Business Guide to Romania* 2007 Edition *connectedthinking1 PricewaterhouseCoopers - Business Guide to Romania 2007 PwC Contents Chapter Page 1 Romania: a Profile 7 1.1 Physical Characteristics: Geography and Climate 7 1.2 Political Structure 7 Government 7 Presidential Election 8 Parliamentary Election 8 1.3 Population and Urbanisation 8 1.4 Language 8 1.5 Education 8 1.6 The Economy 8 1.7 Transport and Communications 9 Transport 9 Communications 10 1.8 Suggestions for Business Visitors 11 Visas 11 Currency 11 Business and Social Etiquette 11 Public Holidays 11 1.9 Living Conditions 11 2 Business Environment 13 2.1 Business Climate 13 2.2 The Aims of Government 13 2.3 Financial Services 14 2.4 International Agreements 15 2.5 NATO Accession 15 2.6 Real Estate 15 2.7 The Property Market 16 2.8 Business Lobby Groups 17 3 Romania and the European Union 18 3.1 Major milestones of Romania’s accession process 18 3.2 EU financial assistance for Romania 18 Pre-accession funds 18 Post-accession funds 18 4 Foreign Investment, Privatisation and Foreign Trade 20 4.1 Foreign Investment 20 Regulatory Legislation 20 Restrictions on Foreign Investment 20 Investment Incentives 20 Guarantees and Rights 20 4.2 Privatisation 20 Regulatory Climate 20 Privatisation Background 20 Privatisation in 2005 21 Privatisation Calendar 21 4.3 Trade 21 Regulatory Climate 21 Regulatory Authority 21 2 PricewaterhouseCoopers - Business Guide to Romania 2007 5 Banking, Finance and Insurance 22 5.1 Banking and Other Lending Institutions 22 The National Bank of Romania 22 The Foreign Currency Market and Foreign Currency Rules 23 Commercial Banks 23 Non-banking financial institutions 24 Securitisation 24 Money Laundering 25 Foreign Investments 25 Financial Reporting 25 Credit Unions 25 Building Societies 25 Institutions issuing Means of Performing 25 5.2 Leasing 25 5.3 Capital Markets 26 Bucharest Stock Exchange 26 5.4 Insurance 26 5.5 Private pensions and pension funds 27 6 Corporate and Business Law 28 6.1 Legal Framework 28 Company Law 28 Commercial Register Law 28 Competition Law 28 Direct Investment Legislation 28 6.2 Forms of Business Organisation 28 Registration Procedure 29 Capital and Shares 29 Directors (Administrators) 30 Censors 30 General Meeting of Shareholders 30 6.3 Branches 30 6.4 Representative Offices 30 7 Labour Relations and Social Security 31 7.1 Labour Relations and the Labour Code 31 Availability of Labour 31 Employer / Employee Relations 31 Fund to Guarantee Outstanding Salary Payments 31 Unions 32 7.2 Working Conditions 32 Salaries and Wages 32 Working Hours 32 Paid Holidays 32 Equal Opportunities 32 Health and Safety 33 Protection of employees in case of the transfer of an undertaking 33 Posting workers in the framework of providing transnational services 33 Termination of Employment 33 7.3 The Social Security System 33 Coverage 33 Contributions 33 Employees' Contributions 34 Employers' Contributions 34 7.4 Foreign Personnel 34 Fiscal Registration Number 34 Work Permit 34 Work Permit for Employment Purposes (type A) 34 Work Permit for Secondment Purposes (type B) 34 Residence Permit 35 3 PricewaterhouseCoopers - Business Guide to Romania 2007 8 Accounting and Audit Requirements and Registration 36 8.1 Accounting 36 General Accounting Framework 36 Individual Annual Financial Statements 36 Consolidation 37 Application of IFRS 37 8.2 Audit requirements 37 General Legal Framework 37 Auditing Standards 37 9 Taxation of Corporations 39 9.1 Corporate Income Tax 39 Taxpayers 39 Territoriality 39 Corporate Income Tax Rate 39 Micro – companies 39 Representative Offices 39 Computation of Taxable Profits 40 Accounting period 40 Business profits 40 Non-taxable revenues 40 Deductibility of expenses 40 Provisions and reserves 41 Accounting and fiscal depreciation 42 Thin capitalisation rules 42 Transfer pricing 43 Fiscal relief 43 Fiscal losses 43 Reporting and Payment Requirements 43 General aspects 43 Consolidation 43 Administration of taxes 44 Advance Tax Ruling 44 9.2 Capital Gains 44 9.3 Divided Tax 44 9.4 Withholding Tax 44 9.5 Tax Incentives 45 Direct investments 45 Investment law project 45 Disadvantaged areas 46 Industrial parks 46 Oil and gas incentives 46 9.6 Local Taxes and Other Taxes 46 Building Tax 46 Land Tax 46 Local Taxes Incentives 47 Health Tax 47 10 Taxation of Individuals 48 10.1 Individual Income Taxpayers 48 10.2 Taxable Income and Method of Taxation 48 Salary Income 48 Income from Independent Activities 49 Rental Income 49 Income from Pensions 49 Income from Agricultural Activities 49 Income from Prizes 49 Income from Investments 49 Income from Real Estate Transactions 50 Income from Gambling 50 Other Income Subject to 16% Flat Tax Rate 50 10.3 Tax-exempt Income 50 4 PricewaterhouseCoopers - Business Guide to Romania 2007 10.4 Deductions from Income Tax 51 10.5 Taxation of Non-residents 51 11 Indirect Taxation 52 11.1 Value Added Tax (VAT) 52 Scope of VAT 52 Outside VAT Scope 53 Territoriality Rules 53 VAT Chargeability 54 Taxable Amount 54 Taxable Regimes 54 VAT Deduction 54 