Volodymyr Bezditnyi
Partner, 4b.ua
As an EU member state, Romania offers a strategic advantage for entrepreneurs and businesses looking to establish a foothold within the European market. With its competitive tax system, skilled workforce, and ease of doing business, Romania is increasingly recognized as a hub for both domestic and international companies. This article provides a detailed guide to corporate structures in Romania, the legal requirements for starting a business, and the registration process to help you leverage Romania’s position within the European Union.
Overview of Business Structures in Romania
In Romania, several corporate structures are available depending on the size, nature, and scope of the business. The most common forms are the Limited Liability Company (SRL), the Joint Stock Company (SA), and the Branch of a Foreign Company. Each of these structures has different legal and financial requirements, offering flexibility based on the investor’s needs.
Limited Liability Company (Societate cu Răspundere Limitată – SRL)
The SRL is the most popular form of business entity in Romania due to its simplicity and minimal capital requirements. This structure is suitable for small to medium-sized enterprises (SMEs), and the liability of shareholders is limited to their contribution to the company’s share capital. The minimum share capital required to set up an SRL is 200 RON, which is roughly €40 (Law No. 31/1990).
An SRL can have between 1 to 50 shareholders, and they can be either natural or legal persons. The key advantage of an SRL is that it is easy to establish and manage, with reduced administrative burdens compared to other structures. In addition, profits are distributed according to the shareholders’ percentage of ownership, and the company is subject to a 16% corporate income tax, or 1-3% tax for micro-enterprises under certain conditions (PwC, 2020).
Joint Stock Company (Societate pe Acțiuni – SA)
The SA is a more complex structure designed for larger businesses, especially those intending to raise capital through public or private offerings. The minimum share capital for an SA is €25,000, and it requires at least two shareholders (European Commission, 2019). Shareholders’ liability is limited to the amount they have invested in the company.
An SA must appoint a Board of Directors (if a one-tier management system is chosen) or a Supervisory Board (in the case of a two-tier system). The corporate governance of an SA is more rigorous than that of an SRL, making it suitable for companies that anticipate complex operational structures or plan to list on the stock exchange.
Branches and Subsidiaries of Foreign Companies
Foreign companies wishing to expand their operations in Romania have the option to open a branch or a subsidiary. A branch is an extension of the parent company and does not have its own legal personality. The parent company is fully liable for the activities of the branch, which may make this structure less attractive for businesses looking to limit liability. However, branches are simpler to set up, as they follow the corporate governance structure of the parent company.
A subsidiary, on the other hand, is an independent legal entity that enjoys limited liability. It is often set up as an SRL or SA, depending on the business’s needs and scale. The main advantage of a subsidiary is that it allows the parent company to limit its financial and legal risks (KPMG, 2018).
Legal Requirements for Establishing a Business in Romania
Establishing a company in Romania involves meeting certain legal requirements and following specific steps. These procedures are designed to ensure compliance with Romanian corporate law and the EU regulations governing business operations in member states.
Registration with the National Trade Register Office (ONRC)
The first step to setting up a business in Romania is registering with the National Trade Register Office (ONRC). This process involves submitting the company’s Articles of Association, which outlines key details such as the company’s name, address, purpose, and shareholding structure (ONRC, 2020). The Articles must be drafted in Romanian, and the company’s name must be unique and approved by the ONRC.
In addition to the Articles of Association, you will need to provide proof of a registered office address, identity documents of the shareholders, and a declaration of beneficial owners. This information ensures transparency regarding the company’s ownership structure.
Obtaining a Unique Identification Code (CUI)
Once registered with the ONRC, the company will receive a Unique Identification Code (CUI), which serves as the company’s tax identification number. The CUI is required for all financial transactions, including opening a bank account and filing tax returns (EY, 2019).
Opening a Bank Account and Depositing Share Capital
After registration, you will need to open a bank account in the name of the company. For certain business structures, such as an SRL or SA, a minimum share capital must be deposited into the account before the registration can be completed. For example, an SRL requires a minimum capital of 200 RON, while an SA requires €25,000 (PwC, 2020).
Registration for VAT and Social Contributions
If the company expects to have annual revenue exceeding €88,500, it must register for Value Added Tax (VAT) with the tax authorities (Deloitte, 2018). Companies may also voluntarily register for VAT, depending on their business needs. In addition, employers must register for social security and health insurance contributions, which are mandatory for all employees.
Key Considerations for Foreign Investors
Foreign investors can take advantage of Romania’s status as an EU member state, which allows businesses established in the country to operate across the EU without barriers. However, it is essential to be aware of the specific requirements for foreign ownership and direct investment in Romania.
Foreign Ownership
Romania permits 100% foreign ownership in most industries, meaning that foreign investors can own and control Romanian businesses without needing a local partner (OECD, 2017). However, some industries, such as banking, insurance, and telecommunications, may require additional licensing or regulatory approval.
Investment Incentives
Romania offers a range of investment incentives for foreign investors, including tax breaks, subsidies, and access to EU funding. Companies engaged in priority sectors, such as IT, renewable energy, and manufacturing, may qualify for state aid schemes that offer partial or full tax exemptions for a limited period (Ministry of Economy Romania, 2019). These incentives are designed to attract foreign direct investment (FDI) and promote economic growth.
Streamlining the Registration Process
To streamline the process of setting up a business in Romania, the government has introduced several initiatives to reduce bureaucracy and improve efficiency. The one-stop-shop system, introduced by the ONRC, allows entrepreneurs to complete all necessary formalities in one place, significantly reducing the time and effort required to start a business (World Bank, 2018).
Furthermore, Romania’s growing digital infrastructure is helping to facilitate the electronic submission of documents and online registration processes. These developments are particularly beneficial for foreign investors who may face challenges navigating Romanian administrative procedures from abroad.
Romania offers a wide range of corporate structures to suit different business needs, from small, entrepreneur-led ventures to large multinational corporations. The country’s favorable business environment, straightforward legal requirements, and EU membership make it an ideal location for companies looking to expand into the European market. Whether establishing a Limited Liability Company, a Joint Stock Company, or a branch of a foreign entity, Romania provides a flexible and efficient framework for setting up a business.
As Romania continues to streamline its registration processes and enhance its investment incentives, it is poised to become an increasingly attractive destination for foreign investors. By understanding the legal requirements and choosing the appropriate corporate structure, entrepreneurs can take full advantage of Romania’s strategic position within the EU and its favorable business climate.
