Foreign Direct Investment in Romania
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Octombrie 2009 |
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DANIEL IONESCU - Managing Partner
LARIVE ROMANIA INTERNATIONAL BUSINESS DEVELOPMENT S.R.L. |
Adresa
Strada Emil Pangrati, Nr. 3
Ap. 1
Bucureşti, Sector 1
Telefon
+40-21-223.00.14
+40-21-223.00.15
Fax
+40-21-223.00.19
Website
www.larive.ro
DANIEL IONESCU
Managing Partner
LARIVE ROMANIA INTERNATIONAL BUSINESS DEVELOPMENT S.R.L.
The accession of Romania to the European Union took place on 1st of January 2007. Due to its strategic location in the region, Romania is seen as a zone of stability and democracy in its immediate neighbourhood.
Romania expects to benefit from the EU accession, including the harmonization of capital market regulations, taxation and accounting rules. Export procedures to the EU members are now simplified regarding the business administration and exchange risks, while a new extended market is open. EU integration amplified the economic growth and the foreign investments, at the same time increasing the exchange rate volatility.
Confirmed by the experience of other countries that joined the European Union, the economy continued to expand after accession. Boosted by investor's confidence, the capital inflows increased and direct investments started to be replaced by portfolio ones, while financial instruments diversified. The significant effects registered soon after the accession, were: a boost in the economic growth, increase in portfolio investments, moderate price increases, exchange rate volatility. However, being one of the largest EU members in terms of territory size (the 9th in the EU 27) and population (the 7th in EU 27), Romania became more and more appealing to investors, especially in some high value added sectors, which are less dependent on low wages.
As an EU member, Romania is benefiting from post-accession funds, which are significant. The total amount allocated for Romania for the period 2007 - 2013 for Structural and Cohesion Funds is about EUR 31 bn. The funds are meant to increase economic competitiveness, improve transport and environmental infrastructure, improve human resources development and strengthen the administrative capacity, etc.
The National Development Plan (NDP) is the fundamental tool that Romania is using in order to diminish, as soon as possible, the social and economical disparities with the EU.
Six national development priorities have been set up for the period 2007 - 2013, bringing together a multitude of domains such as: economiccompetitiveness, transport infrastructure, quality of the environment, strengthening of the administrative capacity and human resources development, improving rural economy and increase agriculture sector productivity, and diminishing the development imbalances among Romania's regions.
Legal framework regulating the direct investments
In order to improve the business climate in Romania and attract foreign capital to the economy, the Romanian Government set up new regulations in 2008 aimed to support investments.
In this context, authorities issued the Emergency Government Ordinance no. 85/2008 setting general legal framework in the field of investment incentives.
The Emergency Ordinance is the result of the business climate needs of regulations to settle a framework for investments, in accordance withboth EU and national legislation on state aids. It supports investments in certain less developed regions, taking into account Romania's development priorities, focusing particularly on those regions which attracted fewer investments in the past, in order to assure a balanced territorial development.
Its stipulations set the basic principles as regards granting and application of facilities for investments (such as equal treatment for the investors, transparency of procedures, efficiency in the usage of facilities, confidentiality as regards the investors' property rights, and eligibilitydepending on the source of the financing funds), the types of facilities to be granted (state aid type), the eligibility conditions for both investment and investor and other general provisions.
Based on these provisions, the responsible authorities initiate laws / administrative norms (Government Decision no. 1165 from 26th of September 2007 on state aid Scheme I supporting investments in all sectors of activity, exceeding EUR 30 mn and generating at least 300 newjobs, Government Decision no. 1680 from 10th of December 2008 on state aid Scheme II supporting investments in all sectors of activity, exceeding EUR 30 mn and generating at least 300 new jobs, Government Decision no. 718 from 14th of July 2008 on state aid scheme supporting investments in all industrial fields and the energy field, concerning activities of electric and thermal energy production and consumption, Government Decision no. 753 from 16th of July 2008 on state aid scheme supporting large enterprises, applying to investments exceeding EUR 100 mn, with eligible costs of over EUR 50 mn, and generating at least 500 new jobs), which institute support measures in the form of state aid schemes or individual aid for each priority area.
The governmental agency which provides general assistance services to foreign investors is the Romanian Agency for Foreign Investment (ARIS). It plays the role of intermediary between investors and central and local authorities. It also offers technical assistance / guidance as regards the available schemes by means of which investors can apply for financing from the responsible authority. ARIS is continuously informed by the relevant authorities on the new investment projects and will publish on its web site a list of state aid / individual aid schemes, which will be updated permanently.
Taxation
On 1st of January 2004 the Fiscal Code came into force. The code integrates key tax legislation and provides the basis for a more stable framework of tax legislation. The Fiscal Code was further amended since then by several others laws and Emergency Government Ordinances which brought changes with respect to investment incentives, following the provisions and trends set by the EU legislation.
Some of the most important rules set into force by the Fiscal Code further amended with respect to new tax incentives for investors are:
■ carrying forward the fiscal loss during the following 7 years (from 5 years previously) for the annual fiscal loss recorded in 2009
■ due to lack of financial resources, the Romanian government imposed from 1st of May 2009 the „lump taxation"; depending on the total income registered in 2008, each company is introduced in a certain bracket and has to pay at least a minimum tax, irrespective of actual loss or smaller profit recorded in 2009
■ a 10% tax rate is imposed on dividends paid by a company, Romanian legal person, to another legal entity resident of a EU or EFTA (European Free Trade Association) member state, or to a permanent establishment of a company from a EU or EFTA member state, located in another state, member of one of these two communities
■ a 10% tax rate is to be paid on income from interests and royalties, if the final beneficiary of this income is a legal person resident of an EU or EFTA member state, or a permanent establishment of a company from a EU or EFTA member state, located in another state, member of one of these two communities. This 10% quota applies during a transition period from the date when Romania joined the EU to 31st of December 2010. The only condition is for the final beneficiary of the interests or of the royalties to own a minimum of 25% of the value / number of the participation titles of the Romanian legal person, for an uninterrupted period of at least 2 years that ends on the date of the payment of the interest / royalties. Starting 1st of January 2011, these incomes from interests and royalties will be tax exempt, if the final beneficiary owns a minimum of 25% of the value / number of the participation titles of the Romanian legal person, for an uninterrupted period of at least 2 years that ends on the date of the payment of the interest / royalties.
