Romania’s strategic location, access to the European Union (EU) market, and relatively low operational costs make it an attractive destination for foreign investors. However, while Romania offers several business incentives, incorporating a company as a foreign citizen comes with certain legal challenges that must be carefully navigated to ensure compliance with Romanian and EU regulations.

Here are the key legal challenges faced by foreign citizens when incorporating a company in Romania:

Incorporating a company in Romania involves registering the business with the Trade Register, a process overseen by the National Office of the Trade Register (ONRC). While the procedures have been streamlined in recent years, several legal hurdles remain:

• Documentation: The process requires extensive documentation, including the articles of association, proof of office space (lease agreement or property ownership), and financial records for capital contributions.

• Translation and Apostille Requirements: All documents submitted to Romanian authorities must be in Romanian. If the original documents are in a foreign language, certified translations and, in some cases, an apostille are required. This adds an extra layer of complexity, especially for non-EU citizens.

Opening a corporate bank account is a legal requirement in Romania and often proves to be one of the most challenging steps for foreign citizens. Romanian banks have stringent due diligence procedures to comply with local and EU anti-money laundering (AML) regulations. Foreign citizens may face:

• Delays in verification: Banks require comprehensive background checks, and foreign nationals might experience delays if they lack sufficient proof of residence or business activity.

• Share capital deposit: SRLs require a minimum share capital of just RON 1, but for certain types of businesses, like an SA, the requirement is significantly higher (RON 90,000). This amount must be deposited into a Romanian bank before incorporation, which requires prior banking approval.

Non-EU citizens looking to manage their Romanian company directly must apply for work permits and residence permits. The process is time-consuming and can take several months, often requiring proof of business activities and evidence of the company’s contributions to the Romanian economy.

For EU citizens, the process is simpler due to the EU freedom of movement rules. However, they still need to register their stay and prove that their business in Romania is legitimate.

Romania has a relatively favorable corporate tax rate of 16%, and micro-enterprises benefit from even lower tax rates (between 1% and 3% depending on the company’s turnover). However, foreign investors must comply with Romanian tax laws, which can be complex due to:

• VAT Registration: Companies with an annual turnover exceeding RON 300,000 must register for VAT. For smaller businesses, this may not be obligatory, but foreign owners must determine whether VAT registration is beneficial for their operations.

• Accounting Standards: Romanian companies must adhere to local accounting standards (Romanian GAAP). Companies with foreign shareholders must ensure their accountants are familiar with these rules, and they may also need to comply with International Financial Reporting Standards (IFRS) depending on the company’s size and activity.

Romania does not impose significant restrictions on foreign ownership, allowing foreign nationals to own 100% of a Romanian company, whether it is an SRL or an SA. However, there are restrictions on the ownership of agricultural land by non-EU citizens. While non-EU citizens can indirectly own land through a Romanian company, direct ownership is restricted without a special permit.

Depending on the nature of the business, foreign investors may need additional licenses or permits. These could include:

• Sector-specific approvals: Businesses in sectors such as telecommunications, energy, and pharmaceuticals face more regulatory scrutiny.

• Environmental permits: Romania, as part of the EU, enforces strict environmental regulations. Companies operating in sectors like manufacturing, waste management, or construction may need to obtain environmental clearances before starting operations.

The process for acquiring these permits can be lengthy and bureaucratic, often requiring specialized legal assistance to navigate.

Although Romanian law allows foreign nationals to establish companies without being physically present in the country, they must appoint legal representatives to act on their behalf. This requirement includes granting power of attorney to local lawyers or company formation agents, which can raise trust and accountability concerns for foreign investors.

Foreign citizens incorporating a company in Romania and planning to hire local employees must comply with Romanian labor laws, which are relatively rigid compared to other EU countries. Employers must:

• Provide comprehensive employment contracts: Romanian labor law mandates detailed employment contracts that include specific provisions regarding job roles, remuneration, and employee rights.

• Adhere to local labor standards: These include regulations around working hours, overtime pay, and social security contributions. Failure to comply can lead to penalties and labor disputes, which are resolved through Romania’s labor courts.

Once the company is incorporated, foreign investors must comply with ongoing legal requirements such as:

• Filing annual financial statements: All companies must submit annual reports to the Romanian tax authorities. Failure to do so can result in fines or suspension of the company’s operations.

• Regular tax filings: Even if a company does not engage in business activities, it must still file periodic tax returns. Non-compliance can lead to hefty penalties.

Incorporating a company in Romania as a foreign citizen involves a number of legal challenges, primarily centered around bureaucratic procedures, compliance with local laws, and navigating tax and financial systems. While the Romanian legal framework allows for foreign investment, non-EU investors may face additional hurdles, including residency permits, translation of documents, and regulatory approvals. Partnering with a local legal or business consultancy is highly recommended to ensure a smooth incorporation process and ongoing compliance with Romanian laws.

Despite these challenges, Romania offers significant opportunities for foreign investors, particularly those who are well-prepared to navigate the country’s legal landscape.

A reliable attorney serves as a valuable asset for the aforementioned reasons and more importantly, stands as your partner.

Hila Legal – Business Attorneys Catering to your business needs!

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