Romania Subsidiary Entity Set Up

Romania Entity Set Up

Establishing a subsidiary in a foreign territory comes with risks. A project that starts as a business adventure can become costly, time-consuming and with no guarantee of success.

Non-resident companies can hire employees in Romania, but they must open a legal entity in order to operate payroll for their staff. The most popular choice is to open a subsidiary as a Limited Liability Company (LLC), known in Romania as a Societate cu Raspundere Limitata or (SRL).

Romania, a member of the European Union (EU) since 2007, has become an increasingly attractive option for international expansion. Its location in southeastern Europe makes it a gateway into the Balkans and further east, with Constanta being the largest and deepest port on the Black Sea.

Romania’s low tax rates – both personal and corporate – have added to the nation’s global competitiveness. 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 47^th in the world, and the EU predicts growth of 4.2% for 2022 and 4.5% in 2023.

However, expanding overseas is a major step, especially for companies opening a legal entity thousands of miles from their home base. If the move fails, companies face the extra expenditure and stress of closing the business, selling property, and paying off employees. It is easy to stumble while chasing two objectives – advancing your company at home while crossing the world into a new territory.

How to set up a Romanian Subsidiary

Setting up a subsidiary in Romania? This is a legal requirement for international companies planning to run their payroll for their staff. They typically choose to establish a limited liability company (LLC), known in Romania as a Societate cu Raspundere Limitata or (SRL), which operates under the Companies Law.

The Act covers incorporation, shares and shareholder regulations, duties of directors and officers, accounting, audits, and other provisions.

General procedures and requirements include:

• Reserve company name and prepare company information before submitting application to the Trade Registry, which can be done electronically through the Registry website
• Founder can be either an individual or a legal entity
• There is no requirement for minimum share capital of an LLC
• The subsidiary has between one and 50 shareholders
• Provide Memorandum and Articles of Association for new subsidiary
• Provide Articles of Association of the parent company and extracts from Trade Register where shareholders are incorporated verifying their good standing and financial status, plus passport and ID of future directors
• Once incorporated, obtain the company fiscal registration number from the National Agency for Fiscal Administration (ANAF). Other registrations may be required for VAT and social insurance contributions
• Register a physical office and designate an individual to sign official documents for the subsidiary
• Officially register the subsidiary by filing all documents with the Trade Registry

To operate payroll for staff, other procedures include:

• Obtaining personal tax identification number (TIN) for foreign nationals, using Form 030 and submitting to the local tax office where they live with required documentation
• Verifying the CNP (Codul Numeric Personal) of local employees, which is assigned at birth and doubles as their TIN
• Filing social insurance and tax reports and returns for local employees on Form D112
• Filing social insurance reports and returns for non-resident foreign employees on Form D112
• For non-resident foreign employees, filing tax reports and returns on Form D224 and submitting Form D222 at the beginning and end of their employment
• Remitting employees’ contributions by the 25^th of the following month to the National Agency of Fiscal Administration (ANAF) and submitting annual tax returns by May 25 of the following year
• Registering new employees with the Labor Inspectorate on the Revisal online software one day before they commence work at the latest
• Ensuring all new employees receive a written contract before starting work, which must be in Romanian or at least include a version of the terms in Romanian if it is a bi-lingual contract

Benefits of setting up a Subsidiary in Romania

Specific advantages for a foreign company opening a private limited liability company in Romania include that the entity has a separate legal identity from the parent company. The subsidiary operates under Romanian Companies Law and the parent company’s liability is generally limited to the share capital it has invested. The same applies to its shareholders. As a local and legal entity, the subsidiary is eligible for any tax incentive schemes.

Through its subsidiary the parent company has the advantage of maximizing opportunities of expanding further into European Union (EU) economies. With its Black Sea coastline, Romania is also an ideal steppingstone for expansion into Asia. 

Other benefits for a subsidiary: 

• Easier to obtain potential benefits and incentives and enter contracts with other Romanian and EU companies 
• More impact with clients and suppliers, as subsidiaries imply more permanency than branches 
• Employees feel there is more stability and job security than from being with a branch 

In the wider commercial sense, opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets, in this case the opportunities offered by Balkan and Eastern European economies in the region.