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The legal framework in the investments field currently undertook a series of changes mostly consisting in the repealing of the facilities granted to the investors. Thus pursuant to the Profit Tax Law no. 414/2002 with its subsequent amendments as well as the VAT Law no. 345/2002 with its subsequent amendments most of the facilities provided for by specific investment legislation have been cancelled.
The legal regime of direct investments over the Romanian territory is regulated by the provisions of the Government Emergency Ordinance no. 92/1997 regarding the stimulation of direct investments, as approved by Law no. 241/1998. The facilities provided for by this normative act were suspended in 2000.
Several enactments, mainly amended as mentioned-above, were providing for facilities granted to investors in certain fields and upon the fulfillment of specific conditions.
The Government Emergency Ordinance no. 24/1998 regarding the regime of disfavored areas, republished, as subsequently amended and approved by Law no. 7/2001, created the legal background as to allow certain geographical areas to be deemed as disfavored areas. Investments made into these designated disfavored areas benefit, under this normative act, from a number of facilities, provided that they meet certain specific conditions.
In June 2001 the Romanian Parliament adopted Law no. 332/2001 regarding the promotion of direct investments that have a significant impact on the economy the purpose of which is to stimulate investments made with liquid capital or exchangeable hard currency.
The legal regime of industrial parks is governed by the provisions of the Government Ordinance no. 65/2001 regarding the establishment and functioning of industrial parks, as amended by Law no. 490/2002. Small and medium enterprises benefit from a number of facilities in accordance with Law no. 133/1999 regarding the stimulating of private entrepreneurs for the establishment and development of small and medium enterprises, with its subsequent amendments and supplements.
Foreign portfolio investments undertaken by bonds' acquisition on regulated markets are governed by the provisions of Government Ordinance no. 66/1997, as approved by Law no. 792/2001.
The general background for direct investments is governed by the following principles and warranties granted to investors:
The possibility to perform investments in any field and under any of the forms provided for by the law;
Equal, unbiased treatment for both resident and non-resident investors;
Guarantees against nationalization, expropriation or other measures with an equivalent effect, except when such measure is imposed by public interest, when the expropriation is carried out under the conditions set forth under the law with the payment of prior, proper and effective compensation;
The possibility of non-resident investors to set up commercial companies over the Romanian territory and to fully subscribe the share capital of the same;
The companies that are resident or non-resident legal entities may acquire any real rights over real estates, to the extent necessary for the performance of the activities, according to the their object of activity, save for the lands that may be acquired by Romanian individuals or legal entities.
Moreover, foreign investors are guaranteed the right to transfer the following revenues abroad, with no restrictions whatsoever, after the payment of the legal taxes and fees, in exchangeable hard currency:
The dividend or the benefit obtained by a Romanian legal entity, in the event that there are shareholders or associates;
The revenue obtained in the case of a partnership, as well as the revenues obtained from the sale of the shares or the social parts;
The amounts obtained pursuant to the liquidation of a company, according to the legal provisions;
The amounts obtained as compensation, pursuant to an expropriation or to the implementing of another measure with an equivalent effect;
Other revenues according to the form of achievement of the investment.
Direct investments with a significant impact on the economy
Direct investments with a significant impact on the economy are defined by the law as being such investments the value of which exceeds the equivalent of USD 1 million and that contribute to the development and modernizing of Romania's economic infrastructure, thus resulting in a positive effect of engagement in the economy and the creation of new workplaces. Only new investments made by liquid capital in ROL or exchangeable hard currency, performed within a maximum of thirty days following the date of statistical registration with the Ministry of Development and Prognosis shall benefit from the provisions of this normative act.
Direct investments with a significant impact on the economy may be made in any field of activity, except for the financial, banking, insurance-reinsurance fields, as well as the fields regulated under special laws.
