Вы находитесь на странице: 1из 24

Developing a Market Entry Strategy for Romania

kpmg.ro

KPMG in Romania

2 | Developing a market entry strategy for Romania

CONTENTS

Introduction Economic background Opportunities and challenges on the Romanian market Market entry Developing a market entry strategy for Romania Romania: Fact and figures Brief overview of Romanias economic environment Tax environment VAT and customs Excise Duties Local taxes and fees Income tax Tax incentives State aid in Romania

3 4 5 6 7 10 11 12 12 16 19 19 21 22

Section or Brochure name | 3

Its large domestic market, together with a skilled and relatively cheap labour force have stimulated Romania to become one of the leading countries in Europe in terms of investment attractiveness.

Introduction
omania is one of the largest countries among those which have joined the European Union (EU) over the last decade, with a population of around 21 million. EU accession in January 2007 acted as a stimulus to investment and the economy showed strong growth before the recession hit. Since the second half of 2008, investment has declined and the effects of the recession have been felt, with significant falls in consumer demand. Moreover the government has implemented austerity measures, as part of an agreement with the IMF Nevertheless, although Romania still faces . severe economic challenges it has so far avoided the deep crises which have affected some eurozone countries. There are some positive signs that recovery has begun and that this will be more sustainable than the boom-bust of 2007-9. Romania continues to present many opportunities for investors and several have concluded that this is a good time to enter or reenter the Romanian market. Nevertheless, Romania is the sort of market where knowledge is critical to success. The taxation system remains complicated and bureaucratic, in spite of the low flat tax of 16% on corporate and personal income. Moreover, legislation on tax, employment and many other issues which affect an investor can change frequently, often at very short notice. The possibilities and challenges of investment in Romania can often vary significantly from one sector to another. KPMG in Romania has expert staff who can advise investors on a wide range of issues. We can cut through complexity to help you to steer through the pitfalls and benefit from the opportunities of investing in this emerging market. For example, our professionals can assist with the tax and legal framework, helping you comply with legislation and identifying ways you might reduce costs and cut through red tape. This publication presents a basic overview of Romania and highlights ways in which KPMG can assist investors with market entry. While this publication addresses relevant areas, it does not provide the in-depth information needed to make investment decisions. As matters in Romania are still subject to frequent and rapid change, we recommend that you obtain comprehensive advice before taking any investment decision.

4 | Developing a market entry strategy for Romania

Economic background

lthough the recession has hit Romania hard, in common with other countries in the region, there are signs of recovery, and recently the EBRD suggested that there would be positive growth rates in 2011. Romania is not burdened by excessive debt (the sovereign debt level in 2010 as a proportion of GDP stood at 30.8 per cent). Inflation was approximately 6% in 2010 and is estimated at around 5% for 2011. The Romanian banking system has proved relatively robust to the recent global financial crisis, as it did not have the same levels of exposure to toxic assets as did banks in the U.S. and Western Europe. Moreover, Romanian banks do not have significant exposures to sovereign debt in those eurozone countries which have faced difficulties in recent months. However, they are relatively exposed to Romanian sovereign debt, which could present a problem if contagion from the eurozone crisis were to spread, causing the Romanian government difficulties in meeting its obligations. For the moment, though, that prospect looks unlikely.

Romanias infrastructure is relatively undeveloped, with significant improvements needed in the road and rail networks to bring them up to European standards, and so far modernization has been slow. However, there are large amounts available in EU funding to support infrastructure projects, and, with the right approach by government, a national infrastructure development program could bring opportunities for the private sector. Romania has a large domestic market, which has grown in recent years due to greater affluence and the emergence of a stronger middle class. While domestic consumer demand fell sharply when the recession hit, it can be expected to improve once the recovery takes hold and confidence returns. Investors have also been attracted by Romanias skilled and relatively cheap labour force. Over the past two decades, Romania has received a steady inflow of foreign capital.

Section or Brochure name | 5

Romania is one of the largest countries in CEE, with over 21 million inhabitants. The work force is considered relatively highly qualified, while labour markets are gaining flexibility.

Opportunities and challenges on the Romanian market

any economic sectors are still relatively fragmented and undergoing restructuring. In addition, the government has recently shown interest in further privatization, which could provide opportunities for investors.

