Business Guide to Romania* - Bayern - Europa

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Chapter 2 Business Environment ■ Government introduced flat tax ■ EU treaty signed in April 2005 and membership expected in 2007 ■ Ratings agencies improved outlook 2.1 Business Climate The vigorous economic growth in the last five years, the continuous reduction of the inflation, the progress in restructuring the economy and the acceleration of the privatisation process have determined the European Commission to acknowledge Romania as having a functioning market economy, in its 2004 regular report. Romania's progress has been recognized also by all the rating agencies as well. At the beginning of 2005 Romania's credit outlook was improved to “positive” from “stable” by Standard & Poor's, which cited the country's progress toward joining the European Union in 2007. At the end of 2004, Fitch upgraded the country's long-term foreign currency two notches to investment grade ('BBB minus'). Also, US financial rating agency Moody's upgraded Romania's country rating by two steps to Ba1. The new government moved fast in modifying the country's tax system, replacing a 25% corporate profit tax and an 18-40% personal income tax scale with a flat tax rate 16%. To offset a possible revenue gap the government said it plans to raise excise taxes on petrol, alcohol and cigarettes as well as capital gains taxes. The government also says that budget shortfalls might be avoided as lower taxes would help curb tax evasion. The privatisation process will continue this year with large privatisations in the financial sector as well as in the energy sector. The Fiscal Code and the Fiscal Procedural Code have been subject to constant change since their entry into force. The adoption of the Labour Code was also a major 12 PricewaterhouseCoopers - Business Guide to Romania 2005 step forward in the transposition of the acquis on social policy and employment. 2.2 The Aims of Government The Government's main objective is the EU accession. The new government is determined to meet all the EU requirements so that Romania can join the EU in 2007. The main government priorities on short term are the fight against corruption, the independence and restructuring of the judiciary system, the regulations on public procurement, state aids and competition, border and environmental control. 2.3 Free Trade Zones Romania has six designated Free Trade Zones, mainly located around ports: Constanta Sud-Agigea (on the Black Sea), Sulina (at the mouth of the Danube), Braila, Galati, Giurgiu (on the Danube), and Curtici-Arad (on the Hungarian border). The Free Trade Zone legislation falls under Law 84/1992 modified by the Law 244/2004. Specific customs rules also are in force concerning Free Trade Zones. The relevant legislation allows, under certain conditions, exemption from customs duties and value added tax, unrestricted import and re-export of foreign goods, and permission to conduct financial transactions in convertible currency. 2.4 Financial Services The banking sector continued to benefit from better economic times in 2004 and retail banking services such as mortgages, leasing and insurance have started to pick up considerably. Most Romanian banks are now in private hands; while the two remaining state-owned large banks, BCR and the Savings Bank CEC, are expected to go private either this year or in 2006. BCR's assets under management total about EUR 6 billion, accounting for
nearly one-third of Romania's banking sector. CEC is ranked fourth with assets totalling EUR 1.4 billion at the end of 2004. CEC has the largest network of about 1,400 branches and offices. Most banks have set up investment arms; the big four accounting firms have also established a significant presence in the country. Both the capital market and the insurance industry recorded upswings in 2004. Market capitalisation for the two regulated capital markets, the Bucharest Stock Exchange and the over-the-counter RASDAQ market was around EUR 12 billion at the beginning of June 2005 as compared to EUR 11 billion at the end of 2004. Foreign investment in the stock exchange in 2004 stood at some EUR 74.7 million, a 3.5-fold increase on the previous year. Investors mainly focused on the market's blue chips, which include Petrom, Rompetrol Rafinare (Petromidia) and banking operators Banca Romana pentru Dezvoltare (BRD) and Banca Transilvania. Financial investment companies (SIFs) are also highly sought-after stock. The two stock exchanges, BSE and Rasdaq are set to merge in fall 2005. The next in line to join will be Sibiu Monetary - Financial and Commodities Exchange (BMFMS), by the end of 2005. The capital market regulator is the National Securities Commission, which intends to bring more transparency and trust to the Romanian market through its regulations. There are 45 registered insurance companies in Romania offering an increased