Direct investments that meet the requirements provided for by this normative act, shall benefit from the following facilities:
Exemption from the payment of customs fees for imported goods (installations, equipment, technology) necessary for investment purposes;
Postponement of the payment of the Value Added Tax for the above-mentioned goods that are either new, imported or manufactured in Romania.
Fiscal deduction of a 20-percent quota of the investment value;
The recovery of fiscal losses, in the course of the following five years, out of the taxable profit;
The use of accelerated repayment upon notification to the competent authorities, but without the obligation of prior approval.
Certain facilities previously granted for investment purposes pursuant to the Law no. 332/2001 have been repealed or subject to amendments upon the new enactments in the profit tax and VAT tax fields:
The facility regarding the postponement of the payment of the Value Added Tax for new goods that are either imported or manufactured in Romania and are necessary for making the investment was cancelled as of June 1st, 2002;
The facility regarding a fiscal deduction of a 20 percent quota of the investment value will be cancelled as of January 1st, 2005;
The facility regarding the use of accelerated repayment will also be repealed as in January 1st, 2005.
If an investment meets the requirements to benefit from facilities granted by several laws, the investor must express its option for only one regime of facilities.
The investments made in accordance with the conditions of this normative act must be maintained for at least 10 years, and in the event of a voluntary dissolution of the company, the company must pay the taxes and fees, calculated in accordance with the law, for the entire duration of the investment, as well as delay increases calculated from the date when the taxes and fees should have been paid in the absence of the facilities.
The assignment of the goods for which the investors benefited from facilities within less than two years following the date when such goods were brought into the country or were purchased shall result in the payment of the counter value of the facilities from which they had benefited, as well as delay increases calculated from the date when the taxes and fees should have been paid in the absence of such facilities.
Pursuant to the Government Emergency Ordinance no. 24/1998, as republished, with its subsequent amendments, a legal framework was created to characterize certain geographical areas as disfavored areas and to implement a system of facilities for investments made in such areas.
Currently, by means of government decisions, upon the proposal of the National Council for Regional development, 35 geographical areas have been designated as disfavored areas.
The main goals purported to be achieved pursuant to the issuance of the enactments governing the regime of the disfavored were the drawing of a legal background that would contribute to economic recovery and the attraction of capital in certain territories that were seriously affected by programs of industrial restructuring and extensive layoffs.
The disfavored areas are strictly delimited geographical areas that meet at least one of the following requirements:
The percentage of unemployed persons out of the total work resources of the area is at least three times higher than the percentage of the unemployed in the total work resources on a national level, over the last three months preceding the month of drafting of the documentation for designating the disfavored area;
They are isolated areas, lacking communication means and having a poorly developed infrastructure.
Companies with majority private capital, which are Romanian legal entities, as well as private entrepreneurs, benefit from a number of facilities for newly created investments in the disfavored areas, provided that they have their headquarters in these areas, carry out their activity in such areas and create new workplaces, as follows:
Exemption from the payment of customs fees for the repayable goods imported in view of making the investment;
Exemption from the payment of the Value Added Tax for the repayable goods, manufactured in the country and acquired in view of making and performing the investment;
Exemption from the payment of customs fees for imported raw materials and parts, necessary for achieving one's own production in the disfavored area;
Exemption from the payment of profit tax during the period of existence of the disfavored area;
Exemption from the payment of fees charged for changing the purpose or withdrawing from the agricultural circuit certain lands intended for making the investment;
The granting of certain amounts for financing special programs, approved by government resolution, out of the special development fund at the government's disposal.
The facilities regarding the exemption from payment of custom fees and Value Added Tax for the repayable goods imported in view of making the investment, the exemption from payment of the Value Added Tax for the repayable goods manufactured in the country and acquired for the same purpose, as well as the facilities related to exemption from the payment of the profit tax were cancelled as of June 2002.