Recently there have been changes to the Labour Code which have brought greater flexibility to the labour market. There are currently a substantial number of Business Process Outsourcing and Shared Services Centres entities operating in Romania, with companies such as Renault, Accenture, CGS, Hewlett-Packard and EFG Banc Post choosing Romania for their BPO and SSC destinations. The government offers a number of investment incentives to attract FDI, including real estate tax exemptions, as well as preferential tax deductions for the purchase of new technology and R&D centres. Grants are also available, from both national and EU sources, which can support new investments and job creation.

Nevertheless, investors need to be aware of a number of challenges that are common to most transition economies in the region, including Romania. Institutional risks still exist, albeit mostly at the local level. Although EU membership is slowly bringing stability, legislation is still changing relatively rapidly, may at times be self-contradictory and is sometimes inconsistently applied. Legal procedures can be inefficient and the administrative requirements for setting up a business remain complex. The distribution environment in Romania typically poses challenges to foreign entrants. A major share of retailing is still accounted for by a highly fragmented and unsophisticated system of traditional trade, and logistics can prove to be unreliable.

6 | Section or Brochure name

Market entry

Our approach to market entry


doing business can be complicated. Moreover, it can be hard to find accurate financial, tax, commercial and operational information about target companies. Market information and competitive intelligence may be inconsistent, inaccurate out of date or simply nonexistent. Investors often underestimate the cost of entry and the strain on management resources. The key to success is to be well informed and well prepared.

omania presents many possibilities for investors and there is still considerable untapped potential. However, any successful market entry requires research and planning. Whatever type of investment you are considering, you need to understand clearly the opportunities and the potential risks. Knowing the market, and especially what any competitors are doing, is also essential. Romania is a market where conditions can change rapidly and where

n Romania, KPMG aims to assist international and domestic investors in developing an understanding of what it takes to succeed in a market. We help define your expansion strategy and we study in-depth the market size and growth potential, key demand drivers and relevant trends, the regulatory and competitive environment, as well as the tax, legal and labor aspects which could be critical in the evaluation of an industry. Using a structured, quantitative and practical approach, we assess the attractiveness of the industry and evaluate whether the opportunity is realistic, as the client

builds a strategy to enter or expand into the market. When carried out well, a new market entry is often the most controllable way for managers to drive corporate growth. Whether choosing a location, selecting a company form, devising a market entry strategy or identifying specific risks, the decisions you make at the beginning can have a decisive impact on your future success. At KPMG in Romania, we have witnessed that successful companies use a methodical, factdriven process for market entry.

Section or Brochure name | 7

Developing a Market Entry Strategy for Romania


n considering the first steps into a new market, organizations have many issues to consider. Our team helps investors to identify which steps are the most critical, where the most significant risks could be, and how to implement a plan to take advantage of market opportunities while mitigating potential risks. Prospective investors need to take the following steps before going ahead with their project: Identify and assess the market: Which markets, which segments, how to position, how to manage and implement marketing efforts, how to enter (through intermediaries or directly), and using which information? What is the scale of the opportunity? Develop sourcing opportunities: Whether to make products or buy them? Where can key inputs be sourced? Decide on the form of investment and control: Joint venture, local partner, or acquisition?

Determine how to operate in Romania from a tax perspective: What are the most efficient legal structures, the key potential taxes, the risks and opportunities involved, and the existing benefits and incentives? Identify and approach local partners: Which companies can be approached, how attractive and dependable are these partners, how should you reach a deal with them? Build or validate a business plan: How the business is likely to perform in the upcoming years? How will the key commercial and operational drivers, external and internal factors impact the business? Evaluate where to establish the business (location assessment, site identification): Which locations (regions, cities) are the most attractive? Within the selected locations, what are the sites (properties, land, buildings) that best fit the businesss needs?

