
Legal Services
Peter de Ruiter, Partner peter.de.ruiter@ro.ey.com
Transaction Advisory Services
Human Capital Services
Peter de Ruiter, Partner peter.de.ruiter@ro.ey.com
Business Risk Services
Technology and Security Risk Services
Christos Seferis, Partner christos.seferis@ro.ey.com
Address:
Forum 2000 Building, 4
th
Floor
75 Dr. N. Staicovici Street, Sector 5
050557 Bucharest, Romania
Phone: (40-21) 402.4000
Fax: (40-21) 410.7052
Email: ofce@ro.ey.com
2004 Ernst & Young.
All Rights Reserved.
Ernst & Young is
a registered trademark.
www.ey.com ERNST & YOUNG

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