Romania

Since 2015, Romania has implemented a series of measures aimed at making the national tax system particularly attractive to foreign investors. In particular, we refer to the “flat tax” which introduced a’single tax rate on business income of 16 percent (a value that decreases dramatically with reference to the so-called “micro enterprises”). As a result of the VAT cut, the country è became the “favorite” destination of foreign entrepreneurs, especially European ones, intent on relocating their economic activities. In a relatively short time è the far-sightedness of this tax intervention has been confirmed, as it has fostered exponential economic growth in the country. In fact, data released by the Romanian National Institute of Statistics (so-called INS), denote that in the first six months of the year 2019, the country's economic growth registered a 4.7% increase in GDP compared to the same period of the previous year. Growth projections prepared by the Romanian National Strategy and Forecasting Commission forecast a 4.1 percent increase in GDP in 2020, a figure that is in line with European Commission estimates.

As of the end of 2018, Italy is among the most important trade partners of the Romanian Republic. As much as 10.5 percent of Romanian foreign trade è is due to Italian-Romanian trade.

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Studio Legale de Capoa & Partners, thanks to its more than 30 years of experience in the field of international law as well as to the close collaborative relationships it maintains with qualified local professionals and native-speaking in-house associates, can offer interested entrepreneurs a quick, efficient and fully aware advice on the complexity of the Romanian legal-economic reality.

First of all, it is worth pointing out that the Romanian tax year coincides with the solar calendar, so it is calculated from January 1° to December 31 of each year. In order to be considered a tax subject or resident, one must meet at least one of these conditions:

• be domiciled in Romania;
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• settle the center of the interested individual’s interests in Romania;
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• the individual concerned must have resided in Romania for a period of more than 183 days within 12 months.

In the Romanian tax system, residency is of crucial importance, as residents are subject to tax on all income wherever produced. In contrast, nonresidents pay taxes limited to Romanian-source income, that is, income produced or received on Romanian territory.

In addition, it is worth noting that with respect to specific categories of income, including, for example, income derived from self-employment or investment income, the rate remains invariably set at 10% (previously it was set at 16%) regardless of the income actually received. The decrease in the’rate è the result of the amendment made to the Romanian Tax Law Code by the Budget Law implementing the’“Ordonanță de urgență” of October 26, 2018, strongly supported at the political level by the Governments of Traian Basescu and Kaus Joannis.

The decrease in the rate è was followed by the decrease in the mandatory social security contribution. For the above reasons, the entrepreneurial choice of relocating the business to Romania è undoubtedly successful, as the fixed rate provided for legal entities è amounted to 16% on the’profit. The figure under consideration, added to the general cost of living significantly lower than those recorded in neighboring Western countries, consequently brings the state to the top of those chosen to open a business or entrepreneurial activity there.

The peculiarityà of the Romanian tax system can be seen in the distinction drawn between Enterprises and Micro Enterprises. The former are identified in those enterprises whose annual turnover exceeds 1,000,000 euros, regardless of the activity carried out; therefore, profits to the extent of 5% received by them are also subject to taxation. It should, however, be specified that if dividends are distributed to European or Romanian legal entities holding at least 10% of the share capital, such profits are exempt from taxation. Royalties and interest received by European legal persons holding 25% of the share capital for at least 2 consecutive years are also exempt from taxation.

In addition, deductibility can reach nearly 100 percent, if supported by proven written documents proving its actual existence and use for the continuation of the company’s ultimate purpose. The “microenterprises”, on the other hand, are those economic entities whose annual turnover, calculated by subtraction, does not exceed 1 million euros, with the result that the’tax is applied on revenues and its amount varies from’1 percent to 3 percent.

As can be seen, a taxation system marked by the minimum tax burden is a strong incentive for all those companies that intend to transfer their activities abroad. This phenomenon is also supported by an extremely streamlined bureaucracy, where the procedure for setting up a business company requires a few simple steps, such as choosing a name and registering it with a Romanian Business Registry. In fact, according to Law No. 31/1990, for the purpose of incorporation of the company, the preparation of the articles of incorporation, articles of association, as well as an affidavit is required. These documents, translated into the Romanian language, must be submitted to the Register of Companies.