8 | Developing a market entry strategy for Romania

Our multidisciplinary team and in-depth industry expertise

o answer these questions, our team leverages a high level of local expertise, resources and networking capabilities in Romania along with a broad range of external information resources to develop a comprehensive market entry plan. Our talent pool of highly qualified professionals has always been our greatest strength. As a multidisciplinary advisory firm, instead of just being specialists in one discipline, we encourage our people to cross into other functions to bring a more rounded and comprehensive approach to every assignment. This means, for instance, that our Market Entry teams not only think about strategy and deal resolution, but also about the post-integration of systems and cultures, tax, legal and labour aspects. They consider how an internal audit will operate across a wider group; how risk can be effectively managed and reputations maintained and enhanced. Our teams have the know-how and experience to consider the big picture and, where appropriate, to call in more

specialist expertise. KPMG has industry specialists across all industries and sectors. We gather hard-to-find information from primary and secondary sources to present a fact-based and independent view. Nothing is considered in isolation but in terms of how it will promote overall corporate well-being. For clients, this means that KPMG staff give you the broad pricture. They take time to truly understand your business and are plugged into the issues that matter. Multidisciplinary by essence, in the context of a market entry exercise, KPMG can provide market intelligence, feasibility studies, due diligence assistance, tax structuring, integration and separation advice, M&A advisory, business modelling, valuation services and accounting advisory services. Clients using our full range of advisory services benefit from improved efficiency of data gathering and communication as well as cross-fertilisation between the teams, which allows us to offer you a better deal in relation to cost.

Developing a market entry strategy for Romania | 9

factSheet

Romania: Fact and Figures

Developing a market entry strategy for Romania | 11

A highly trained labour force, abundant natural resources, and geographical advantages are among the attributes that attract investors to Romania.

Brief overview of Romanias economic environment

n recent years the Romanian economy has followed the trend of Central and East European countries, registering a 7 .1% fall in GDP in 2009 (the average decrease in the EU was approximately 4%).

The combination of internal and external factors resulted in a significant increase in the budget deficit (8.3% of GDP against 5.4% of GDP in 2008) and a depreciation of the domestic currency in the first quarter of 2009, which reached RON/EUR 4.2-4.3, down from a peak of 3.1 in July 2007 at the height , of the boom. As a consequence, fiscal consolidation measures were needed, the main objective being to reduce public expenditure and achieve greater efficiency. Against this background, in April 2009, the Romanian authorities signed a loan agreement with the European Union, the International Monetary Fund and other international financial institutions

worth EUR 19.95 billion. At the end of 2009, an improvement to Romanias macroeconomic position was registered, as the current account deficit had narrowed from 11.6% of GDP in 2008, to 4.5% of GDP in December 2009. Nevertheless, this adjustment was made entirely by the private sector, which recorded a 3.8% GDP surplus, as the public sector increased its deficit by 3 percentage points. Although the contraction of the Romanian economy was severe, the inflation rate fluctuated, declining gradually by the end of 2009 and picking up in the third quarter of 2010, as a consequence of an increase in the VAT rate from 19% to 24% from July 2010. The macroeconomic environment in Romania for the period 2011-2013 is expected to be more stable, and the recession is predicted to become less severe by the first half of 2011.

Internal demand is considered to be the main factor that will determine economic recovery, along with the expected improvement in absorption of EU funds, which can be used to finance eligible investments from the state budget Exports and imports are expected to have an annual growth rate of 9.8% and 9.2% respectively. Inflation is expected to fall, meeting its target at the beginning of 2012. The main expected government priorities for 2011-2013 are An investment program for the rural economy, particularly aiming to develop rural SMEs Environmental infrastructure Road rehabilitation Co-financing projects benefiting from European funds.

12 | Developing a market entry strategy for Romania

KEY INDICATORS Nominal GDP (RON mn ) Real GDP Growth (%) Unemployment rate (%) Consumer Price Index Average RON/USD Exchange rate Average RON/EUR Exchange rate Total public sector debt (%GDP) Government deficit (RON mn) Goods exported (EUR mn) Goods Imported (EUR mn) Trade balance (EUR mn) Current account (EUR mn) International reserves (EUR mn) Inward direct investment (USD bn)
Foreign Direct Investments YEAR Value (mn EUR) 2006 9,059.0 2007 7,250.0 2008 9,496.0 2009 3,488.0 2010 2,596.0
*source: Traderom - Romanian center for trade and investment

2008 514,700.0 7.3 4.4 7.9 2.5 3.7 13.6 24,654.9 33,725.0 52,834.0 19,109.0 16,157.0 28,269.9 14