range of insurance services. A large number of these companies are members of UNSAR (National Union of Insurance and Reinsurance Companies) and this group comprises around 90% of capital and premiums in the industry. Large international insurers have established domestic operations and sales forces. There is also a significant number of insurance brokers authorised by the market regulator. The insurance industry regulator is the Insurance Surveillance Commission. During the recent period, numerous regulations have been issued to fill the legislative gap and to be in line with EU legislation in this sector as in many others. Romanians are increasingly interested in the insurance market but insurance penetration is still much lower than the EU average. Although most of the large insurance companies operating in the Romanian market offer various life insurance services, sometimes associated with private pension plans, life insurance has a reduced share Chapter 2 - Business Environment in the overall insurance activity. The Romanian market is dominated by non-life insurance. The government is moving forward in reforming the pension system under a three-pillar scheme and the emergence of private pension funds is expected to give the industry a boost. For more details in respect of Financial Services in Romania, please refer to Chapter 4. 2.5 European Union Associate Status The negotiations for EU accession were officially launched in 2000. In October 2004, the European Commission's Progress Report on Romania stated that the country's economy meets the criteria for being regarded as a functional market economy. At the end of 2004, the European Commission confirmed the provisional finalisation of all negotiation chapters and the treaty with the EU was signed in April 2005. The provisional date for Romania’s Accession to the EU was set for 2007. However, in case of "major shortcomings" observed during the preparation for accession, the entry can be delayed by one year, in compliance with the safeguard clause included in the Accession Treaty. Between 2000 and 2004, Romania has received important grants from the EU through the Phare, Ispa and Sapard instruments that exceeded EUR 2.6 billion. For 2005 and 2006, Romania is set to receive from the EU some EUR 1 billion per year as pre-accession funds. The EU post-accession funds allocated for Romania (2007 to 2009) stand at EUR 11 billion, of which EUR 6 billion will be paid in this period (the rest of the payments to be made as the projects are unfolded). Romania's contribution to the EU budget will stand at some EUR 800 million in 2007, over EUR 800 million in 2008 and some EUR 900 million in 2009. 2.6 NATO Accession Romania officially joined the Alliance at the end of March 2004, some 55 years after NATO had been established. 2.7 International Agreements Romania has diplomatic relations with over 170 nations. This has enabled the country to join important organisations and be party to key agreements including the following: ■ Membership: PricewaterhouseCoopers - Business Guide to Romania 2005 13
Page 1 and 2: Business Guide to Romania* 2005 Edi
Page 3 and 4: Contents Chapter Page 1. Romania: a
Page 5 and 6: ■ Unions 30 6.2 Working Condition
Page 7 and 8: ■ VAT Compliance 48 10.2 Customs
Page 9 and 10: Chapter 1 Romania: a Profile ■ Ro
Page 11 and 12: upgrades made by Moody's and Fitch
Page 13: All visitors to Romania require pas
Page 17 and 18: Mortgages are created under authent
Page 19 and 20: allowance of 20% of the value of th
Page 21 and 22: Chapter 4 Banking, Finance and Insu
Page 23 and 24: ■ Taking deposits; ■ Making loa
Page 25 and 26: tried to bring more transparency an
Page 27 and 28: Chapter 5 Corporate and Business La
Page 29 and 30: EUR 25,000 by 31 December 2005). Pa
Page 31 and 32: Chapter 6 Labour Relations and Soci
Page 33 and 34: employment contract with an occupat
Page 35 and 36: Chapter 7 Accounting and Audit Requ
Page 37 and 38: Chapter 8 Taxation of Corporations
Page 39 and 40: exempt from paying profit tax throu
Page 41 and 42: ■ Other salary and/or similar exp
Page 43 and 44: - revenues obtained from management
Page 45 and 46: Income Subject to 16% Flat Tax Rate
Page 47 and 48: ■ Income from sale of movable and
Page 49 and 50: similar function, cinema tickets, a
Page 51 and 52: guarantee import duties could be ob
Page 53 and 54: are transported between tax warehou
Page 55 and 56: also stipulates the elements that s
Page 57 and 58: elationships with key contacts, inc
Page 59: Appendices
Page 62 and 63: Appendix II Appendix II Major Banks
Page 64 and 65:
Appendix III Restaurants Phone ■
Page 66 and 67:
Appendix IV 481- 482 Internal Settl
Page 68 and 69:
Appendix VI Appendix VI Accountants
Page 70 and 71:
Appendix VII (b) Appendix VII (b) W
Page 72 and 73:
Appendix IX Appendix IX Customs Dut
Page 74:
Appendix XI Appendix XI Excise Tax
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