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Developing

a Market EntryStrategy for Romania

kpmg.ro

KPMG in Romania



2 | Developing a market entry strategy for Romania

CONTENTS

■ Introduction 3

■ Economic background 4

■ Opportunities and challenges on the Romanian market 5

■ Market entry 6

■ Developing a market entry strategy for Romania 7

■ Romania: Fact and gures 10

■ Brief overview of Romania’s economic environment 11

■ Tax environment 12

■ VAT and customs 12

■ Excise Duties 16

■ Local taxes and fees 19

■ Income tax 19

■ Tax incentives 21

■ State aid in Romania 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.

R 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

signicant 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 euro-

zone 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 at 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 signicantly 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 throughthe pitfalls and benet 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.

Introduction



Economic background

Although the recession

has hit Romania hard,

in common with other

countries in the region, there

are signs of recovery, andrecently 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). Ination

was approximately 6% in 2010and is estimated at around

5% for 2011. The Romanian

banking system has proved

relatively robust to the recentglobal nancial 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 signicant

exposures to sovereign debt in

those eurozone countries which

have faced difculties 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 difculties in

meeting its obligations. For the

moment, though, that prospect

looks unlikely.

Romania’s infrastructure is

relatively undeveloped, with

signicant improvements

needed in the road and rail

networks to bring them up toEuropean 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

afuence 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 condence returns.

Investors have also been

attracted by Romania’s skilled

and relatively cheap labour force.Over the past two decades,

Romania has received a steady

inow of foreign capital.





Opportunities and challenges

on the Romanian market

Many 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 exibility to the labour market.

There are currently a substantial number of BusinessProcess 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 inefcient

and the administrative requirements for setting up a

business remain complex. The distribution environmentin 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.

Romania is one of the largest countries in CEE, with over 21 million inhabitants. The work force is

considered relatively highly qualied, while labour markets are gaining exibility.



6 | Section or Brochure name

Market entry

Romania 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

doing business can be

complicated. Moreover, it

can be hard to nd accurate

nancial, tax, commercial

and operational information

about target companies.

Market information and

competitive intelligence may

be inconsistent, inaccurate

out of date or simply non-

existent. 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.

Our approach to market entry

In Romania, KPMG aims

to assist international

and domestic

investors in developing

an understanding of what

it takes to succeed in a

market. We help dene

your expansion strategy and

we study – in-depth – the

market size and growth

potential, key demanddrivers 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, devisinga market entry strategy

or identifying specic

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.




In considering the rst 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 signicant

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 marketingefforts, 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 atax perspective: What are the most efcient

legal structures, the key potential taxes, the

risks and opportunities involved, and the

existing benets 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 andoperational drivers, external and internal

factors impact the business?

■ Evaluate where to establish the business

(location assessment, site identication):

Which locations (regions, cities) are the most

attractive? Within the selected locations, what

are the sites (properties, land, buildings) that

best t the business’s needs?

Developing a Market Entry Strategy for Romania



To 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 qualied

professionals has always been

our greatest strength. As a

multidisciplinary advisory rm,

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 considerthe big picture and, where

appropriate, to call in more

specialist expertise. KPMG

has industry specialists across

all industries and sectors. We

gather hard-to-nd 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 benet from

improved efciency of data

gathering and communication

as well as cross-fertilisation

between the teams, which

allows us to offer you a betterdeal in relation to cost.

Our multidisciplinary team and

in-depth industry expertise




Developing a market entry strategy for Romania | 9



A highly trained labour force, abundant natural resources, and geographical advantages are

among the attributes that attract investors to Romania.

Brief overview of Romania’s economic environment

In 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

signicant increase in the budget

decit (8.3% of GDP against 5.4%

of GDP in 2008) and a depreciationof the domestic currency in the rst

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,

scal consolidation measures were

needed, the main objective being

to reduce public expenditure and

achieve greater efciency.

Against this background, in April

2009, the Romanian authorities

signed a loan agreement with the

European Union, the International

Monetary Fund and other

international nancial institutions

worth EUR 19.95 billion. At the

end of 2009, an improvement to

Romania’s macroeconomic position

was registered, as the current

account decit had narrowed from

11.6% of GDP in 2008, to 4.5% ofGDP 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 itsdecit by 3 percentage points.

Although the contraction of the

Romanian economy was severe, the

ination rate uctuated, 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 isexpected to be more stable, and the

recession is predicted to become

less severe by the rst 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

nance eligible investments from the

state budget

Exports and imports are expected to

have an annual growth rate of 9.8%and 9.2% respectively. Ination is

expected to fall, meeting its target atthe 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-nancing projects benetingfrom European funds.





