When the managing director walks into your office and says to you, as the general counsel, we are going to work in Romania, often the first reaction of the GC is why Romania, and where is it?
Sensible questions and ones that we will now try and give an initial answer to. As a commercial law firm with many years of experience in advising incoming foreign investors and their subsidiary companies when setting up, we are well versed in the issues that will immediately come to mind.
The first thing that needs to be identified is where is Romania. It never ceases to amaze us as commercial lawyers how little incoming clients know about Romania and its business and culture. A short introduction is always necessary even in these days of the Internet.
Once the orientation process is completed, we can then start the next phase of why Romania. Romanian law is a code-based Civil law system. Companies who invest from Western Europe and the US are used to a Common law system. It is not the purpose of these articles to explain the differences in the legal thinking and application of law of the two legal systems, but suffice it to say that Romania is different. To understand the effect of Romanian law as a good adviser, we try and explain as simply as possible the major differences in the two major legal systems.
If the General Counsel is open-minded about the problems and issues that will arise, then we will be able to advise them quickly and effectively so that the investing company can move on to its important function, which is opening an office in Romania.
The first matter that needs to be resolved is the legal structure to be adopted. As in all legal systems, Romania has a number of types of companies that provide limited liability protection for the shareholders. The two major forms of companies in Romania are the simple limited liability company and the joint stock company.
For ease of operation, most clients initially choose a limited liability company (SRL). This can be formed with one or more shareholders; no minimum capital; one administrator; no restriction on nationality or identity of the shareholders for administrators. We are often involved in the formation of Romanian companies, and the process can be completed quickly, provided the client supplies all the documentation we require. The time for registering a company is three days from the date the papers are lodged with the Romanian Trade Registry.
A Romanian company needs a registered address from the moment it is incorporated. As Romanian lawyers, we can supply a registered address for registration purposes, but only for a period not exceeding 12 months. It surprises me how many clients wish to form a company in Romania but have not given any thought as to a registered address. They can initially use our offices as the registered address, or we can assist them with this using our contacts. Such addresses are useful, especially if the client is in the service industry and only needs a registered address. However, if they wish to hire staff who will work in the office and carry out other activities, then they will need to have their own physical office.
Any person can be a shareholder in a Romanian company. Following changes in the Companies Law, an SRL can now be incorporated without a minimum paid capital, although we advise clients to incorporate a company with a capital of at least ten RON.
Romanian companies also will need accounting and bookkeeping assistance from incorporation, as there are a number of formalities which have to be completed with the ministry of Finance, not least the question of VAT registration. All companies with a turnover of at least three hundred thousand RON (currently approximately 60,000 Euro) must register for VAT. Depending on the client’s requirements, there are a number of such practices in Romania we can recommend, who are used to working with foreign clients.
All Romanian companies when they are incorporated are deemed to be micro companies. A micro company is taxed not on its profits but on its income up to one million Euro. The taxation rate is between 1% and 3%, depending on the number of employees. If a company has at least one full-time employee, then the rate is 1% of the turnover. A company can choose to be a company paying tax on profit if it has at least two employees and a paid capital of at least 45,000 RON.
I hope that it will be seen from the above that the answer to the question “Why Romania?” has been answered initially, and the company should then proceed with a detailed review of the steps to make its Romanian investment.