Company Establishment in Romania: An In-Depth Guide
Advantages of Establishing a Company in Romania
Romania is an attractive destination for entrepreneurs and investors looking to establish a company. The country offers numerous advantages that make it an ideal location for business operations.
Skilled Labor Force
Romania boasts a highly skilled labor force with a strong background in technology and engineering. The country has a high percentage of graduates in science, technology, engineering, and mathematics (STEM) fields. According to World Bank, the percentage of STEM graduates in Romania was 31.68% in 2019, which is higher than the European Union average of 21.51%. This makes the country an attractive destination for companies that require a talented workforce. The Romanian workforce is also multilingual, with many people speaking English and other European languages, making it easier for companies to communicate with clients and customers.
Low Corporate Tax Rate
The low corporate tax rate is another advantage of establishing a company in Romania. The standard corporate tax rate is 16% of the profit, or 1% of the income, which is one of the lowest rates in Europe. Moreover, Romania offers various tax incentives for companies that invest in research and development or create new jobs. For example, companies that invest in R&D can benefit from a tax credit of up to 50% of their R&D expenditure. This makes Romania an attractive destination for foreign investors as well as local entrepreneurs who want to grow their businesses.
Strategic Geographic Location
Romania's strategic geographic location is also an advantage for companies looking to establish a presence in Europe. The country is situated at the intersection of several major transportation corridors and has access to the Black Sea and the Danube River, making it a gateway to Eastern Europe and Asia. Romania's proximity to major European markets such as Germany, Italy, and France makes it an ideal location for companies that want to expand their operations into the European Union. According to World Bank, Romania's railroad system is the fourth longest in Europe, and the country's major ports, including the Port of Constanta, are among the busiest in the region.
Streamlined Company Registration Process
The process of registering a new company in Romania is relatively straightforward and streamlined. The entire process can be completed online, and it usually takes only a few days to register a new company. The process involves registering with the Trade Registry, obtaining a tax identification number, and registering for VAT. Romania has also implemented several measures to reduce bureaucracy and simplify the registration process for new businesses. This makes it easier for entrepreneurs to establish a new company and start operating in Romania.
Companies with an annual turnover of less than 1,000,000 EURO can benefit from a special tax regime known as "micro-enterprise taxation." This regime allows companies to pay a flat tax rate of 3% on their turnover instead of paying corporate income tax. This regime is available to most types of companies registered in Romania, including joint-stock companies, limited liability companies, and sole proprietorships. This tax regime is designed to encourage entrepreneurship and support small businesses in Romania.
Mandatory VAT Registration
All companies that have an annual turnover of over 300,000 RON (approximately 65,000 EURO) are required to register for VAT in Romania. This means that companies must charge VAT on their goods or services and pay it to the state. VAT rates in Romania range from 5% to 19%, with most goods and services being taxed at a rate of 19%. Although VAT registration can be seen as a burden for some companies, it also provides advantages such as the right to deduct VAT paid on purchases and the ability to operate in the European Single Market.
In conclusion, establishing a company in Romania offers several advantages, including a highly skilled labor force, a low corporate tax rate, a strategic geographic location, streamlined company registration process, micro-enterprise taxation for small businesses, and mandatory VAT registration. These factors make Romania an attractive destination for entrepreneurs and investors who want to grow their businesses in Europe.
Steps to Establish a Limited Liability Company (SRL) in Romania
The Limited Liability Company (SRL) is the most popular form of company establishment in Romania due to its simplicity and lower capital requirements. This section will guide you through the steps involved in setting up an SRL.
Name reservation at the Commercial Registry
The first step in setting up an SRL in Romania is to reserve a name for the company at the Commercial Registry. This can be done online, and the process usually takes three business days. The name reservation is valid for six months, during which time the company must be incorporated.
Choosing a registered office location
The next step is to choose a registered office location for the company. The registered office must be an address in Romania where official mail can be sent, and where the company's records can be kept. It is important to note that the registered office address will be publicly accessible.
Opening a bank account for the company
In order to start doing business, the SRL needs a bank account. This account will be used for all transactions related to the company's activities. Some of the banks that operate in Romania require that at least one of the shareholders be present in person in order to open an account. Therefore, it is recommended to check with each bank beforehand.
Filing articles of incorporation and registering with the commercial register
Once the above steps are completed, articles of incorporation must be drafted and filed with the Trade Register Office. The articles of incorporation should include information about the company's shareholders, directors, registered office address, share capital, and type of activity that will be conducted. After this is completed, the SRL must be registered with the commercial register for its incorporation to become official.
Registering with tax authorities and obtaining a tax identification number
The next step is to register with tax authorities and obtain a tax identification number (TIN). The TIN is required to issue invoices, hire employees, and carry out other operations. The company must also register for income tax and value-added tax (VAT). It is important to note that the VAT registration is optional for companies with an annual turnover of less than 65,000 EURO.