2009 498,007.5 -7.1 7.8 5.6 3.0 4.2 23.7 36,400.6 29,084.0 35,955.0 6,871.0 4,915.0 30,858.6 5

2010 513,640.8 -1.3 6.9 6.1 3.2 4.2 30.8 33,305.2 37,294.0 43,199.0 5,905.0 4,969.0 35,950.7 4

*source: Intellinews Macroeconomic Data, National Institute for Statistics

* source: Traderom - Romanian centre for trade and investment

Developing a market entry strategy for Romania | 13

GDP Real Growth (% yoy) 2006 2007 2008 2009 2010 7.9 6.3 7.3 (7.1) (1.3)

GDP YEAR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Column1 Value (mn RON) 80,984.6 117,945.8 152,017.0 197,427.6 247,368.0 288,954.6 344,650.6 416,006.8 514,654.0 491,273.7 513,640.8

*source: Intellinews Macroeconomic Data, National Institute for Statistics

* source: Traderom - Romanian centre for trade and investment

14 | Developing a market entry strategy for Romania

Tax environment VAT and customs


VAT basics
The Romanian immigration regime for non-Romanian nationals depends upon the nationality of the individual.

Transfer of going concern


recognized for B2B service transactions and intra-Community trade with goods. Romanian entities carrying out economic activities in excess of the small undertakings threshold of EUR 35,000 (approximately RON 118,360) per year are required to register and account for Romanian VAT. If the annual turnover is below EUR 35,000 the entity is not required to register for VAT. However, a taxable person may opt for the application of the normal tax regime. Any foreign entity that is neither VAT established nor VAT registered in Romania, and performs taxable operations from a VAT perspective which give a VAT deduction right, except for operations for which the customer is liable to settle the VAT liability, must register for VAT purposes in Romania before performing such operations. To deal with its VAT affairs a foreign entity may either appoint a VAT representative with joint and several liability to the tax authorities (compulsory for non-EU entities), or register directly with the Romanian authorities (option available only for entities from other EU countries). During downturn periods companies are looking to restructure their businesses to reduce their costs. Some companies may be considering mergers, acquisitions, or disposal of all or part of their businesses. Romanian VAT law provides for specific provisions allowing for businesses to be transferred as a going concern, which could allow for a VAT free transfer.

he Romanian general VAT rate is 24%. The following types of goods and services have a reduced VAT rate of 9 percent: Entrance fees for visits to castles, museums, memorial houses, historical monuments, architectural and archeological monuments, zoos, botanical gardens, fairs, exhibitions, cultural events, and cinemas. Textbooks, books, newspapers, and magazines, except for those destined exclusively for advertising purposes. Any type of prosthesis, except for dental prostheses. Orthopedic products. Medicines for human and veterinarian use. Accommodation in hotels or similar facilities, including the rental of lands for camping.

Import VAT
Import VAT is payable by importers of goods to the customs authorities on entry. However, there are cases when no VAT needs be paid to the customs authorities: For goods imported into Romania which are intended to be shipped by the importer to a different EU Member State. Taxable persons performing imports exceeding a threshold of RON 100 million in the last 12 months prior to the date when the certificate is issued or in the previous calendar year and which have obtained a certificate for the deferment of VAT payment.

A reduced VAT rate of 5% is applicable, under certain conditions, for the sale of residential real estate. The VAT law is harmonized with the EU VAT Directive. The VAT reverse charge mechanism is generally

Developing a market entry strategy for Romania | 15

Recovery of input VAT incurred in other countries


Romanian businesses which incur VAT in other EU Member States or in certain third countries from outside the EU can, under certain conditions, reclaim that input VAT paid in those countries. Evaluating and quantifying foreign VAT incurred which may be claimed back should be an integral part of the cash flow management of companies.

Free trade zones


Romania has six free trade zones located near the Danube, the Black Sea, and in the west of the country near rail, air and road infrastructure which allows easy connections with Western Europe as well as the rest of the country. Free trade zones offer multiple customs benefits such as: They allow payment of customs duties to be deferred until goods are taken out of the free trade zones. They offer reduced administrative costs for importers for placing goods in such areas. They offer ensured use of transit for goods being shipped to other EU Member States.

