PREPARATION FOR EU ENTRY BY DEVELOPING SUSTAINABLE SME IN BULGARIA
Developing Market Entry Strategy English Kpmg
Transcript of Developing Market Entry Strategy English Kpmg
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Developing
a Market EntryStrategy for Romania
kpmg.ro
KPMG in Romania
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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
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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
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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.
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Section or Brochure name | 5
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.
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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.
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Section or Brochure name | 7
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?
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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
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Developing a market entry strategy for Romania | 9
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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.
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12 | Developing a market entry strategy for Romania
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
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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
Developing a market entry strategy for Romania | 13
*source: Intellinews Macroeconomic Data, National Institute for Statistics
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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.
14 | Developing a market entry strategy for Romania
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
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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
Developing a market entry strategy for Romania | 15
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
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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.
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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.
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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
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Section or Brochure name | 19
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
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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
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Developing a market entry strategy for Romania | 21
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.
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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
22 | Developing a market entry strategy for Romania
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Section or Brochure name | 23Section or Brochure name | 23Section 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
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strategy and financing to delivery and hand-back.
Dig deeper at kpmg.com/infrastructure
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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.
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