Registering with the Labor Inspectorate for employee-related matters
If the SRL is planning to hire employees, it must register with the Labor Inspectorate. This registration is required by law and must be done before hiring any employees. The SRL must comply with all Romanian labor laws and regulations.
Optional VAT registration for companies with an annual turnover of less than 65,000 EURO
As mentioned earlier, VAT registration is optional for companies with an annual turnover of less than 65,000 EURO. However, it may be beneficial for SRLs to voluntarily register for VAT if they plan to do business with other EU member states. This will allow them to issue invoices that include VAT, making it easier to recover VAT paid on purchases made from other EU member states.
Overall, setting up an SRL in Romania can be a relatively straightforward process provided that all the necessary steps are followed. However, it is recommended that professional advice be sought in order to avoid any legal or administrative complications.
Establishing a Joint Stock Company (SA) in Romania
While not as popular as the SRL, the Joint Stock Company (SA) is another option for entrepreneurs looking to establish a company in Romania. The SA has higher capital requirements and additional regulations compared to the SRL.
Share Capital Requirement
One of the main differences between the SA and the SRL is the minimum share capital requirement. The SA requires a minimum share capital of 90,000 RON (approximately 21,000 EURO), whereas for the SRL the minimum share capital requirement is only 200 RON (approximately 45 EURO). This higher share capital requirement makes the SA a less attractive option for small businesses, but it can be beneficial for larger companies that require more funding for expansion.
Shareholders and Board of Directors
Another important difference between the SA and the SRL is the requirement for at least two shareholders and a board of directors. In an SRL, there can be only one shareholder, who is also the director of the company. In an SA, there must be at least two shareholders, and a board of directors must be appointed to oversee the management of the company. This makes the SA a more complex structure that requires more people to be involved in the decision-making process.
Auditors and Financial Reporting
Another requirement for an SA is to have auditors oversee financial reporting. While an SRL is not required to have auditors, an SA must appoint one or more auditors to review financial statements and ensure that they comply with accounting principles and legal requirements. This additional regulation can increase costs and make it more difficult for smaller companies to comply with legal requirements.
The registration process for an SA is similar to that of an SRL, with additional documentation required for the SA structure. This documentation includes a prospectus outlining the details of the company’s shares, as well as information about the board of directors and the company’s financial performance. The additional documentation required for an SA can make the registration process more complex and time-consuming.
Taxation and VAT Registration
Taxation for an SA is the same as for an SRL, with the 16% corporate tax rate or 1% income tax for micro-enterprises. However, companies with an annual turnover of more than 300,000 RON (approximately 65,000 EURO) are required to register for VAT. This is the same requirement as for an SRL.
Why It Matters
Establishing an SA can be a good option for larger companies looking to raise capital and expand their operations. However, the higher capital requirements and additional regulations make it a less attractive option for small businesses. It is important for entrepreneurs to carefully consider their options and choose the company structure that best suits their needs. By understanding the differences between an SA and an SRL, entrepreneurs can make informed decisions when establishing a company in Romania.
The Benefits of Establishing a Debutant Limited Liability Company (SRL-D) in Romania
For first-time entrepreneurs in Romania, there is an option to establish a "debutant" Limited Liability Company (SRL-D). This option comes with certain benefits designed to encourage new business ventures.
Exemption from payment of social contributions paid by the employer for up to four employees
One of the benefits of establishing an SRL-D in Romania is that the entrepreneur is exempt from paying social contributions for up to four employees. This exemption is valid for a period of two years from the date of incorporation. According to Romanian law, the employer must still make the deductions from the employee's salary and pay them to the state, but they are not required to contribute their own funds. This can be a significant relief for new entrepreneurs who are still struggling to find their footing in the business world.
Possibility of obtaining financial support from the state in the form of a grant
Another benefit of establishing an SRL-D in Romania is that the entrepreneur is eligible for financial support from the state in the form of a grant. According to data from Euractiv.ro, this support can range from 10,000 lei to 200,000 lei, depending on the size and scope of the project. The grant can be used for various purposes, including purchasing equipment and materials, paying salaries, and covering other expenses associated with the project.
Streamlined registration process with reduced fees and bureaucracy
Another advantage of establishing an SRL-D in Romania is that the registration process is streamlined and the fees are reduced. According to data from Euractiv.ro, the registration process for an SRL-D typically takes about two weeks, which is much faster than the registration process for other types of companies. Additionally, the fees associated with establishing an SRL-D are usually lower than those for other types of companies, which can help new entrepreneurs save money.