Romania has six free trade zones located near the Danube, the Black Sea, and in the West of the country

Transfer pricing and customs


Transfer pricing is a hot topic in Romania. The tax authorities have become increasingly vigilant, as have most other tax authorities worldwide. The core of a transfer pricing audit is to assess whether there is sufficient profit taxable in that jurisdiction. From a transfer pricing perspective, the arms length character is usually viewed in overall terms, per activity or bunch of transactions. From a customs perspective, however, it is essential to focus on the arms length character of each individual transaction, especially imports. Specifically, the purchase price of each product is very important. There may be many cases where no overall transfer pricing adjustment is needed, as in terms of the totality of the business operations, the profitability is justifiable. However, the customs authorities might still argue that the purchase price subject to customs duties on specific imports should suffer upward adjustments. Therefore, proper transfer pricing documentation per se may not necessarily be sufficient to prevent a customs audit imposing upward adjustments. It is expected that customs audits in Romania will intensify in future, following the general trend in European countries.

Customs inward processing with drawback or full exemption from customs duties
Companies which manufacture goods in Romania which are shipped outside the EU, can benefit from a refund of import duties paid upon export of the finished products, or from exemption from import duties on imported materials which are used in the manufacturing process.

16 | Developing a market entry strategy for Romania

Excise Duties

roducts subject to excise duties: beer; wines; fermented beverages other than beer and wines; intermediate products; ethyl alcohol; tobacco products; energy goods and electrical energy; green, roasted and soluble coffee. No excise duty is due for cars but a special tax is payable for the first registration of each car in Romania. This tax is higher for used cars and those which generate a high level of pollution. Products exempt from excise duties: ethyl alcohol used for production of vinegar; ethyl alcohol used for medical purposes in hospitals and drug stores, and in the production of medicines; electrical energy produced by renewable energy sources; etc.

Transactions between Romanian entities and their related parties must follow the arms length principle.

Corporate tax

Transfer pricing
Transactions between Romanian entities and their related parties (both Romanian and non-resident) must follow the arms length principle. Romanian transfer pricing rules follow the OECD guidelines. Romanian companies are required to maintain documentation to demonstrate that their transfer pricing policy is arms length.

enerally, companies resident in Romania, non-resident entities doing business in Romania through a permanent establishment located in the country and legal entities incorporated according to European legislation, with a registered office in Romania, are liable to corporate income tax in Romania. Romanian companies are taxed on their worldwide income. Nonresident companies and individuals are subject to Romanian taxation only for Romanian source income.

Withholding tax (WHT)


Foreign entities are generally subject to withholding tax on income tax derived from Romania. This tax applies for the gross income obtained in Romania. The following types of income/gains are generally subject to 16% Romanian withholding tax: Interest Royalties Revenues from services performed in Romania Dividends Revenues obtained from management and consultancy services, irrespective of where the services are performed Commissions Revenues derived from liquidation of a Romanian legal entity.

The corporate income tax rate is 16%, which is levied against the positive tax base calculated according to the rules stipulated in the Romanian Fiscal Code. Romania does not apply Controlled Foreign Corporation Rules. The taxable profit of a company is calculated as the difference between income obtained from any source and the expenses incurred in obtaining taxable income throughout the fiscal year, adjusted for fiscal purposes with non-taxable revenues and non-deductible expenses. Tax losses may be carried forward for seven years, based on the FIFO method.

Companies declare corporate income tax on a quarterly basis.