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 centre for trade and investment

KEY INDICATORS 2008 2009 2010Nominal GDP (RON mn ) 514,700.0 498,007.5 513,640.8

Real GDP Growth (%) 7.3 -7.1 -1.3

Unemployment rate (%) 4.4 7.8 6.9

Consumer Price Index 7.9 5.6 6.1

Average RON/USD Exchange rate 2.5 3.0 3.2

Average RON/EUR Exchange rate 3.7 4.2 4.2

Total public sector debt (%GDP) 13.6 23.7 30.8

Government deficit (RON mn) –24,654.9 –36,400.6 –33,305.2

Goods exported (EUR mn) 33,725.0 29,084.0 37,294.0

Goods Imported (EUR mn) 52,834.0 35,955.0 43,199.0Trade balance (EUR mn) –19,109.0 –6,871.0 –5,905.0

Current account (EUR mn) –16,157.0 –4,915.0 –4,969.0

International reserves (EUR mn) 28,269.9 30,858.6 35,950.7

Inward direct investment (USD bn) 14 5 4

*source: Traderom - Romanian center for trade and investment

*source: Intellinews Macroeconomic Data, National Institute for Statistics



GDP Column1

YEAR Value (mn RON)

2000 80,984.6

2001 117,945.8 2002 152,017.0

2003 197,427.6

2004 247,368.0

2005 288,954.6

2006 344,650.6

2007 416,006.8

2008 514,654.0

2009 491,273.7

2010 513,640.8

GDP Real Growth (% yoy)

2006 7.9

2007 6.3

2008 7.3

2009 (7.1)

2010 (1.3)

* source: Traderom - Romanian centre for trade and investment


*source: Intellinews Macroeconomic Data, National Institute for Statistics



VAT and customs

The 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.

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

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 theentity 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 forVAT 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).

VAT basics

The Romanian immigration regime for non-Romanian nationals depends upon the nationality

of the individual.


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 specic provisions

allowing for businesses to be

transferred as a going concern, which

could allow for a VAT free transfer.

Transfer of going concern

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 certicate is issued or in the

previous calendar year and which

have obtained a certicate for the

deferment of VAT payment.

Import VAT

Tax environment



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

of the country

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

ow management of companies.

Recovery of input VAT incurred

in other countries

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

benets 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.

Free trade zones

Companies which manufacture goods

in Romania which are shipped outside

the EU, can benet from a refund of

import duties paid upon export of the

nished products, or from exemption

from import duties on imported

materials which are used in the

manufacturing process.

Customs inward processingwith drawback or full

exemption from customs duties


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 sufcient prot

taxable in that jurisdiction. From a transfer pricing perspective, the arm’s

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 arm’s length character of each individual transaction, especially imports.

Specically, 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 protability is justiable.

However, the customs authorities might still argue that the purchase

price subject to customs duties on specic imports should suffer upward

adjustments.

Therefore, proper transfer pricing

documentation per se may not

necessarily be sufcient 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.

Transfer pricing and customs



Excise Duties

Generally, companies resident in Romania,

non-resident entities doing businessin Romania through a permanent

establishment located in the country and legal

entities incorporated according to European

legislation, with a registered ofce 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.

The corporate income tax rate is 16%, which is

levied against the positive tax base calculatedaccording to the rules stipulated in the Romanian

Fiscal Code. Romania does not apply Controlled

Foreign Corporation Rules.

The taxable prot of a company is calculated as

the difference between income obtained from

any source and the expenses incurred in obtaining

taxable income throughout the scal year, adjusted

for scal purposes with non-taxable revenues and

non-deductible expenses.

Tax losses may be carried forward for seven years,

based on the FIFO method.

Corporate tax

Transactions between Romanian entities and their related

parties (both Romanian and non-resident) must follow thearm’s 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 arm’s length.

Transfer pricing

Transactions between Romanian entities and their related partiesmust follow the arm’s length principle.

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.

Withholding tax (WHT)

Products 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 rst registration of each car in

Romania. This tax is higher for used cars and thosewhich 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.




However, dividend payments made by a Romanian

legal entity are exempt if the beneciary 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.

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 thecountry of residence of the payment beneciary

or under EU legislation may be applied if the

nonresident makes its tax residency certicate

available to the Romanian payer of income and also

provides an afdavit attesting that the conditions for

exemption/reduced rate have been fullled.

