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Corporate Changes That Make Romania More Attractive for Holding Companies

Corporate Changes That Make Romania More Attractive for Holding Companies

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Back in July 2020, the Romanian Companies Law was amended to allow entrepreneurs to hold the position of sole shareholder in more than one Romanian limited liability company.

Previously, legal restrictions existed that prevented individuals from being a sole shareholder in more than one Romanian limited liability company and prevented limited liability companies (including those from abroad) with a sole shareholder from becoming a sole shareholder in Romanian limited liability companies.

These restrictions made little-to-no sense, especially to foreign investors, particularly holding companies, which were forced to include an additional shareholder in their corporate structures in order to establish or acquire shares in Romanian limited liability companies.

This made corporate transactions, mergers and acquisitions, and simple share transfer assignments a hassle for holding companies and their legal advisors, often led to delays in transaction closings, and in some cases deterred holding companies from starting business in Romania altogether.

While Romania does not have any specific legislation in place regulating holding companies, the elimination of these restrictions will likely make the Romanian business market much more attractive to foreign holding companies, as the incorporation or share acquisition processes are now more flexible and the relevant Romanian company will be easy to set-up, organize, and manage in a similar manner to other subsidiaries of the holding company.

Main Advantages for Holding Companies

In addition to the changes making the incorporation, merger and acquisition transactions, and share acquisition processes much more efficient and easy to implement, holding companies that decide to start doing business in Romania will now also be able to fully benefit from, among other things: (i) the ability to have an integrated, streamlined, and identical corporate structure throughout the relevant countries of interest; (ii) a simplified decision-making process, without the need to involve additional shareholders or to adhere to rigid quorums and convening formalities specific to shareholder assemblies; (iii) the ability to establish separate limited liability companies for each line of business (so that, in other words, the same holding company may be a sole shareholder in multiple entities, each assigned to a different business line); (iv) a simplified sale of business process; and (v) the ability to work within a familiar business structure, applicable to all subsidiaries.

In addition to these organizational advantages, holding-type structures, although not expressly regulated under Romanian law, do benefit from certain corporate, financial, geographical, and tax advantages, including: (i) an incorporation process that takes only three working days from submission of the incorporation documents to the competent trade registry; (ii) a low minimum share capital requirement of only RON 200 (approximately EUR 40); (iii) a low 1% to 3% revenue tax for microenterprises; (iv) a flat 16% profit tax for medium and large enterprises; (v) a low flat 10% income rate for individuals; (vi) a fairly large population that could prove attractive to consumer-driven businesses; (vii) the absence of dividend taxes on shareholder entities fiscally registered in other European Union member states, subject to payment of corporate tax in those member states; and (viii) the extensive Double Taxation Treaties to which Romania is a part.

More to Come

The new corporate changes pave the way for holding companies to operate under a “business-as-usual” scheme on the Romanian market.

The above-mentioned flexible taxation rates specific to Romanian companies – among the lowest in the European Union – make the Romanian market attractive to large and small enterprises, while consumer-driven businesses will have a large population pool to cater their products and services to.

In light of the elimination of the sole shareholder-related restrictions and the other advantages detailed above, the Romanian market will very likely see an increase in the number of holding companies setting up subsidiaries in Romania and even local companies adapting their structures to that specific to holding companies.

These facts will also likely lead the Romanian legislator to finally enact legislation specifically tailored for the organization and operation of holding companies, which will likely result in additional corporate and tax advantages in the future, such as extended capital gains tax exemptions and the consolidation of financial statements at the mother company level.

By Dana Radulescu, Partner, and Daniel Alexie, Senior Associate, Maravela, Popescu & Asociatii

This Article was originally published in Issue 7.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Romanian Knowledge Partner

Țuca Zbârcea & Asociații is a full-service independent law firm, employing cross-disciplinary teams of lawyers, insolvency practitioners, tax consultants, IP counsellors, economists and staff members. It also operates a secondary law office in Cluj-Napoca (Romania), and has a ‘best-friend’ agreement with a leading law firm in the Republic of Moldova. In addition, thanks to the firm’s dedicated Foreign Desks, the team provides the full range of services to international investors seeking to gain a foothold or expand their existing operations in Romania. Since 2019, the firm and its tax arm are collaborating with Andersen Global in Romania.

Țuca Zbârcea & Asociaţii is providing legal services in every aspect of business, covering all major areas of practice: corporate and M&A; litigation and international arbitration; corporate tax; public procurement; TMT; employment; insurance; banking and finance; capital markets; competition; healthcare and pharmaceutical; energy and natural resources; environmental; intellectual property; real estate; regulatory legal services.

Țuca Zbârcea & Asociaţii is a First-Tier law firm in all international legal directories and a multiple award-winning law firm both locally and internationally. It received the CEE Deal of the Year Award (DOTY Awards 2021) and the Law Firm of the Year Award: Romania (IFLR Europe Awards 2021). 

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