Foreign Direct Investments in Romania

Practical Guide

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Foreign direct investment (FDI) plays an increasingly important role in the global economy but control mechanisms vary across the world, whether in substance or procedure. Investing in foreign countries can be complex and it is often a challenge to know where to start. Some jurisdictions have strong control mechanisms whereas others have a more open foreign investment regime. However, there is a growing concern regarding investments by foreign actors in strategic fields. FDI is therefore an increasingly essential topic in contemplated investments and cross border M&A.

This online guide is designed to help international investors looking to invest in businesses around the world. It provides a brief overview of the local regulations and considerations relevant to foreign investments and summarises practical implications and expected timelines. Our legal experts provide answers in this guide, which is organised in a Q&A format in order to provide an easy outline of the relevant subjects and practical applications.

Romania

How are foreign investments regulated in Romania?

Romania is an attractive destination for foreign direct investments (FDI) due to its strategic geographic position, a large consumer market and reduced costs of skilled workforce.

As member of the EU, Romania has an open regime for foreign investments. However, there are several sectors of public interest such as defence & national security in which there is a state monopoly.

According to the information provided by the National Bank of Romania, the main industry sectors attracting foreign investment are manufacturing, construction and real estate transactions, trade, financial intermediation and insurance.

Which foreign investments are subject to clearance in Romania?

  • Prior clearances are requested in relation to:

Real Estate

  • Foreign citizens from outside the EU may only directly acquire land in Romania under the provisions of reciprocal agreements between Romania and their state of citizenship; 
  • Pre-emption rights, including to the benefit of the Romanian state, are to be observed when selling certain types of real estate (agricultural lands, historical monuments, forests, etc.);
  • A very recent legislative modification drastically limited the possibility of purchasing agricultural land located outside the buildable area of the city imposing the following conditions:

    Private individuals must meet the following conditions to be able to acquire agricultural land:
    • to have the domicile / residence on the national territory for a period of at least 5 years prior to the registration of the sale offer;
    • to carry out agricultural activities on the national territory for a period of at least 5 years prior to the registration of this offer;
    • to be registered with the tax authorities for a period of at least 5 years prior to the registration of the offer for sale of agricultural lands located outside the built-up area; 
    • to have studied in the agricultural field.

Companies must meet the following conditions to be able to acquire agricultural land

    • have the registered office and / or the secondary office located in Romania, for a period of at least 5 years, prior to the registration of the sale offer; 
    • have carried out agricultural activities in Romania for a period of at least 5 years, prior to the registration of the offer for sale of agricultural lands located outside the built-up area;
    • present documents showing that out of the total income of the last 5 fiscal years, at least 75% represents income from agricultural activities; 
    • the partner / shareholder holding the control of the company must have his domicile located on the national territory for a period of at least 5 years, prior to the registration of the offer for sale of agricultural land located outside the built-up area;

The non-observance of the above provisions shall result in the annulment of the transaction.

Antitrust

  • For mergers or acquisitions that result in an economic concentration with EU dimensions as per the Regulation EC 139/2004 on the control of concentrations between undertakings, prior notification of the EU Commission is necessary. The EU Commission shall issue a decision declaring whether the concentration is compatible or not with the common market; 
  • For mergers or acquisitions that do not result in an economic concentration of EU dimension, the prior notification of the Romanian Competition Council is mandatory when the cumulative turnover of the companies involved in the operation exceeds the equivalent in lei of 10,000,000 euros, and when at least two of the companies involved have each achieved in the territory of Romania a turnover higher than the equivalent in lei of 4,000,000 euros.

What other main challenges do foreign investors face in Romania?

Opening a bank account
We must make a distinction between the social capital bank account that is set up before the registration of the company and for which generally banks allow a new company to be represented through a proxy, even by third parties (that are not shareholders or directors), and a company’s current account that can be set up only by the director of the company or a third party based on a notarized (and apostilled) power of attorney. Moreover, each bank has its internal norms that are not made public, so a client cannot know in advance the entire set of requested documents.

UBO declarations and anti-money laundering reporting
When registering a company with the Romanian Trade Registry (including branch offices) or setting up a bank account, shareholders/directors are under the obligation to disclose the identity of the ultimate beneficial owners. Banks, financial institutions, auditors, attorneys and other entities listed as reporting entities by the anti-money laundering law are under the obligation to report suspicious transactions. The UBO registry is not public, only state authorities have access to the information.

Labour & workforce
Due to emigration of Romanian nationals to foreign countries, investors might face a shortage of workforce in certain sectors. Foreign investors that are citizens of non-EU countries shall have to obtain, depending on their specific situation, a residence permit based on their labour contract or their investor status. Obtaining the residence permit is generally not burdensome.

Real estate & Infrastructure
Due to the lack of complete, consolidated and accurate land measurements and not up-to-date owners’ registries, due diligence of legal and technical matters is necessary before any real estate acquisition. Pre-emption rights, including to the benefit of the Romanian state, are to be observed when selling certain types of real estate (agricultural lands, historical monuments, forests etc.). No significant developments have been registered in the last decade in road, railway, naval infrastructure, and this has proven to be a big downfall for those companies that were producing goods for export. On the other hand, companies with activities in construction and/or development of infrastructure projects are seeing Romania as a very promising market especially in the context of the EU-funded projects that have been initiated or that are in a planning stage.

Tax & Accounting
Romania has attractive tax rates:

  • A company that has turnover under 1 million EUR is registered as a microenterprise, that shall pay turnover tax of 1% if it has at least one employee or 3% if it has no employees. 
  • Companies that are not microenterprises are subject to corporate tax of 16% on applied on the registered profit. 
  • Dividend tax is 5%. For the shareholders, legal entities headquartered in EU that hold at least 10% from the social capital of the Romanian company for a continuous period of at least 1 year, dividends shall be exempt from tax. Dividends are distributed quarterly or yearly.
  • The standard VAT rate is 19%, by exemption, for specific products or services there are reduced rates: 
    • 9% for food, water, medicines, prosthetics, restaurant and catering services etc. 
    • 5% for books, museums/castle tickets, specific types of estates with a social policy.
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