Must meet specific criteria such as being a first-time entrepreneur and having no prior involvement in other companies
To establish an SRL-D in Romania, there are specific criteria that must be met. According to Romanian law, the entrepreneur must be a first-time entrepreneur and have no prior involvement in other companies. Additionally, the entrepreneur must not have any outstanding debts or legal issues related to previous business ventures. These criteria are designed to ensure that the SRL-D option is reserved for new and inexperienced entrepreneurs who need extra support as they establish their businesses.
Limited to one SRL-D per individual entrepreneur
Another important factor to consider is that an individual entrepreneur can only establish one SRL-D. According to Romanian law, this limitation is designed to prevent abuse of the SRL-D option and ensure that it is used appropriately. This means that entrepreneurs should carefully consider whether the SRL-D option is the right choice for their business ventures.
Same taxation rules as regular SRLs
Finally, it's important to note that SRL-Ds are subject to the same taxation rules as regular SRLs in Romania. According to data from Avocatnet.ro, this means that SRL-Ds are subject to a standard profit tax rate of 16%, as well as other taxes and fees associated with doing business in Romania. Entrepreneurs should carefully consider their tax obligations before choosing to establish an SRL-D.
In conclusion, the option to establish a "debutant" Limited Liability Company (SRL-D) in Romania can be a great choice for first-time entrepreneurs who are looking for extra support as they establish their businesses. The benefits of exemption from payment of social contributions, financial support from the state, and a streamlined registration process can be significant advantages. However, entrepreneurs should carefully consider the specific criteria for establishing an SRL-D and be aware of the limitations on establishing more than one SRL-D. By weighing these factors carefully, entrepreneurs can make an informed decision about whether an SRL-D is the right choice for their business venture.
Challenges and Considerations when Establishing a Company in Romania
While Romania offers numerous advantages for company establishment, it is crucial to be aware of potential challenges and considerations that may arise during the process.
Ensuring compliance with local regulations and requirements
Romania's regulatory environment can be complex, and businesses must ensure they comply with all relevant laws and regulations. Romania's corruption index, as measured by Transparency International, is 44 out of 100, indicating a moderate level of corruption. This means that companies may face difficulties obtaining permits or licenses, especially in the construction or energy sectors. To mitigate this risk, businesses should work with an experienced local partner who understands the legal environment and can help navigate local regulations.
Language barriers and navigating government procedures in Romanian
Romania's official language is Romanian, which can create language barriers for businesses operating in the country. As most official documents and procedures must be completed in Romanian, companies may face challenges when interacting with government agencies or local partners. Multinational companies operating in Romania often hire local staff members who are fluent in both Romanian and English to help bridge the language gap.
Obtaining necessary permits and licenses depending on the industry sector
Obtaining permits and licenses can be a time-consuming process for businesses operating in Romania. The process can be especially challenging for companies operating in the construction or energy sectors. This is due to the complex regulatory environment and the need to obtain permits from various government agencies. Companies must ensure they have all necessary permits and licenses before they begin operations to avoid costly penalties or legal issues.
Managing currency risk due to fluctuations in the Romanian Leu (RON)
Businesses operating in Romania face currency risk due to fluctuations in the Romanian Leu (RON). The RON has undergone significant fluctuations in recent years, with exchange rates ranging from 4 RON to the Euro to over 5 RON to the Euro. To mitigate currency risk, businesses can consider using hedging strategies such as currency swaps or forward contracts.
Navigating local labor laws and employee rights
Labor laws in Romania can be complex, and businesses must ensure they comply with all relevant labor regulations. Some of the most significant regulations include the maximum number of work hours per week, minimum wage requirements, and annual leave entitlement. Businesses operating in Romania should also be aware of employee rights, including the right to work in a safe and healthy environment, the right to maternity leave, and the right to unionize.
Developing a strong understanding of the Romanian market and consumer preferences
To successfully operate in Romania, businesses must develop a strong understanding of the Romanian market and consumer preferences. Romania has a population of over 19 million people, with a GDP of $250 billion. The Romanian market is increasingly diverse, with growing demand for products and services in areas such as technology, health care, and e-commerce. Businesses must conduct market research to identify opportunities and understand local consumer preferences.
Ensuring adequate protection of intellectual property rights
Protecting intellectual property rights is crucial for businesses operating in Romania. Romania ranks 63rd out of 190 countries for protecting intellectual property rights according to the World Bank. Businesses must ensure they have proper intellectual property protection in place to avoid infringement issues or legal disputes.
In conclusion, while establishing a company in Romania can be an attractive option for businesses looking to expand their presence in Eastern Europe, companies must be aware of potential challenges and considerations when operating in this environment. By working with experienced local partners and ensuring compliance with regulations and requirements, businesses can navigate these challenges successfully and take advantage of the many opportunities offered by the Romanian market.