Thin capitalization
However, dividend payments made by a Romanian legal entity are exempt if the beneficiary of the dividends is a legal entity/PE of a legal entity which is a resident of another EU Member State or of EFTA, holding at least 10% of the share capital of the Romanian entity paying the dividends, for an uninterrupted period of at least 2 years, which ends at the moment the payment is realized. Since 1 January 2011, payments of interest and royalties made by Romanian companies to companies resident in an EU or EFTA member state , which hold at least 25% of the share capital of the Romanian company for a continuous period of at least 2 years prior to the date of payment of interest/ royalties, have been exempt from Romanian withholding tax. The following rules apply to the deductibility of interest expenses and net foreign exchange losses: Interest expenses and net foreign exchange losses recorded in relation to loans obtained from financial institutions / non-banking financial institutions (e.g. bank loans) are fully deductible; Deductibility of interest expenses recorded in relation to loans obtained from institutions other than the above (e.g. shareholder loans) is subject to the following limits: i. Interest rate limitation: deductibility of interest expenses may be claimed only up to a certain threshold (6% for loans denominated in foreign currency; National Bank of Romania reference interest rate for RON denominated loans). Any interest in excess of this threshold is permanently non-deductible for CIT purposes. ii. Debt to equity limitation: if the companys debt to equity ratio is negative or higher than 3:1, interest expenses and net foreign exchange losses can be carried forward until the ratio becomes positive and lower than 3:1.

Double taxation relief


Relief from double-taxation for resident taxpayers may be provided by way of a tax treaty/EU Directive. The withholding tax rates under the Double Tax Treaties concluded between Romania and the country of residence of the payment beneficiary or under EU legislation may be applied if the nonresident makes its tax residency certificate available to the Romanian payer of income and also provides an affidavit attesting that the conditions for exemption/reduced rate have been fulfilled. In order to benefit from treaty protection, the tax residency certificate must be made available by the non-resident at the moment of payment. Otherwise, domestic withholding taxes apply upon payment of the income and a refund can be requested if the tax residence certificate is made available within the five year statute of limitations period. Romania has concluded Double Taxation Treaties with more than 80 countries around the world. Most of these treaties are based on the OECD Model Tax Convention on Income and Capital. If an individual qualifies as a resident of one of the two states, the relevant treaty can be applied. The method provided under domestic tax legislation for double taxation avoidance is the tax credit. At the moment of payment. Otherwise, domestic withholding taxes apply upon income payment and a refund can be requested if the tax residence certificate is made available during the five year statute of limitations period.

Reporting and payment


Companies declare corporate income tax on a quarterly basis and in addition submit an annual corporate income tax return. The annual tax return must be filed by 25 April of the following year, except for those taxpayers which close their financial year by 25 February of the following year. These are required to submit the tax return and pay tax by the same date. The difference between the annual income tax due and advance tax payments must be paid by 25 April of the following year. Credit institutions are required to make quarterly advance payments. This system will apply for all other categories of corporate taxpayers from 2012. As a general rule, refunds are available only to the extent that no other tax may be offset against the amount of tax paid in excess.

Local taxes and fees


Building tax
Building tax is due by every individual or legal entity owning buildings in Romania unless specific exemptions apply. The tax for legal entities can be between 0.25% and 1.5% of the book value of the building and is set by the tax office in whose jurisdiction the building is located. Individuals pay 0.1% of the taxable value or the building as defined in law. Additional taxes are payable by those who own more than one building for residential purposes, which are not rented to other persons. A higher rate, of between 10% and 20%, applies to buildings which have not been revalued in the past three years prior to the fiscal year for which the tax is due. This rises to between 30% and 40% for buildings which have not been revalued in the past five years. For fully depreciated buildings the taxable value for building tax purposes is reduced by 15%.

Land tax
This tax is due by every individual or legal entity which owns land in Romania and is calculated per square meter. It varies depending on location, status of the locality (urban, rural, agricultural etc.) and the type of land. Land and building taxes are paid twice a year in equal installments. However, if the tax due for the entire year is paid in advance no later than 31 March, a reduction of up to 10% by the local council may be granted.

Vehicles tax
Since 1 July 2010, the vehicle tax has been calculated based on each vehicles cubic capacity by multiplying each 200 cm3, or fraction by the appropriate value from a specific table. Here are two examples: For cars with cubic capacity between 1601 cc and 2000 cc inclusive, the tax is 18 RON/ 200 cc; For cars with a cubic capacity of 3001 cc or over, the tax is 290 RON/cc

Transfer tax
Transfer tax is levied upon the transfer of real estate. When the transfer is recorded in the Land Registry, it is taxed at 0.5% of the value of the immovable property which has been transferred. In addition, notary fees are payable, which are normally around 0.5%, depending on the notary involved. Therefore, the total tax payable, including notary fees is approximately 1% of the value of the property transferred.

