Romania Regulatory Enviroment

Regulatory Environment: Romania’s Growing Business Potential

As one of the most dynamic markets in Eastern Europe, Romania has become an increasingly attractive destination for investors looking to expand into the European market. With its strategic location, business-friendly environment, and a growing skilled workforce, Romania provides significant opportunities for both startups and established companies.

From competitive tax systems to robust investment incentives, Romania combines a mix of modern policies and infrastructure to ensure businesses thrive. Below we explore what makes Romania a standout destination for foreign investors, including the ease of doing business, tax regimes, and other key factors that contribute to the country’s growing economic appeal.

A Business-Friendly Environment with Strategic Advantages

Romania’s business landscape is built on a foundation of strategic advantages, making it a preferred choice for investors across the globe. Geographically, the country serves as a gateway between Eastern and Western Europe, offering unparalleled access to major European markets. Add to this a well-educated workforce, particularly in the fields of IT, engineering, and medical sciences, and it’s clear why Romania continues to attract businesses looking to innovate and scale.

The Romanian government actively supports industries that drive economic growth, particularly IT&C. For instance, businesses operating in industrial, scientific, or technological parks benefit from local tax exemptions, further reducing operational costs. Investors performing R&D activities can also access a suite of tax benefits, positioning Romania as an innovation-friendly destination. Another thing to mention is the Dividend Tax Rates of 10%, higher in comparison with Greece, Bulgaria, Latvia, however much lower than Poland (19%), or Slovenia (27.5%).

According to DealRoom, 40% of VC investment in CEE is concentrated in the Baltics, while Poland and Romania each account for 13%.

Source: Dealroom, Central and Eastern European Startups, page 13.

Another interesting fact that confirms the above-written information is that SaaS startups in Lithuania, Estonia and Romania jointly raised 60% of all SaaS investment in the Region in 2023.

Source: Dealroom, Central and Eastern European Startups, page 36.

Ease of Doing Business: Streamlined Processes and Global Recognition

Romania has taken considerable strides to reduce bureaucracy and enhance its ease of doing business, earning a rank of 55 on the World Bank’s Ease of Doing Business Index (2019) with an overall score of 73.3. This recognition reflects Romania’s ongoing efforts to streamline business regulations and support digital transformation, ensuring that investors face fewer hurdles when entering the market.

The “DB 2020 Starting a Business Score” provides valuable insights into Romania’s performance in the World Bank’s assessment of the ease of starting a business. With a score of 87.7 out of 100, Romania ranks 91st globally. While this score reflects notable progress in simplifying business registration processes, it also highlights opportunities for further improvement.

Compared to its regional peers, Romania demonstrates a mixed performance. Moldova leads the way in the region with a score of 95.7, securing an impressive global rank of 13. Hungary also edges ahead of Romania, scoring 88.2 and ranking 87th. Additionally, the regional average for Europe and Central Asia stands at 90.5, positioning Romania slightly below the regional benchmark.

However, Romania does outperform some of its neighbours, such as Bulgaria, which holds a score of 85.4 and ranks 113th, and the Czech Republic, which lags behind with a score of 82.1 and a global rank of 134.

Source: Doing Business in Romania Report.

Romania’s score highlights both its progress and its potential. While the country has successfully implemented measures to streamline the business setup process, reducing bureaucratic delays and enhancing efficiency could help it close the gap with regional leaders like Moldova. By focusing on targeted reforms, Romania has the opportunity to strengthen its position, attract more foreign investors, and build a business environment that rivals the best in Europe.

The process of setting up a business in Romania is notably straightforward. Investors can establish a company in as little as 20 days, with key registration processes facilitated online via the Romanian Trade Register portal. The cost of setting up an entity is also minimal, with fees such as company registration at the Commercial Registry amounting to 122 LEI and the acquisition of a Unique Registry for Controls costing just 31 LEI. VAT registration, if required, involves no additional fees, further reducing entry costs for investors.

By embracing digital platforms and modernising its commercial infrastructure, Romania offers a quick and efficient setup process, saving investors both time and money. Much of this progress can be attributed to the digitalisation of Romania’s Trade Register. Entrepreneurs can now submit their registration applications online via portal.onrc.ro using electronic signatures, reducing delays and minimising face-to-face interactions. These efforts reflect Romania’s commitment to modernising its administrative infrastructure to meet international standards.

However, further reforms aimed at cutting registration timelines and eliminating redundant procedures could elevate Romania’s ranking and make it even more competitive on a global scale.

Taxation: Competitive Rates with Incentives for Growth

Romania’s taxation system balances competitiveness with simplicity, offering businesses an attractive fiscal environment. The standard corporate income tax rate stands at 16%, one of the lowest rates in the European Union. For smaller businesses, Romania offers a special micro-enterprise tax regime with rates of 1% or 3%, depending on factors such as turnover and employment criteria. This system applies to businesses with an annual turnover of up to EUR 250,000, (and starting with 1.01.2026 EUR 100.000) providing flexibility for startups and SMEs, provided they meet specific employment and operational criteria:

• Having at least one full-time employee;
• Having associates/shareholders who hold, directly or indirectly, more than 25% of the value/number of participation titles or voting rights and being the only legal entity established by the associates/shareholders to apply this tax;
• Not being in dissolution, followed by liquidation, registered in the commercial register or the courts, according to the law;
• Submitting the annual statement on time.

