Entrepreneurship in Romania.
Main legal forms in which business may be conducted in Romania
It should be noted that there are several type of corporate forms that may be established in Romania in order to conduct business, each with distinct structures and specific legal regime (such as different types of companies, branches, representatives offices, authorised natural persons etc.).
However, the overwhelming majority of the entrepreneurs who are foreign individuals usually opt for conducting their business through limited liability companies (in Romanian language: Societate cu răspundere limitată / S.R.L.), due to their flexible incorporation procedure and the following advantages:
- may be established by at least one shareholder (i.e. founder);
- may have one or more directors;
- there is no threshold for minimum share capital; and
- have distinct legal personality and the personal liability of their shareholders is limited, in general, to their contribution to the share capital.
Procedural and practical aspects from a corporate perspective on how to incorporate such legal form
The incorporation procedure of a Romanian limited liability company ("LLC") involves several steps, such as:
Obtaining a corporate name reservation for the LLC:
Prior to the execution of the required incorporation documentation and to filing it with the Romanian Trade Registry (i.e. the national competent authority in this field), a corporate name availability and reservation shall be obtained from the Trade Registry.
In order to obtain the reservation, a standard form comprising 3 desired corporate names for the LLC shall be filled in and submitted with the Trade Registry (will be verified by the Trade Registry in this order of preference, meaning that option 2 will be verified only if option 1 is unavailable, and option 3 only if options 1 and 2 are unavailable) – standard form and relevant information in this respect can be found here.
To this end, please note that including attributes such as "national", "Romania", "Romanian", "institute" or derivatives thereof and/or words specific to central or local public authorities and institutions from Romania within the LLC’s corporate name requires the prior approval of other authorities (i.e. the General Secretariat of the Romanian Government or of the prefect of Bucharest / of the county where the LLC will be incorporated).
The reservation is valid for a period of 3 months as of its issuance by the Trade Registry, with extension possibility for additional 3-month periods.
Obtaining the right to use the headquarters of the LLC:
As per the Romanian law, an LLC shall have headquarters (either leased or owned) at the moment of incorporation and the headquarters address must be reflected in most of the incorporation documents to be prepared and signed. Thus, for securing its headquarters, property deeds/lease/sub-lease/free lease agreement allowing the LLC to use a determined space as headquarters should be executed by the LLC prior to filing the incorporation documentation with the Trade Registry.
Opening a bank account for the LLC (and performing the corresponding payment of the share capital):
The founder’s contribution in cash to the LLC’s share capital shall be paid, prior to filing the incorporation documentation with the Trade Registry, to a bank account opened in the name of the LLC.
Thus, the founder shall open a share capital account in the name of the LLC and make the relevant payment.
The procedure of opening a bank account may differ depending on the specific internal rules of each bank.
Drafting and signing/obtaining several documents:
In principal, the following documents are required for incorporating an LLC:
- corporate name reservation;
- articles of association of the LLC;
- property deeds/lease/sub-lease/free lease agreement allowing the LLC to use a determined space as headquarters;
- statements and specimen signatures of the founder & director;
- statement regarding the activities (NACE Codes) authorized to be carried out by the LLC;
- copies of the identification acts (ID card/passport) of the founder & director and the Romanian language translation thereof;
- statement regarding the ultimate beneficial owners of the LLC etc.
List of all required documentation, as well as the Trade Registry’s corresponding instructions can be found here.
In general, documents should be signed in wet-ink signature and notarisation/apostille formalities are required only in relation to the statements and specimen signatures of the founder & director – however, given the COVID-19 context, there is an exception from this rule allowing the founders and directors to submit such statements with the Trade Registry in wet-ink signature only (no notarisation/apostilled formalities being required) until March 2023.
Performing the registrations formalities before the Romanian Trade Registry:
Once the steps described at points A-D above are fulfilled and in 15 days as of the signing of the LLC’s articles of association, the incorporation documentation signed or, as the case may be, obtained, shall be submitted with the Trade Registry Office from the county where the LLC has its headquarters located.
The documentation shall be accompanied by a request for registration to be filled in and signed by the LLC’s director, which can be found here.
As a general rule, the incorporation file may be submitted with the competent Trade Registry Office:
- in original, at the competent Trade Registry Office’s premises, either by presenting in person for submitting such file or by sending it via courier; or
- in scanned copies, by online procedure (via the Trade Registry’s online platform or via email) – however, from our experience, the online procedure proves to be rather cumbersome for individuals, as it entails having and signing all scanned copies with a qualified electronic signature ("QES"), issued in accordance with Regulation (EU) no. 910/2014. The QES is obtained on the basis of a separate procedure and against a fee and, in order to be accepted by the authorities, the QES needs to be issued by one of the qualified trust service providers based in the EU and mentioned in this list.
In terms of timeline, the actual registration procedure with the Romanian Trade Registry takes around 3-5 business days as of the submission of the incorporation file, provided that the authority does not have any observations/requests for further information.
In terms of registration costs, it should be noted that the Trade Registry’s fees are equal to approx. RON 130 (i.e. approx. EUR 26).
Registration steps and main compliance obligations from a tax perspective
Registration of tax liabilities
The tax registration of a newly incorporated LLC is done automatically when the incorporation file is submitted with the Trade Registry. However, a registration file has to be also submitted with the tax authorities, within 30 days since the registration with the Trade Registry will have finalised.