The widespread phenomenon of internalization of industries and the progressive business migration to Romania have not, however, excluded the use of classic contractual tools aimed at regulating business relations. The following is a brief analysis of the most significant institutions.

The agency contract in Romania è is governed by Articles 2072-2095, Chapter X (“Contractul de agenţie”) of the new Romanian Civil Code (d’henceforth c.c.r.). These rules define the agency contract as a power given to a person (the agent) to negotiate and conclude contracts in the name and on behalf of another (the principal) for remuneration.

In the Romanian legal system, the figure of the agent è traced back to that of an independent intermediary. According to’art. 2078 of the Civil Code, the agency contract è represented by a consensual agreement of which è written form ad probationem is required.

Each of the parties to the agreement shall have the right to obtain, upon express request, a document in written and signed form concerning the agency agreement, including amendments thereto. This right is not subject to waiver and is unwaivable by the parties.

The main clauses that distinguish the agency contract are the exclusivity clause “Exclusivitatea” governed by’art. 2074 c.c.r. and the non-competition clause “Clauza de neconcurenţă” provided for by’art. 2075 c.c.r..

The first, relating to the right of exclusivity, provides, unless otherwise agreed between the parties, an express prohibition for the agent who has already entered into an exclusive agency contract, to enter into similar contracts and covering the same activities, with different entities that exercise their economic activity in competition with that of the principal. The second, on the other hand, concerns the non-competition clause and imposes the limitation of the agent’s professional activity in competition with the principal’s activity throughout the duration of the contract and/or after its termination. Such non-competition clause must be in writing under penalty of nullity of the contract. If the contract extends the validity of the clause under consideration to a time after the termination of the contract, the said period cannot exceed two years.

As a rule, the agency contract has a duration expressly determined by the parties. However, pursuant to Art. 2088 c.c.r., the tacit continuation of the performance of obligations under the contract once the term has expired entails its automatic extension for an indefinite period of time.

The term of the contract is not to be extended.

The termination of the contractual relationship may take place at any time, without prejudice to the obligation to give notice, which is to be calculated on the basis of the total duration of the contract itself, and the right to indemnity that the agent has, in the event of unilateral termination.

The Romanian legal system does not provide a specific regulation of the distribution contract. However, è a similar type is known, namely the so called “contract de furnizare”, regulated by ’art. 1766 et seq. of the c.c.r.., which defines it as an agreement by which one party, called “furnizor”, undertakes, upon receipt of consideration to transfer, on a periodic or continuous basis, under one or more conditions, a certain quantity of goods or to render certain services vis-à-vis the other party, called “beneficiar”, which undertakes to take over the goods or to receive the provision of services. It is a bilateral, onerous, commutative and consensual contract.

Among the duties of the “furnizor” are the obligation to transfer the ownershipà of the goods, as well as to assume the risk of losing the goods until delivery, as well as to provide a guarantee for any defects in the goods supplied. The furnizor has the option, if the contract is not personal or does not explicitly prohibit it, to subcontract the supply of goods or services to third parties. Romanian law does not contemplate any right to severance pay.

The distribution contract terminates automatically if it has reached the established term or by manifest common volition or if either party can no longer fulfill its contractual obligations, with the consequent right granted to the fulfilling party to take legal action.

Franchising è is expressly regulated by’Ordinance no. 52/1997 (“Ordonanţei Guvernului nr. 52/1997 - regimul juridic al francizei”), which defines franchising as a distribution system based on continuous cooperation between natural or legal persons, financially independent, under which a person, called “franchisor”, grants to another person, called “franchesee”, the right to manage or develop a business, product, technology or service (Art. 1).

The franchisor has a general duty of information, which is to provide the prospective franchisee with all the information necessary for him to actively participate in the franchise agreement.

In Romanian law, franchising is based on the principle of equity, by virtue of which, following the termination of the franchise relationship, all subsequent relations between the parties are based on the common rules of fair competition. However, the franchisor retains the power to impose certain obligations on the former franchisee designed to protect its business.