The country’s Value Added Tax (VAT) system further enhances its appeal. The standard VAT rate is 19%, but Romania also offers reduced rates of 9% and 5% for essential goods and services. For instance, a 9% VAT rate applies to medicines, water, food, and catering services, while the 5% rate benefits industries such as publishing, cultural events, and hospitality.

To encourage investment in high-growth industries, Romania has introduced sector-specific incentives. Companies performing R&D activities can benefit from tax breaks on corporate income and salary taxes. These tax policies position Romania as an ideal destination for businesses looking to reduce costs while capitalising on growth opportunities in Europe.

Business Formation: Flexibility and Clarity

Starting a business in Romania is accessible and cost-effective, making it an attractive destination for both small enterprises and large corporations. The Limited Liability Company (LLC) is the most popular business structure, requiring a minimum share capital of just RON 1. This low entry barrier enables entrepreneurs to establish operations quickly with minimal financial investment.

The incorporation process is straightforward and involves key steps, including:

1. Reserving the company name
2. Drafting the Articles of Incorporation
3. Filing registration documents with the Trade Register

Once incorporated, companies are required to register with Romanian fiscal authorities within 30 days and open a local bank account. The Trade Register’s digital portal allows businesses to complete most of these steps online, further streamlining the process.

For foreign investors, Romania offers additional flexibility through branches and subsidiaries. While branches serve as extensions of foreign companies without separate legal status, subsidiaries are treated as independent Romanian entities. Both structures come with clear guidelines and minimal documentation requirements, particularly for EU-based companies.

Comprehensive Tax Framework: Ensuring Clarity and Flexibility

Romania’s tax system is built with transparency and flexibility, providing businesses with the tools to plan effectively while complying with fiscal requirements. Key components of Romania’s corporate tax system include:

Who Pays Corporate Income Tax?

Corporate income tax in Romania applies to a broad range of entities, ensuring fairness and inclusivity in the fiscal environment. The following are required to pay corporate income tax:

• Romanian legal entities, except those subject to the micro-enterprise tax or specific taxes (e.g., gambling and nightclubs).
• Non-resident entities that conduct business in Romania through one or more permanent establishments.
• Non-resident entities that derive income from Romanian-sourced transactions, such as the transfer of ownership of real estate or rights related to immovable property located in Romania.
• Legal entities established under EU regulations with their registered office in Romania.

This broad scope ensures that companies operating in Romania contribute to its fiscal system while benefiting from its competitive tax rates.

Fiscal Year

The default fiscal year in Romania follows the calendar year (January 1 to December 31). However, taxpayers have the option to align their fiscal year with a financial year that differs from the calendar year. This flexibility allows businesses, particularly multinationals, to synchronize their financial reporting across various jurisdictions.

Deductibility of Expenses

In Romania, business-related expenses are deductible for corporate income tax purposes, provided they are incurred to generate taxable revenue. However, the Fiscal Code specifies certain categories of expenses with limited deductibility or deemed non-deductible:

• Social expenses: Deductible up to 5% of total salary expenses.
• Protocol expenses: Deductible up to 2% of the gross accounting profit adjusted for protocol expenses.
• Vehicle expenses: Only 50% deductible for vehicles not exclusively used for business purposes.
• Depreciation: Expenses related to tangible and intangible assets are deductible, but methods (e.g., straight-line, reducing balance, accelerated depreciation) must follow fiscal guidelines. For example, vehicles used partially for personal purposes are capped at 1,500 RON/month in deductible depreciation.

These rules ensure that businesses can optimize tax liability while maintaining clear compliance boundaries.

Tax Losses

Tax losses in Romania can be carried forward for up to 7 years (with a 70% annual limit on taxable profits starting in 2024). Losses incurred prior to 2024 remain subject to the previous 7-year rule but within the new 70% threshold.

Notably:

• There is no carry-back of losses in Romania.
• Changes in company ownership do not impact the ability to carry forward losses, ensuring stability for businesses during restructurings or transitions.
• Tax losses of companies undergoing reorganization (e.g., mergers, spin-offs) may be transferred to beneficiary entities under certain conditions.

This provision allows businesses to manage periods of financial volatility while offsetting future profits with previously recorded losses.

Taxable Base

Romania’s corporate income tax is applied to the company’s taxable profits, which are determined as total revenues minus deductible expenses. Taxable profit serves as the foundation for CIT calculations, with clear rules governing the inclusion and exclusion of income and expenditures.

For businesses, this clarity allows for better financial forecasting and decision-making, particularly when paired with incentives like deductions for R&D activities, industrial park investments, and income tax exemptions for IT&C employees.

Resources

• https://www.imd.org/entity-profile/romania-wcr/
• Dealroom, CEE Report, March 2024
• Doing Business in Romania
• KPMG – Investment in Romania 2024
• DOING BUSINESS IN ROMANIA Overview for foreign investors
• Deloitte – International Tax Romania Highlights 2024