Doing business in Romania

Romania is an upper-middle income European Union member economy of Central-Eastern Europe. It has been referred as a "Tiger" due to its high growth rates and rapid development. Romanian economy growth is among EU’s fastest. Romania has the 11th largest in European Union by total nominal GDP and the 8th largest based on purchasing power parity and is one of the fastest growing major nation in recent history with consistent annual GDP growth rates above 6% (+8% for 2008). Romania is a member of the European Union (7th largest country), its most important trading partner. Its capital, Bucharest (with 2.6 million people - metropolitan area), is one of the largest financial centres in the region. Romania has experienced growth in foreign investment with a cumulative foreign direct investment totaling more than $50 billion since 1989.

Some economic predictions indicate that Romanian GDP will double by 2011, and one scholar has even suggested that Romania will overtake Italy in GDP per capita by 2020. Preliminary estimates for 2008 show a real GDP growth of 7.2%, while the forecasts for 2009-10 indicate an average of 6-6.5% per year. Future prospects are tied to the country's increasingly important integration with the European Union member states. The country is expected to join the in 2014.

(Source: Wikipedia, the free encyclopedia)

Romania's economic strength

Major industries in Romania are precision machinery, motor vehicles, chemicals, pharmaceuticals, electric goods (especially home appliances), food, fashion, clothing, petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, mining and defense, (Romania's economic strength is in the processing and the manufacturing of goods, primarily in small and medium-sized family-owned firms. The country has been less successful in terms of developing world class multinational corporations. In addition, the small and medium-sized firms typically manufacture products that are technologically moderately advanced and therefore increasingly face crushing international competition.

Romania's main industries are clothing and shoe manufacturing, metal, extracting and processing of primary goods (timber, marble, rock), food processing, oil refining and chemical derivates, and to a lesser extent pharmaceuticals, heavy machinery, household electronics, etc. In recent years vehicle manufacturing (see Dacia Logan) has become an important industry. The information-technology-related industry is also growing.

Romania has a number of fashion houses, such as Agnes Toma, Steil and Steilmann. Dacia Logan (by Renault), Ford, ARO and Daewoo Romania are some car models manufactured in Romania.

Several positive growth factors for Romania:

GDP: $264.89 billion (IMF 2008 est.) and increasing

75% of economic output from private sector

70% of companies experienced profit growth in last 3 years

Profit margins in Romania are higher than in Poland, Bulgaria and Hungary

Growth factors include: private consumption, consumer credit, corporate investment and exports

Second largest consumer market in Central and Eastern Europe

90% of companies expect sales and profits to grow over next 3 years

GDP growth has been fastest in the CEE region in 2003-2007, and is expected to grow over next 3 years

Growth factors include: private consumption, consumer credit, corporate investment and exports

Romania is in such a momentum that it will certainly surpass Hungary in respect of the standard of living - GDP per capita - the rate of economic growth and the size of capital influx already in this decade, Demján said.

(Source: Wikipedia, the free encyclopedia)

Minimum base gross salary

The guaranteed minimum base gross salary is established at RON 540 per month for the period between 1 October 2008 and 31 December 2008 for a work schedule of an average of 170 hours monthly, representing RON 3.176 per hour.

From 1 January 2009, the guaranteed minimum base gross salary is established at RON 600 per month for a work schedule of an average of 170 hours monthly, representing RON 3.529 per hour.

(Source: Romanian Official Gazette)

Romania’s 2008 Inflation Prospects are ‘worrying, IMF says.

Romania's inflation rate will rise to about 5 percent at the end of this year from 4.9 percent a year earlier, as a drought increases food prices, the International Monetary Fund said.

Government spending and rising wages make ``inflation prospects for 2008 worrying,'' the IMF said in an e-mail today with the concluding remarks from a week-long visit to Romania that ended on Oct. 2.

The comments were drafted before the Romanian National Statistics Institute said today that the annual inflation rate rose for a third month in September. The rate rose to 6 percent from 5 percent in August, above the central bank's year-end inflation target of 4 percent, plus or minus one percentage point.

