Entering the Romanian Market
Romania’s rich heritage is allied to a growth economy that is increasingly attracting international companies with an eye on expansion.
Away from the workplace, Romania offers a land with intriguing history and natural beauty. Romania has mountain ranges – the Carpathians and Transylvanian Alps – with the name Transylvania forever associated with vampires and the infamous Count Dracula. There are forests and immense rolling plains.
Romania’s steadily evolving economy showed strong growth of 6.3% post-pandemic in 2021, having been one of the EU’s least affected members. Romania’s nominal Gross Domestic Product was 287.3 billion US dollars in 2021, ranked 47th in the world.
As a member of the European Union (EU) since 2007, Romania enjoys freedom of movement for workers and capital with the economy predicted to grow by 4.2% in 2022 and 4.5% in 2023. Romania’s low tax rates – both personal and corporate – have added to the nation’s global competitiveness.
As always there are complications to be dealt with. For example, international companies hiring staff must give preference to local employees, then those from the EU or the European Economic Area (EEA). Additionally, foreign companies who intend running payroll for their hired staff must set up a legal entity subsidiary in Romania.
The most popular choice is to open a limited liability company, known in Romania as a Societate cu Raspundere Limitata or (SRL). All entities in Romania operate under the Companies Law, which regulates incorporation, dealing with shares, directors and officers, accounts, and other provisions. Registration procedures and requirements include:
- A company name reserved with the Trade Registry, either in person or via their website and a founder, which can be either an individual or a legal entity
- The Memorandum of Incorporation and Articles of Association for the new company
- The Articles of Association for the parent company and extracts from the Trade Registry of the home country, verifying the financial status of the shareholders
- The new company’s fiscal registration number from the National Agency for Fiscal Administration (ANAF). Other registrations may be required for VAT and social insurance contributions
- A registered physical office and a designated local official authorized to sign documents
Expanding Business into Portugal
Opening a business in any overseas territory brings issues. Moving staff across the world means lengthy processes to obtain visas and work permits. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination, and severance? Drawing up an expansion blueprint is not enough. Your business plan will have to answer all these questions. There are other issues, too. Where will you find manufacturers, offices, and distributors?
Romania Business Facts
- Capital – Bucharest
- Population – 19.29 million (2020)
- Regions – Nord-Est, Sud-Est, Sud, Sud-Vest (Oltenia), Vest, Nord-Vest, Centru, Bucharest-Ilfov. There are 41 administrative divisions
- Official language – Romanian
- Economy – Gross Domestic Product 287.3 US dollars, 47th globally (2021)
- Leading sectors by GDP – Manufacturing 62.6%, services 32%, agriculture 4.2%
- Main exports include – Cereals, rubber and products, iron and steel and products, vehicles and vehicle parts, insulated wiring, and control boards
- Main imports include – Vehicle parts, pharmaceuticals, crude petroleum, textiles, machinery, foodstuffs
- Main trading partners – Germany, Italy, France, and Hungary
- Government – Parliamentary republic, unitary state, semi-presidential
- Currency – Leu
Advantages and Challenges of the Romania Market
Advantages of expanding into the Romanian market include:
Location: Romania is ideally placed at the heart of three economic groups; the European Union (EU), the Commonwealth of Independent States (CIS) and the Middle East. It is crossed by transport corridors linking east to west, north to south, while 600 miles of the River Danube flows into the Black Sea to provide a maritime gateway to further expansion.
Taxation: Comparatively low rates at both personal, indirect and corporate levels have boosted international competitiveness.
Business: Cost-effective environment includes incentives for incoming businesses with re-invested profits being tax exempt.
Workforce: Well-educated and skilled, often multi-lingual from living at a cultural crossroads between east and west.
Advances: Developed from largely agricultural and manufacturing focus into a technologically enterprising economy.
Challenges of expanding into the Romanian market include:
Bureaucracy: Reflecting the former Communist regime, ‘red tape’ and state-owned enterprises can still dominate some industries and restrict access to supply chains and customers.
Currency: Subject to exchange rate fluctuations as Romania uses the leu as its monetary unit, not being in the Eurozone despite membership of the EU.
Labor force: Comparatively low wage rates can lead to skills shortages in some sectors as Romanians move to work in other EU countries for higher pay.
Concerns: A 2020 survey listed healthcare, inflation and pension provision among the major worries for the workforce.
Limited Company / Subsidiary or Branch in Romania?
To operate payroll for their hired staff, foreign companies expanding into Romania must establish a legal entity. The most popular choice is to open a limited liability company as a subsidiary, which is known in Romania as a Societate cu Raspundere Limitata or (SRL). Another option is to open a branch, or Sucursala, but there are differences in how they are registered and operate.