VAT Registration Threshold 55 VAT Registration 55 VAT Consolidation 55 Simplification Measures 55 VAT Compliance 55 VAT Refund 56 11.2 Customs and International Trade 56 Customs Value 56 Customs Duties 56 Binding Origin Information (BOI) / Binding Tariff Information (BTI) 57 Temporary Import Relief 57 Trade Measures 57 11.3 Other Indirect Taxes 57 Excise Tax 57 Harmonised Excisable Products 57 Other Excisable Products 58 Car Registration Tax 58 Environmental Fund Contribution 58 12 Fiscal Procedure 60 12.1 General Principles 60 Liability of Other Persons 60 Rules Governing Evidence 60 Fiscal Administrative Acts 60 Fiscal Domicile 61 Tax Jurisdiction 61 Other Rules 61 12.2 Specific Tax Procedures 61 Tax Registration 61 Tax Returns and Tax Assessment 61 Tax Audit 61 Collection of Budgetary Receivables 61 13 PricewaterhouseCoopers in Romania 62 Assurance Services 62 Advisory Services 63 Tax and Legal Services 64 Appendices 65 Appendix I Government Ministries - contact details 66 Appendix II Operational Programmes Management Bodies 2007-2013 67 Appendix III Major Banks - contact details 68 Appendix IV Hotels and Restaurants 69 Appendix V Accountants and Law Firms 71 Appendix VI (a) Double Taxation Agreements 72 Appendix VI (b) Withholding Tax Rates of Some Major DTAs 73 Appendix VII Individual Income Tax Calculation 74 Appendix VIII Customs Duties Rates 75 Appendix IX Excise Tax for Domestic and Imported Products 76 5 PricewaterhouseCoopers - Business Guide to Romania 2007 Romania (by county) 6 PricewaterhouseCoopers - Business Guide to Romania 2007 Chapter 1 Romania: a Profile Romania's population accounts for 21.6 million 6 GDP grew 4.1% in 2005 as against 2004 and 7.4% y/y in H1 2006 1.1 Physical Characteristics: The President nominates the Prime Minister. Cabinet ministers, selected by the Prime Minister, Geography and Climate have to be approved by Parliament before taking up office. Romania is situated in southeastern Europe, just north of the Balkan Peninsula. With an area of The latest elections took place in November- 238,391 square kilometres (91,780 square miles), December 2004. The current President is Traian Romania is the second largest country in Central Basescu, who was Mayor of Bucharest from 2000 and Eastern Europe. to 2004. Romania borders on Ukraine and the Republic of In the current cabinet, Calin Popescu-Tariceanu is Moldova to the north and northeast, on Bulgaria to Prime Minister. The cabinet comprises 15 the south, on Serbia to the southwest, and on ministers, three vice-premiers and five ministers- Hungary to the northwest. The Black Sea coast is delegate, 23 members in all. The ministers are: its eastern border. The Danube River runs along Romania's southern border for 1,075 km, and Cãlin Constantin Anton Prime Minister eventually forms the Danube Delta before flowing Popescu – Tãriceanu into the Black Sea. Mihai Razvan Ungureanu Foreign Affairs Anca Daniela Boagiu European Romania has a varied terrain and large areas of Integration the country are mountainous. It has a variety of Sebastian Vladescu Public Finance natural resources, amongst which oil, natural gas, Monica Luisa Macovei Justice coal, iron ore, non-ferrous ore (copper, lead, and Sorin Frunzaverde National Defence zinc), gold and silver ore, sulphur, and salt. Vasile Blaga Administration and Interior The climate is temperate-continental with hot Gheorghe Barbu Labour, Social summers, long cold winters, and short springs and Solidarity and autumns. The average temperature in summer is Family 23° Celsius (72° Fahrenheit), although on some Ioan-Codrut Seres Economy and days it may exceed 40° C (102° F). In winter, the Commerce weather is usually frosty, with considerable Gheorghe Fluture Agriculture, snowfall. The temperature averages -3° C (27° F), Forestry and but it may occasionally fall below -25° C (-13° F). Rural Development Sulfina Barbu Environment and Waters 1.2 Political Structure Management Radu Mircea Berceanu Transport, Government Constructions and Tourism The Constitution, dated 21 November 1991, Mihail Hardau Education and proclaims Romania a republic and a parliamentary Research democracy. The President is elected for five-year Adrian Iorgulescu Culture and terms (since 2003), while the bicameral Religious Affairs Parliament is elected for four-year terms. The Eugen Nicolaescu Health bicameral parliament is composed of the Senate Zsolt Nagy Communications (137 seats) and the Chamber of Deputies (332 and Information seats). Technology 7 PricewaterhouseCoopers - Business Guide to Romania 2007 Contact details for all government ministries are 1.4 Language listed in Appendix I. The territory of Romania is subdivided into 41 The official language of the country is Romanian. counties (judete) plus Bucharest; these are the The language uses the Latin alphabet and is part administrative units of local government. of the Romance language family. In some parts of Bucharest and its surrounding area form a unitary Transylvania, Hungarian is spoken alongside district with county status.