Building tax is due by every person owning buildings in Romania unless specific exemptions apply.

Section or Brochure name | 19

Personal income tax


Tax residence
A resident of Romania is generally defined as an individual who has domicile in Romania, has a center of vital interests in Romania, or who spends more than 183 days in Romania during any 12-month period ending in the fiscal year concerned. A non- resident of Romania is generally someone who spends less than 183 days in Romania. The general rule is that a person who is a resident of Romania is taxable on his or her worldwide income. Non-residents are generally taxable on income derived from sources in Romania. An exception to the general rule above is available for non-Romanian nationals who are treated as Romanian tax residents. During the first years of being Romanian tax residents, these individuals are liable to Romanian tax on Romanian - sourced income. Full liability to tax on worldwide income may occur from the second consecutive year. Under Romanian domestic legislation, non-resident individuals deriving income from dependent activities in Romania are liable to Romanian income tax as from the first day of activity in the country. However, to the extent that the individual qualifies for relief in terms of the dependent personal services article of an applicable double tax treaty, there will be no tax liability. Net taxable income is taxed at a flat rate of 16% for residents and non-residents. A deduction is generally available for compulsory employee social security contributions.

Romania has six free trade zones located near the Danube, the Black Sea, and in the West of the country

Immigration to Romania

rocedures for EU and EEA nationals are quite straightforward. However, for citizens of non EU/EEA countries, completing immigration procedures can be a very bureaucratic and timeconsuming process, which can take from a few weeks to a few months. Long-term visas are valid for stays of up to 90 days within a 6-month period and can be used to apply for Romanian residence permits. Romanian residence permits for non EU/EEA nationals are generally issued for 1 year and can be extended for successive 1-year periods. EU/EEA nationals are normally issued with 5-year permits.

Work authorizations are generally required for non-EU/EEA individuals who are employed by Romanian employers or who are seconded by their non-Romanian employers to perform work on Romanian territory. Various conditions have to be met by the foreign individual (such as education requirements and professional experience) as well as by the Romanian entity where the person performs work. The most important requirement is that the company must show that it has been unable to find appropriate candidates who are Romanian nationals. .

20 | Developing a market entry strategy for Romania

Social contributions
The main Romanian social contributions are: Contribution Social Security Health Fund Unemployment Fund Risk Fund Salary guarantee fund Medical leave and allowances Employer 20.80% 5.20% 0.50% 0.15%-0.85% 0.25% 0.85% (capped) Employee 10.50% 5.50% 0.50% -

The basis for applying the social security contribution (31.3%) is capped at 5 times the average gross salary (i.e. 2022 RON for 2011) for the employee and at the number of insured persons multiplied by 5 times the average national salary, for the employer .Generally, a 5.5 percent health insurance contribution is due by foreign individuals who have residence in Romania (who obtain a Romanian residence permit). Exemption from Romanian social security contributions may be available where there is a totalization agreement between Romania and the home country or where EC Regulation 883/04 is applicable.

Compliance obligations
Generally, annual tax returns are due by 15 May following the tax yearend, which is 31 December. Employment income must be declared and income tax must be paid on a monthly basis, by the 25th of each month for the previous month. Where an individual is employed by a non-Romanian employer, that employer has no personal tax withholding or reporting obligations. It is generally the employees obligation to declare and pay Romanian personal tax on a monthly basis. The Romanian entity where the individual carries out activity has certain reporting obligations towards the local tax authorities at the commencement and at the end of the business trip.

The basis for applying the social security contribution (31.3%) is capped at 5 times the average gross salary

Developing a market entry strategy for Romania | 21

Tax incentives
Research and development
Romanian legislation provides for two main tax incentives for research and development (R&D) costs: 20% additional tax deduction for all eligible R&D costs (e.g. salary expenses in relation to staff involved in R&D activity, depreciation of intangible assets used in R&D activity, operating expenses (e.g. raw materials, consumables, etc.) incurred in R&D activity, etc.); Accelerated depreciation for equipment used in R&D activity.

For taxpayers to be able to take advantage of these incentives, they must conduct R&D activities which generate an outcome that can be used by the taxpayer for its own benefit in order to increase revenues.