Investors in disfavored areas may change the purpose of the goods for the acquisition of which they had benefited from facilities only after paying the customs fees and the Value Added Tax, respectively, from the payment of which they had been exempt. Companies that benefited from facilities for investments made in a disfavored area may voluntarily cease their activity but only after payment of the legal fees and taxes.
Industrial parks represent a defined area where a company carries out economic activities, scientific research and/or technological development activities to capitalize on the human and material potential of the area.
The title of industrial park is granted by an order of the Minister of Development and Prognosis pursuant to assessing the lodged documentation, only to partnerships that are Romanian legal entities. A company called administrator-company administers the industrial park. None of the associates that use the utilities and/or infrastructure of the industrial park can hold control, directly or indirectly, over the administrator-company. The duration of the industrial park is to be granted upon the petitioner's request, but not for a period less than 15 years.
Administrator-companies benefit from the following facilities with respect to the activity carried out for establishing and developing an industrial park:
Exemption from the payment of fees charged for changing the purpose or for withdrawing the land related to the industrial park from the agricultural circuit;
Postponing, for the period of achievement of the respective investment and up to the date of implementing the industrial park, the payment of the Value Added Tax for the materials and equipment necessary for achieving the utility system inside the park, as well as the connections inside the park or to the existing utility networks, to the suppliers of the same, and postponing of the right to deduct the respective Value Added Tax up to the date when the economic operators achieve the investment.
The facility regarding the deduction from the taxable profit of a 20 percent quota of the value of the investments made in the industrial park was cancelled as in July 1st, 2002
The local authorities can grant tax deductions, pursuant decisions of the local councils, for the real estate properties and land plots used by the industrial park, as well as other facilities, in accordance with the law.
Facilities granted to the small and medium enterprises
To benefit from the facilities granted to small and medium enterprises, companies that produce material goods and services must cumulatively meet the following requirements:
Fall within the number of annual personnel provided for by the law (up to nine employees micro enterprises; between 10 and 49 employees small enterprises; and between 50 and 249 employees mediumenterprises);
Achieve an annual turnover equivalent to up to EURO8 million.
Small and mediumenterprises benefit from the following facilities:
Suspension of the payment of the Value Added Tax to the customs authorities for the import of new machines, vehicles necessary to productive activities, installations, industrial equipment, instruments, technological machines, automation, measurement and control apparatus;
The possibility of using the accelerated repayment regime, provided that the enterprise should not register losses, for machines, installations, industrial equipment, instruments, appliances and know-how;
Suspension of the payment of customs fees for the import of scarce raw materials or raw materials that are not produced in the country, necessary for their own activities of production and/or rendering of services;
Postponement of the payability of the Value Added Tax for new machines, vehicles necessary to productive activities, installations, industrial equipment, instruments, technological machines, automation, measurement and control apparatus, software products that are necessary for making the investment.
Certain facilities previously granted to investors pursuant this enactment have been repealed as of the date of coming into force of the Profit Tax Law:
The facility regarding the exemption from the payment of custom fees for the import of goods acquired in view of developing their activity was cancelled;
The facility regarding the exemption of tax payment for the gross profit used in the current fiscal year for investments in repayable tangible and non-tangible assets, intended for carrying out the activity for which the tax-payer was authorized was cancelled;
The facility regarding the reduction of the profit tax in a percentage of 20 percent, in the event that new work places are created, was cancelled.
Regime Of Foreign Investments In Romania, Made By Means Of Purchasing State Titles
Non-resident investors, either individuals or legal entities, may make portfolio investments in Romania by acquiring state titles from organized markets, under the conditions provided for by Government Ordinance no. 66/1997, as approved by Law no. 792/2001.
The acquisition of state titles by non-resident investors is made through brokers who are authorized in operations with state titles on the primary market. The participation of non-resident investors on the market of state titles is authorized under the issuance prospectus.
The repatriation of the portfolio investment and of the revenues made pursuant to the transactions with state titles shall be made in hard currency and is not taxed in Romania.