(Source: Romania News Watch)

Romanian National Bank – balance of payments jan – august 2008

In January-August 2008, the balance-of-payments current account posted a deficit of EUR 10,006 million, 1.6 percent higher compared to January-August 2007, due largely to the wider trade deficit (EUR 11,714 million), up 8.1 percent from the same period of last year. Export growth outpaced import growth January through August 2008 by 3.7 percentage points.

Taxation in Romania

Taxation of individuals

Most types of income earned by individuals are taxed at a flat rate of 16%.
Romanians domiciled in Romania are subject to taxation on their worldwide income (except for salaries received from abroad for services performed abroad).
Romanians not domiciled in Romania and foreign individuals, regardless of their domicile, are subject to Romanian taxation only for income sourced in Romania (as of 2007, foreign individuals may be taxed on their worldwide income if specific criteria are met).
Foreign individuals who meet Romanian tax residency criteria are required each month to calculate, declare and pay individual income taxes and contributions to the Romanian Social Security system (observing specific criteria), for income from personal services performed in Romania.
Salary tax exemption may be applied for software engineers if certain conditions are fulfilled.
Dividend income, domestic interest income, income from prizes and income from other sources are subject to a final 16% withholding tax.
Capital gains from transfers of securities are taxed at 16%, except for securities traded on an open market held more than 365 days, which are subjected to 1% income tax.
Employer salary related social security contributions amount to a maximum of 29.85 – 39.85% of gross payroll costs.

Taxation of Cooperations

Standard corporate income tax rate is 16%.
Micro-companies can opt for profit tax exemption and pay instead a tax of 2.5% on revenue in 2008 (3% in 2009)
The implementation of the advance payments system for legal persons other than banks, credit institutions and other similar entities is postponed until 2010.
Dividend tax rate is 10% on dividends paid to Romanian companies. Standard dividend tax of 16% is applicable for dividends distributions to non-resident companies but this can be reduced by the double tax treaties to the minimum between the treaty rate and the domestic rate (10%). Dividend tax is reduced to nil if the beneficiary is a company resident in a EU member state (including Romania) that holds, for at least 2 years, at least 15% (10% from 2009) of the shares of the company distributing the dividends.
Standard withholding tax on interest and royalties paid to non-residents is 16%, which can be reduced as per more favourable treaties. Until 2010, a 10% rate applies to payments made to a EU resident company holding at least 25% of the shares of the payer for at least 2 years. Starting with 2011, such payments will be withholding tax exempt.
In general, the fiscal year is the calendar year for all entities.

Value Added Tax

Standard rate of VAT is 19% and the reduced VAT rate is 9%
New VAT treatment for EU business transactions.
No VAT is applicable for the transfer of going concerns.
VAT applies to factoring and debt collection activities.
Invoicing deadline is moved forward to the fifteenth day of the month following that in which the supply was performed.
Regular VAT rules apply for construction work and for the sale of real estate as of 1 January 2008.
VAT refund for EU and non-EU businesses.

Customs and International Trade

As an EU member, Romania applies the EU Common Customs Tariff & EU customs regulations.
Romania applies all EU free trade agreements concluded with third countries.
Import licences are required for commodities such as oil, certain chemical products and weapons.
No customs formalities are applied for goods with community status (goods produced in the EU or goods released for free circulation in the EU).
Compensatory interest is due for Inward Processing & Temporary Admission regime goods released for free circulation in the EU.
Security required for suspensive customs regimes, with a few exceptions.

Excise duties

EU harmonised excisable products and “non-harmonised” excisable products.
Tax warehouse for production and storage purposes.
Registered and non-registered traders.
Excisable products can be produced, transformed, transported and stored under suspensive arrangements.
New exemptions for “non-harmonised” excisable products (i.e. coffee, jewelleries, perfumes, fur).

Environmental Fund Contributions

Contributions for packaging, tyres, air-pollutant emissions from fixed sources, sale of ferrous and non-ferrous waste, standing wood, etc.
Some contributions depend on compliance with waste management obligations.
Registration of producers / importers / exporters of EEE (electrical and electronic equipment).

(Source: The Romanian Tax Pocket Book 2008, PricewaterhouseCoopers)