Read this before starting a business in Romania

First I need to do my homework: is it easy to open a business in Romania? To grow it? To pay taxes and to do business with foreign companies?

Especially during and after the pandemic, before starting a business in Romania I need to carefully analyse the business environment. By going into detail and understanding the country, I will be able to decide if it is suitable for my business model - so that I can optimise taxes as well as possible. If I decide to buy an existing company instead of starting a new company, I also have to do my homework.

let business = myBusiness
let country = Romania

Why Romania?

In just two words: low taxes. In fact, taxes in Romania are so low, compared to GDP, that Eurostat has just ranked Romania as the second-best country within the EU to be a taxpayer of, in its latest article on tax revenue statistics, from 29 October 2020. Just 26.8% tax revenue-to-GDP ratio for all cumulated taxes in Romania, compared to the EU average of 41.1%. And, even more, the Romanian tax-to-GDP ratio is actually on a decreasing trend, according to Eurostat. And when I also see that the revenue tax for Romanian companies below EUR 1 million may go as low as 1%, it looks like a clear winner.

It looks good, really good. But will it be a good fit for my business idea?

Is Romania suitable for my business model?

Before I start, I need to see in detail how suitable the Romanian market is for my business:

• How many companies in the target area have the same object of activity?

• What is their profit rate?

• Can I make more profit than the competition?

var profit: Int

If Romania is not the most suitable for my business interests, I could also think about doing business in another country. The International Accounting Group, TIAG®, offers me a wide range of business guides from other countries around the world. If, however, I want to deepen the analysis for Romania as a potential candidate, some sources of official information are useful. The most recent Annual Report on Foreign Direct Investment (FDI) of the National Bank of Romania (BNR), published on 17 September 2020, allows me to anticipate how things will look like in post-pandemic Romania. In this report, which covers 2019, I can see which are the main countries that invested in Romania before the crisis - and the key areas in which they invested. According to the National Bank of Romania, the total value of net FDI flow in 2019 was almost 2% lower compared to 2018, but the balance of FDI increased in 2019 by almost 9% compared to 2018. Almost a quarter of total FDI came from the Netherlands, with a value almost as high as Germany and Austria combined, which are in second and third place, respectively. The following total investment volumes came from Italy, Cyprus, France, Switzerland, Luxembourg, the United Kingdom and Belgium. More than 40% of the total FDI balance went to industry, mainly manufacturing. The rest went mainly to construction & real estate as well as trade. When I look at net flows, the order is reversed and trade came first, followed by production. In terms of geographical location, in 2019 Bucharest-Ilfov absorbed over 60% of the FDI balance, with each of the other 7 development regions having absorption rates of only one digit. According to its latest Annual Report, which covers 2019, published on 7 September 2020, BNR states the following:

“Foreign direct investment and inflows to the capital account held a lower share of external imbalance financing, down to 80 percent of total (from about 83 percent in the previous year)”.

According to the World Bank, which ranks in a Doing Business Index a number of 190 economies, Romania, before the pandemic, was in position 55. It seemed easier to start a business in Romania: the position has increased from 111 to 91 since the last World Bank report, also because voluntary registration for VAT purposes is less time consuming than mandatory registration. But it has become more difficult to obtain building permits (147th out of 190) and to get connected to electricity (157th out of 190). From the point of view of taxes, Romania has eliminated 5 taxes and contributions paid by the employer but has introduced a new labour insurance contribution for the employer. Romania has maintained its leading position globally in cross-border trade. The latest scoring grades calculated by the three major rating agencies, Standard & Poor's, Moody's and Fitch, also provide useful information.

var fdi: Int
var businessIndex: Int
var countryRating: Int

Is my business model suitable for Romania?

Also, another very important step before starting my business in Romania is the following:

I need to analyse in detail my own business model, in order to optimise taxes in the best possible way.

For example, if my business model is in the field of services, then the success of my business will also depend on the people I hire. If I save on wages, I may pay for it later, and, most importantly, I will have to pay with my time to correct mistakes.

As a general background, most companies in Romania start as micro-enterprises. The micro-enterprise is the name of the category, just as the SME names the category of Small and Medium Enterprises. Micro-enterprises and SMEs fall into the higher category of Limited Liability Companies, abbreviated, in Romanian, SRL, from Societate cu Răspundere Limitată. As soon as a micro-enterprise reaches the EUR 1 000 000 revenue threshold, it has its status changed to a profit-paying company.

var microEnterpriseTaxPayer: Bool
var profitTaxPayer: Bool

Language differences

To calibrate my business model, I need to know that there are differences between the Tax Agency (=en. National Agency for Fiscal Administration, ro. Agenția Națională de Administrare Fiscală, ANAF) and the Trade Registry on the criteria they use in classifying companies, so I need clarity in the searches for information I perform, as well as in my discussions with business partners in Romania.

let taxAgency = taxAgency.Romania
let tradeRegistry = tradeRegistry.Romania

In the category of incorporations - legal entities, the Trade Registry includes:

• general partnership, limited partnership and private limited company;

• private limited company debutant (SRL-D);

• economic interest group (EIG);

• public limited company and partnership limited by shares;

• national company;

• European company holding;

• European company set up by merger;

• autonomous administration;

• credit cooperative organisation;

• cooperative company of grade I and grade II;

• agricultural cooperative of grade I and grade II;

• European cooperative company;

• European cooperative set up by merger;

• European company - branch;

• branch of a company or EIG with registered office in Romania;

• branch of an autonomous administration;

• branch of a cooperative company;

• branch of a company with a registered office abroad; submission of the shares issue prospectus.

The classification of limited liability companies from the point of view of the Tax Agency, according to the annual revenue, is divided into micro-enterprises, which have less than EUR 1 million in revenue, and profit tax paying companies, which have more than EUR 1 million in revenue - with an exception presented in the book "my Business in Romania".

var limitedLiabilityCompany: Bool

The starting point is the Companies Law, on the one hand - and the Tax Code, on the other hand.

let companiesLaw = companiesLaw.Romania
let taxCode = taxCode.Romania

The companies are divided by the Trade Registry according to the share capital. The Tax Agency, instead, divides them according to the turnover. As long as the Tax Agency is the one that collects taxes, it is good to know both classifications.

To start fresh or to buy a company?

Beyond the linguistic differences, there are also differences in content: to launch my own company from scratch or to buy it already launched, with a VAT code already obtained and a good banking and tax record?

In general, it is better to start fresh, just like building a house. If, however, I prefer to buy a company which is already operating, then it is a good idea to do my homework and ask for a valuation of the company, both in terms of assets and liabilities. This is valid also for shelf-companies. In terms of responsibility for past performance, I would think that the person in charge is the former administrator. But the Tax Agency will not look for the former administrator: it will only issue a tax imposition decision on the name of the company, so I have to be careful which company I buy, because I take it with all the hidden flaws.

var taxImpositionDecision: Int

If I have decided on this country, it is time to see which are the principles of doing business in Romania. These principles remain valid especially in times of crisis, when the turbulence of the business environment creates pressure; I just have to follow my principles - and everything will be fine.