Romania Tax & Business Guide - Deloitte

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Basic facts
Population 21.6m Inflation 4.87%
Main languages Romanian (official) GDP per head US$5,300*
Currency New Leu (RON) GDP growth 7.0% (2006)*
Economic communities EU, WTO
GDP sources 9.9% agriculture, 34.7% industry, 55.4% services*
*Economist Intelligence Unit estimates.
Political environment

Romania is a parliamentary republic. A bicameral parliament is composed of a Senate and Chamber of Deputies. Both chambers are directly elected from 41 multimember constituencies, comprising 40 counties and the municipality of Bucharest. The president, currently Traian Basescu, is the head of state.

The next parliamentary and presidential elections are due in 2008 and 2009, respectively.

Romania joined the EU on January 1st 2007.
Foreign trade and investment
Exports US$25.9bn* Imports US$40.7bn*
*Economist Intelligence Unit estimates.

Leading export markets: Italy, Germany and France.

Major exports: Textiles and products, machinery and equipment, and metallurgical products.

The government is working towards making Romania a more attractive investment destination and to improve aspects of the business climate. A new EU-compliant law regulating investment is expected to be published in the near future.
Business and financing
Business forms Limited liability company, joint stock company

The limited liability company (SRL) is the most frequently used form of entity primarily because it is the easiest to operate and can have a single shareholder. Other forms of business organisation are the general partnership, limited partnership, limited partnership with shares, silent partnership, sole proprietorship, family association and branch of a foreign company.

Family associations and sole proprietorships are not available to foreign investors and it is difficult for foreigners to operate in partnerships in Romania.
Labour environment
Unemployment rate 5.1%* Minimum wage RON 390 (monthly)
*Economist Intelligence Unit estimate.

The monthly minimum wage, based on a 170-hour work month, was increased from January 1st 2007.

Foreigners subject to taxation in Romania should register for tax purposes. Expatriates working in the country should generally obtain a Romanian work permit (except for foreigners assigned by companies registered in an EU/EEA member state and/or citizens of certain EU member states). Expatriates also should obtain Romanian residency permits/registration certificates.
Taxation
Corporate tax
Taxation rate 16%

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Romanian-source income. A company is resident if incorporated under Romanian law or if its place of effective management is in Romania. Small companies, defined as companies with between one and nine employees and a turnover under ƒ100,000, are taxed at a 3% rate on income, with the exception of companies that derive more than 50% of their income from consultancy and management services.

General partnerships, limited partnerships and partnerships limited by shares are considered legal persons in Romania and corporate tax is charged at the entity level.

Dividends paid to resident corporate and individual shareholders are subject to a final 10% withholding tax.
Individual tax
Taxation rate 16%

Resident individuals are taxed on their worldwide income; non-residents are taxed only on Romanian-source income. A taxpayer whose domicile or centre of vital interests is in Romania, or who is present in Romania for 183 days in a 12-month period, is considered to be resident. The income of individuals is taxed at a rate of 16%. Dividends and interest paid to resident individuals are subject to a 10% final withholding tax.
Capital gains
Taxed as income

Capital gains are generally taxed as income.
Indirect tax
VAT standard rate 19%

Value-added tax (VAT) applies to most transactions. The standard rate of VAT is 19% and a reduced rate of 9% applies to books, newspapers, medicines and hotel services. Exports are zero-rated. Exemptions include medical, educational, social, financial and banking services.

Registration is compulsory for businesses with an annual taxable turnover above RON 120,000, but voluntary registration is possible below this level. Non-EU suppliers must appoint a VAT representative in Romania and the EU suppliers should register for VAT purposes, unless the reverse-charge mechanism applies to the transaction.

The Romanian VAT legislation has been harmonised with the provision of the EU VAT Directive starting January 2007.
Tax administration and compliance
Tax year Calendar year

Companies must submit quarterly tax returns and a final return at the time of filing the financial statements. Quarterly payments of tax are due based on current results, and a final payment of tax is due at the time the financial statements are filed.

Employment income is taxed by withholding. Individual taxpayers with income other than employment income must submit a tax return by May 15th following the end of the tax year. The final return is payable within 60 days of the issue of an assessment notice.
Additional tax information
Withholding taxes Dividends, Interest and Royalties 16% (10% on interest on savings). Rates may be reduced under the provisions of an applicable tax treaty or under an EC Directive.
Tax treaties Romania has concluded more than 70 double-tax treaties.
Dividends Dividends paid to resident companies and individuals are subject to a 10% final withholding tax.
Revenue protection There is transfer-pricing and thin-capitalisation legislation.
Groups VAT grouping.
Incentives Qualifying direct investments.
Other taxes Customs duties, Inheritance tax, Oil tax, Real estate tax.