Are you an entrepreneur looking to expand your business into Europe? Romania may be the perfect destination for you. With its strategic location, favorable tax rates, and abundant opportunities, Romania has become an attractive investment gateway for foreign investors. In this guide, we will provide you with a step-by-step process on how to open a business in Romania, along with valuable insights into the country’s market, taxation system, and key sectors for investment. If you need further assistance or want to explore additional resources on opening a business in Romania, you can visit How To Open A Business In Romania for more information.
1. Introduction to Romania
Romania, a member of the European Union and NATO, is strategically located in Eastern Europe and the Balkans. With a coastline on the Black Sea, it serves as a transit country and offers easy access to the European market. Romania boasts an attractive business environment with competitive labor costs and a highly skilled workforce. These factors make it a favorable destination for foreign investors looking to expand into Europe.
2. Types of Companies in Romania
In Romania, there are several types of companies that you can establish, including:
- Limited Liability Company (SRL)
- Joint Stock Company (SA)
- General Partnership Company (SNC)
- Limited Partnership Company (SCS)
- Share Limited Partnership Company (SCA)
- Sole Proprietorship (PFA)
Among these, the most common and preferred types of companies are the Limited Liability Company (SRL) and the Joint Stock Company (SA). Let’s take a closer look at these two forms.
3. Limited Liability Company (SRL)
The Limited Liability Company (SRL) is the most advantageous and popular type of company in Romania, particularly among foreign entrepreneurs. The minimum required capital for an SRL is 200 Romanian leu (RON), equivalent to 40 euros (EUR). The capital is divided into shares, with each share valued at a minimum of RON 10. The incorporation process can be completed within a week if all the necessary documents are prepared.
An SRL can be established by at least one natural or legal person, and there is no requirement for Romanian partners. The number of partners, whether local or foreign, cannot exceed 50. The liability of the partners is limited to their invested capital, and they are not personally liable for the company’s debts. This type of company allows shareholders to also be employees, and the management and decision-making processes are relatively simple and fast compared to joint stock companies.
4. Joint Stock Company (SA)
The Joint Stock Company (SA) is often preferred by investors who aim to raise substantial capital through public offerings. It provides prestige to the owners and offers more flexibility in terms of share transfers. Unlike the SRL, a minimum of two shareholders, whether individuals or legal entities, is required to establish an SA. The minimum share capital for an SA is RON 90,000 (EUR 18,000).
The shareholders’ liability in an SA is also limited to their invested capital. Shares can be freely sold or transferred without the need for consent from other shareholders. Profit distribution is proportional to the contribution to the capital, and dividends can only be distributed from actual profits. SA companies enjoy certain tax incentives, such as exemptions for profits invested in technological equipment and software programs. Additionally, foreign companies investing at least EUR 1 million in Romania can benefit from various incentives provided by the Romanian government.
5. Taxation in Romania
Understanding the tax system is crucial when starting a business in Romania. Let’s explore the main taxes applicable to companies in the country.
Value Added Tax (VAT)
The standard VAT rate in Romania is 19%. However, certain goods and services may be exempt from VAT, and there is a VAT threshold of EUR 60,000 for small businesses. VAT registration is mandatory for businesses exceeding this threshold or voluntarily choosing to register. VAT can be deducted for taxable goods and services purchased, and businesses can recover VAT when purchases exceed sales.
The corporate income tax rate in Romania is 16% for companies with an annual turnover exceeding EUR 1,000,000. For micro-enterprises with a turnover of up to EUR 1,000,000, the income tax rate is 1% if the company has at least one employee or is a startup, and 3% if the company has no employees. Dividends paid to shareholders are subject to a 5% income tax.
Foreign Investment Incentives
Romania offers various incentives to attract foreign investments. For example, companies operating in the IT sector and engaged in research and development activities are exempt from income tax. Profits invested in technological equipment, software programs, and other eligible expenses can also be exempt from tax. The incentives vary based on the region of investment, with higher rates offered in less developed areas.
6. Setting up a Company in Romania
To establish a company in Romania, you need to follow a series of procedures. Here is an overview of the steps involved:
- Choose a company name and reserve it with the National Trade Register Office.
- Draft the articles of incorporation and have them notarized.
- Deposit the minimum required capital in a bank account.
- Submit the necessary documents, including the articles of incorporation, proof of capital deposit, and ownership documents, to the Trade Registry.
- Publish the incorporation decision in the Trade Registry Gazette.
- Register with the General Directorate of Public Finance to obtain a tax registration number.
- Obtain any necessary approvals or licenses related to your company’s field of activity.
- Open a bank account for your company.
It is advisable to seek professional assistance from a local law firm or consultancy to ensure a smooth and efficient company registration process.
7. Opening a Branch in Romania
Foreign companies can also choose to open a branch in Romania. A branch is an extension of the parent company and does not have a separate legal personality. To open a branch, you need to register it with the National Trade Registry. The parent company is fully liable for the actions of the branch, and representatives can enter into contracts on behalf of the parent company. Additional documentation, such as the decision to establish the branch and proof of its center, may be required.
8. Opening a Representative Office in Romania
A representative office in Romania can be established by foreign companies to carry out non-commercial activities, such as advertising and promotion, on behalf of the parent company. Representative offices do not have legal personality and cannot issue invoices. To open a representative office, permission must be obtained from the Romanian Ministry of Economy and Trade. The application process involves submitting the required documents to the Foreign Trade Department and registering with the Romanian Chamber of Commerce and Industry.
9. Attractive Sectors for Foreign Investors
Romania offers opportunities for investment across various sectors. Here are some sectors that have shown significant growth and potential:
IT and Software Development
Romania has emerged as an IT and software development hub in Eastern Europe. With a skilled workforce and favorable tax incentives, the IT sector has attracted investments from global companies such as Oracle, Amazon, IBM, and Deutsche Bank. Profits invested in technological equipment, software programs, and related expenses can be exempt from tax. Employees working in the IT sector and those engaged in research and development activities also benefit from tax exemptions.
Manufacturing and Automotive
The manufacturing sector, especially automotive manufacturing, is a key driver of Romania’s economy. The country has a well-developed automotive industry, with annual turnovers exceeding EUR 30 billion. This sector offers investment opportunities for foreign companies producing spare parts and components. Romania’s strategic location, skilled workforce, and available EU funding make it an attractive destination for automotive investments.
Romania has allocated significant EU funds for infrastructure development, creating opportunities for foreign investors. The availability of funds and the country’s commitment to improving its infrastructure make this sector attractive for investment. Whether it’s transportation, energy, or construction, investing in infrastructure can yield long-term benefits and contribute to Romania’s economic growth.
Romania’s tourism sector has experienced significant growth in recent years. The country offers diverse natural landscapes, historical sites, and cultural experiences, attracting tourists from around the world. Investments in hospitality, tourism infrastructure, and related services can capitalize on the country’s growing tourism industry.
Opening a business in Romania offers numerous advantages, including access to the European market, favorable tax rates, and a skilled workforce. Whether you choose to establish a limited liability company or a joint stock company, Romania provides a supportive business environment and various incentives for foreign investors. By understanding the necessary procedures, taxation system, and attractive sectors, you can navigate the process of starting a business in Romania with confidence. Consult with local experts to ensure compliance with regulations and maximize the opportunities available in this thriving European market.