In order to benet from treaty protection, the tax

residency certicate 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 certicate is made available within the

ve 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

qualies 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

certicate is made available during the ve year

statute of limitations period.

Double taxation relief

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 led by 25 April

of the following year, except for those taxpayers which

close their nancial year by 25 February of the followingyear. These are required to submit the tax return and pay

tax by the same date.

The difference between the annual income tax due andadvance 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.

Reporting and payment

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 nancial

institutions / non-banking nancial 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 foreigncurrency; 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 company’s 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 andlower than 3:1.

Thin capitalization

Companies declare corporate income tax on a quarterly basis.



Building tax is due by every person owningbuildings in Romania unless specicexemptions apply.

Building tax is due by every individual or legal entity owning buildings in

Romania unless specic 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 ofce in whose jurisdiction the building is

located. Individuals pay 0.1% of the taxable value or the building as dened

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 scal year for whichthe tax is due. This rises to between 30% and 40% for buildings which have

not been revalued in the past ve years. For fully depreciated buildings the

taxable value for building tax purposes is reduced by 15%.

Local taxes and fees

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.

Land tax

Building tax

Since 1 July 2010, the vehicle tax has been calculated based on each

vehicle’s cubic capacity by multiplying each 200 cm3, or fraction by theappropriate value from a specic 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

Vehicles 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.

Transfer tax




A resident of Romania is generally

dened 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 scal

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 rst years of being Romanian tax

residents, these individuals are liable to

Romanian tax on Romanian - sourced

income. Full liability to tax on worldwideincome 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 rst day of activity in the country.

However, to the extent that the individual

qualies 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 at rate

of 16% for residents and non-residents.

A deduction is generally available for

compulsory employee social security

contributions.

Personal income tax

Tax residence

Procedures 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 time-

consuming 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-monthperiod 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 entitywhere the person performs work.

The most important requirement is

that the company must show that it

has been unable to nd appropriate

candidates who are Romanian

nationals.

.

Immigration to Romania

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

of the country



The main Romanian social contributions are:

Contribution Employer Employee

Social Security 20.80% 10.50%

Health Fund 5.20% 5.50%

Unemployment Fund 0.50% 0.50%

Risk Fund 0.15%-0.85% -

Salary guarantee fund 0.25% -Medical leave and allowances 0.85% (capped) -

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.

Social contributions

The basis for applying the social security contribution

(31.3%) is capped at 5 times the average gross salary

Generally, annual tax returns are due by 15 May following the tax year-

end, 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 employee’s 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 thebusiness trip.

Compliance obligations





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 inR&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 benet in

order to increase revenues.

Tax incentives

Research and development

According to Romanian scal legislation, accelerated depreciation

can be used by companies for machinery and equipment, computers

and their peripherals. Consequently, taxpayers may apply accelerated

depreciation to xed assets which fall within the above mentioned

categories, even if they do not qualify for the scal incentive in relation

to R&D costs.

Under this depreciation method, a maximum of 50% of the asset’s

scal value may be deducted during the rst year of usage, while the

rest of the asset’s value can be depreciated using the linear methodover the remaining useful life.

Accelerated depreciation

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 benet from

state aid schemes.

Local tax exemptions

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.



Dividends reinvested for the purpose

of creating new work places or for thepurpose 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.

Tax incentives for reinvested

dividends

Employers who hire recent

graduates may apply for a monthlygrant. 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 duringsummer vacations, benet 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.

Other scal incentives are provided for

renewable energy producers, such as

exemption from excise duties for energy

produced from renewable sources.

Other tax incentives

Employment incentives

The main conditions upon which state aid is granted are:

Initial investment ranges (EUR million) Number of new

jobs created

5-10 50

10-20 100

20-30 200Over 30 300

The government grant scheme is available for ve 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).

State aid in Romania

State aid scheme for supporting economic growth

Large enterprises can be granted nancial

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 elds of activity are eligible, except theprimary production of agricultural products,

sheries, the coal industry, the steel

industry, transport, maritime shipbuilding

and synthetic bers.

The level of aid is calculated by adjusting

the regional ceiling to the eligible

expenses

State aid scheme supporting

investments over EUR 100 million




Section or Brochure name | 23Section or Brochure name | 23Section or Brochure name | 23

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individualor 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.

Contact us

Serban Toader

Senior Partner

T: +40 (372) 377 800

E: [email protected]

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Partner, Head of China Practice

T: +40 (743) 139 400


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Partner, Transactions & Restructuring Services

T: +40 (372) 377 879


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