Today, Romania's economy is moving at a rapid pace towards a market economy. The coherent reform process carried out so far has included the following stages:

• liberalisation of prices;
• liberalisation of foreign trade;
• development of the private sector;
• re-structuring and privatisation of state-owned enterprises;
• re-structuring and development of the financial and banking sectors;
• a new taxation system.

At present, Romania is mainly oriented towards re-structuring and privatising large, state-owned enterprises, and ensuring stable and sustained economic growth.

The direct investment policy is seen as a major tool of the reform process. It can supplement the domestic capital pool and introduce effective management to meet western standards and market behaviour. The main competitive advantages offered to investors in Romania are:

• the domestic market (23 million consumers), the second largest market in Central Europe;
• excellent positioning at the crossroads of the main traditional commercial routes, allowing access to over 200 million consumers in a 1000 km radius;
• extensive sea and river navigation facilities (Constanta is the largest port on the Black Sea and the building of the Rhine-Main-Danube Canal gives the possibility of access to new and permanent navigation routes from the Black Sea to the North Sea).
• a skilled labour force, which is relatively cheap and well-trained in engineering and technology;
• a wide-range of natural resources, fertile farming land and vast potential in tourism;
• diversified industrial structure;
• attractive legislation for investors, based on free and non-discriminatory access to the newly created markets.

Forms of direct investment

The Urgency Ordinance 92/30 December 1997, establishes the general legal regime regarding guarantees and incentives granted to investors and direct investments in Romania.

Investing in Romania, as well as owning, using or deciding upon a property, are guaranteed, and cannot be subject to any discriminatory measures. Administration, maintaining, exploiting, expansion or liquidation of investment is also free of discrimination.

Investors in Romania mainly benefit from:

• the possibility of investing in any field and under any juridical form provided by the law;
• equal treatment towards Romanian or foreign investors, resident or non-resident in Romania;
• guarantees against nationalisation, expropriation, or any other measures with a similar effect;
• fiscal and custom duties facilities;
• assistance in following the administrative procedures;
• the right to convert the lei currency of the investment into the investment currency; as well as the right to transfer currency to the originating country, according to the regulations of the Foreign Exchange Regime;
• the investors' right to choose the competent trial or arbitration courts for solving eventual conflicts;
• the possibility of reporting the losses registered during a financial period in the profit before tax of the next fiscal period;
• the possibility of using the accelerated depreciation;
• the possibility of deducting the advertising expenses from the profit before tax;
• the possibility of hiring foreign persons according to the legal regulations in force.

Investments cannot be nationalised, expropriated, or form the subject of other measures of like effect, except in cases where such measures meet the following requests:

• it is of public use;
• it is non-discriminatory;
• it is in accordance with specific provisions of the law;
• it is against previous compensation that is adequate and effective.

The compensation will be equivalent to the current real market value of the expropriated investment, either immediately before expropriation, or before the imminent expropriation becomes known, affecting the investment value.

Investors may request that the real market value of the investment be expressed in freely convertible currency, based on the exchange rate of the currency on the currency market on the date of evaluation.

According to Romanian law, those investors affected enjoy the right of an immediate case examination, an investment assessment and compensation payment. In agreement with related international treaties, in which Romania is involved, examination may be made by a court authority or by another independent and competent authority.

Guarantees and facilities for non-resident investors

Non-resident investors enjoy the same rights and obligations as Romanian investors. If based on a bilateral agreement for the mutual guarantee of investments (or another law), whether a natural or legal non-resident person, the investor is entitled to more favourable treatment than that provided in the present Ordinance.

Non-resident investors enjoy the right to transfer abroad, without any restrictions, having paid legal taxes and the following incomes in freely convertible currency:

• in cases where investors are shareholders or partners, the dividends or profits obtained by a company, or the profit from a branch of it;
• the incomes obtained by a partnership type of association, as well as the incomes resulting from selling the shares or social parts;
• the amounts obtained from company liquidation, according to the Company Law No.31/1990 and its amendments, or from company liquidation, according to the Bankruptcy Law No.64/1995 and its amendments;
• the amounts obtained as compensation against expropriation or any other equivalent measure;
• other incomes according to the investment type.

Tax and custom duties incentives

Investors shall enjoy the following incentives:

• import of mobile assets, tangible and/or intangible, representing contribution in kind to the social capital of a company, or representing partnership or family association and needed for achieving the object of activity, is exempt from payment of customs duties and value-added tax;
• according to Law No.15/1994 concerning the depreciation of capital engaged in tangible and intangible assets and its amendments, technological equipment (machinery and equipment) is referred to as depreciation assets. Import made as direct investment is exempt from payment of customs duties. The list containing the commercial nomination of goods under the above provisions and the related codes from the Romanian Import Custom Tariff will be adopted by Government decision at the proposal of the Ministry of Commerce and Industry and the Ministry of Finance;
• in the case of new investment, there is a choice of two fiscal incentives:
  • deducting from the profit before tax of the expenses regarding depreciation, even in a case where the tax payer chooses the accelerated depreciation regime. This option of the accelerated depreciation regime must be declared to the local tax authorities, where fiscal statements must also be deposited, but without the need for approval from the authorities;
  • deducting from the profit before tax of one fiscal period a twenty per cent quota from the equipment purchase cost (machinery and equipment), which represents depreciating assets purchased during that fiscal period. In cases where the profit before tax is insufficient to allow the deduction of the entire 20 per cent quota, the difference will be deducted from the proceeding fiscal periods, so that the whole amount will be deducted in a maximum of five years;
• total deducted from the profit before tax of advertising expenses;
• recovering annual losses declared by the tax payer in their fiscal statements during the next five years. Loss recovery will be made at each payment deadline of the tax on profit, according to the regulations in force.

Sectors open to foreign investment

Foreign investment is permitted in virtually all economic sectors including:

• industry;
• exploration and exploitation of natural resources;
• agriculture;
• infrastructure and communication;
• civil and industrial construction;
• scientific research and technological development;
• trade;
• tourism;
• banking;
• insurance;
• other services.

Investments should observe the following conditions:

• to comply with environmental requirements;
• not to affect Romania's national security and defence interests;
• not to harm public order, public health and ethics.

According to specific regulations, a foreign investor in the insurance sector must have a Romanian partner. Legislation in force provides for extensive rights for foreign investors, such as:

• to participate in the management and administration of the investment, in accordance with the memorandum of association and articles of incorporation concluded, as well as to exert full property rights over their investments in Romania;
• to transfer abroad annual profits, after payment of all due taxes, duties and other obligations, according to Romania's foreign exchange regulations;
• to transfer abroad the proceeds from the sale of shares, bonds or other securities, as well as those resulting from the conclusion of an investment;
• to assign their contractual obligations and rights to other Romanian or foreign investors.

Ministry of Privatisation
Investment Promotion Department
7 Magheru Blvd
Bucharest
Romania
Tel: 00 401 315 92 29
Fax: 00 401 312 03 71