The ELI Nuclear Physics project, to be constructed in the Magurele area, will consist of the most powerful laser beams and the most advanced gamma beams in the word.

Local tax exemptions


Buildings and land used within hydroelectric, thermoelectric and nuclear power plants, as well as buildings and land related to transformation and connection posts are exempt from local taxes. In addition, building land and land used within industrial parks are exempt from building and land tax. Local councils may grant building or local tax exemptions to legal entities which benefit from state aid schemes.

Accelerated depreciation
According to Romanian fiscal legislation, accelerated depreciation can be used by companies for machinery and equipment, computers and their peripherals. Consequently, taxpayers may apply accelerated depreciation to fixed assets which fall within the above mentioned categories, even if they do not qualify for the fiscal incentive in relation to R&D costs. Under this depreciation method, a maximum of 50% of the assets fiscal value may be deducted during the first year of usage, while the rest of the assets value can be depreciated using the linear method over the remaining useful life.

22 | Developing a market entry strategy for Romania

Employment incentives
Employers who hire recent graduates may apply for a monthly grant. This is calculated by multiplying the reference social indicator (currently RON 500) by 1,2 - 1.5 for each new graduate (depending on the education level of the employees), for a period of 12 months. Employers are also exempt for the same period, from paying the unemployment contribution due for the amounts paid to these graduates. Additional incentives are granted for the employment of recent graduates with disabilities. In this case, the monthly grant as well as the exemption from the contribution to the unemployment fund are offered for 18 months. . In addition, companies hiring scholars and students during summer vacations, benefit from a monthly incentive of 50% of the reference social indicator for each student/scholar.. The incentive is granted for a maximum of 60 days. Employment incentives are also granted to companies which hire unemployed persons aged over 45, as well as for employment of an individual who is the sole supporter of their family. The employers receive a monthly grant equal to the reference social indicator for each such person and are also exempt from paying the unemployment contribution due for the amounts paid to them. The employment relationship must be maintained for at least two years.

Tax incentives for reinvested dividends


Dividends reinvested for the purpose of creating new work places or for the purpose of developing the activities of Romanian legal entities distributing their dividends, are dividend tax exempt. In addition, dividends reinvested in the share capital of another Romanian legal entity, for the same purposes as the above mentioned ones are also dividend tax exempt.

Other tax incentives


Other fiscal incentives are provided for renewable energy producers, such as exemption from excise duties for energy produced from renewable sources.

State aid in Romania


State aid scheme for supporting economic growth
The main conditions upon which state aid is granted are: Initial investment ranges (EUR million) 5-10 10-20 20-30 Over 30 Number of new jobs created 50 100 200 300

State aid scheme supporting investments over EUR 100 million


Large enterprises can be granted financial support for initial investment exceeding the RON equivalent of EUR 100 million, with eligible costs of over EUR 50 million (RON equivalent) if they create at least 500 new jobs. All fields of activity are eligible, except the primary production of agricultural products, fisheries, the coal industry, the steel industry, transport, maritime shipbuilding and synthetic fibers. The level of aid is calculated by adjusting the regional ceiling to the eligible expenses

The government grant scheme is available for five years (2009-2013) and consists of grants of up to 50% of the eligible costs of the investment. The maximum level of the grant an economic operator can receive is the RON equivalent of EUR 28.125 million (for investments outside the Ilfov Bucharest region) or EUR 22.5 million (for investments in the Bucharest Ilfov region).

Section or Brochure name | 23

Ground-breaking thinking
Infrastructure: one of the biggest and most complex challenges of the 21st century. An estimated US$40 trillion of investment will be needed by 2030 to sustain global growth. Our Global Infrastructure practitioners, on site in 150 countries, advise governments, developers and investors across the lifecycle of projects- from strategy and financing to delivery and hand-back. Dig deeper at kpmg.com/infrastructure

Contact us
Serban Toader

Senior Partner
T: +40 (372) 377 800 E: stoader@kpmg.com Ori Efraim

Partner, Head of China Practice


T: +40 (743) 139 400 E: oefraim@kpmg.com Daniela Buhus

Partner, Transactions & Restructuring Services


T: +40 (372) 377 879 E: dbuhus@kpmg.com www.kpmg.com/ro

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. 2011 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in Romania.