The Romanian tax legislation provides for the following tax regimes applicable to Romanian companies:
- microenterprise tax (tax on income realised by the local entity, in quota of 1% or 3%, depending on the number of employees); Upon incorporation, the entity will automatically be registered as payer of microenterprise tax and will remain under this regime until the company's turnover reaches EUR 1,000,000 (RON equivalent). Starting with the fiscal period when this threshold is exceeded, the company becomes subject to corporate income tax
- corporate income tax (tax on profits realised by the local entity, in quota of 16% applied to profits computed in line with the provisions of the Romanian fiscal legislation). By means of exception, a newly incorporated company may opt to apply the corporate income tax regime since incorporation if: (a) it has a share capital of at least RON 45,000 (approx. EUR 10,000); and (b) has at least 2 employees. These conditions need to be complied with for the entire duration of the company
- tax on specific activities – special regime applicable to taxpayers that carry out activities in the field of tourism and catering (e.g. accommodation facilities, restaurants). Cannot be applied by the taxpayers subject to microenterprise regime. Level of tax depends on the classification of the city where the activity is carried out, the surface of the space used for the business activity and a seasonality coefficient. Tax is declared and paid bi-annual, by 25th of the month following the ending of the semester
Registration for VAT purposes
VAT registration is mandatory for the local entity once it registers a turnover of EUR 88,500 (RON 300,000, as provided by the law) and/or if the company performs intra-community transactions.
However, the entity can opt to register prior to reach the abovementioned threshold and there are several procedures available in this respect.
The VAT registration of a company is subject to tax authorities’ approval and they are entitled to ask additional information from the company, if they deem necessary for the purpose of their analysis.
We note that, after obtaining the VAT code, the company would need to submit VAT returns on a monthly/ quarterly basis, as the case may be. If the company does not perform any transactions subject to VAT and submits nil VAT returns for a period of 6 (six) months, the VAT registration will be cancelled by the tax authorities and a re-registration process should be followed at a later stage.
Standard VAT quota is of 19% and for certain activities reduced or nil quota may be applied – this should be verified on a case by case basis.
Employees – registration as salary income tax and SSC payer
In case the incorporated LLC will have employees, the fiscal vector of the company needs to be amended to also include salary related taxes, as the LLC (in its quality of employer) has the obligation to compute, declare, withhold (from employees' gross salaries) and pay to the state budget the salary taxes.
The applicable standard quotas are (for normal working conditions):
- 10% for salary income tax
- 25% health contribution
- 10% pension contribution
The above rates refer to income tax and SSC due by the employees. In addition to that, the employer also owes a work insurance contribution of 2.25%, that is on top of the employees' gross salaries.
Specific exemptions apply for certain activities such as IT, agriculture, constructions which are exempted from salary income tax and may benefit of certain reductions of social security contributions, provided that qualifying conditions are met
Each time the fiscal vector of the company changes (LLC becomes or ceases to be subject to a new tax or the identification details of the company are modified), an amended registration statement has to be submitted. Depending on the situation generating the change, supporting documentation will have to be submitted as well.
The amendments need to be notified with the competent tax authority within 15 days since they occurred.
All communications with tax authorities are done by electronical means. In this respect, an account has to be created in the Virtual Private Space (VPS) a platform created and managed by the tax authorities. This requires also obtaining an electronical signature from an authorised issuer.
More information related to tax procedural aspects may be found on the official websites of the Ministry of Public Finances (https://mfinante.gov.ro/ro/web/site) and National Agency for Tax Administration (www.anaf.ro).
The LLC has to submit tax returns for declaring the following categories of tax liabilities: (i) income tax / corporate income tax (ii) salary income tax and (iii) and social security contributions due for employees, (iv) VAT (if the case). Depending on the activity carried out by the LLC, additional tax liabilities may arise.
The tax returns for declaring the main tax liabilities are:
- Form 100 – Tax return related to payment liabilities due to the state budget:
- Form 112 – Tax return regarding the payment liabilities representing social security contributions, income tax and the nominal evidence of the ensured persons
- Form 300 - VAT return
- Form 390 – Centralising statement regarding the intracommunity supplies/acquisitions/provisions
- Form 394 – Informative statement regarding the local supplies/provisions and acquisitions
The forms may be downloaded from the public website of the National Agency for Tax Administration (www.anaf.ro)
According to the Romanian accounting law, LLC has to organize and conduct financial bookkeeping, in a double entry system.
The bookkeeping reflects all the transactions performed by the LLC. Any economic operation performed has to be registered in the LLC’s bookkeeping based on a justifying document.
The bookkeeping activity has to be organised in specific and distinct departments, led by either the financial directors, chief accountant or other person empowered in this respect or based on services agreements concluded with a specialised entity, registered with the Certified Chamber of Accountants. The persons in charge with organising the accounting function are held responsible for the correct applicability of the legislation provisions in this field.
There are certain mandatory accounting documents that the LLC has to have available and to fill them in with the requested information, such as:
- Journal-Registry – it is used to chronologically record all the economic-financial operations as per the justifying documents or accounting notes; the registrations are made either during the month or at the ending of such month;
- Inventory-Registry – contains all registrations related to assets, debts and capitals and all related information resulted from the periodical inventory activity;
- Big book – contains all accounts existence and activities and it represents the grounds for issuing the trial balance;
- Trial balance – to be prepared each time is necessary and at least at the ending of the financial exercise, at the date of preparing the annual financial statements and at the ending of the period for which the corporate income tax/income tax returns has to be prepared.
More articles from this series:
By Cristina Popescu, Tax Consultant, and Noemi Popa, Associate, DLA Piper