Multimedia Mania/abacus-multimedia-mania.iso/dp/0045/00451.txt

Text File | 1993-07-27 | 17KB | 415 lines

$Unique_ID{bob00451}
$Pretitle{}
$Title{Romania
Chapter 5.    Investment}
$Subtitle{}
$Author{Donald E. deKieffer}
$Affiliation{Embassy of Romania, Washington DC}
$Subject{foreign
company
romania
romanian
profits
capital
currency
companies
contract
established}
$Date{1990}
$Log{}
Title:       Romania
Book:        Doing Business with the New Romania
Author:      Donald E. deKieffer
Affiliation: Embassy of Romania, Washington DC
Date:        1990

Chapter 5.    Investment

FOREIGN INVESTMENT

     Hundreds of foreign firms have established branch offices or joint
ventures in Romania.

     About half of the American companies doing business in Romania today do
so through their European subsidiaries.

     Although the Romanian government does not keep accurate statistics on the
dollar amount of foreign investment in that country, reasonable estimates
range upward of $3 billion.

     A complete listing of foreign companies doing business in Romania can be
obtained from PUBLICOM, 22 N. Balcescu Boulevard, Bucharest, Romania.

     Probably the largest single change in Romania caused by the revolution
has been the wholesale revamping of laws related to investment by outsiders or
by foreign firms. Previously, foreign investment was permitted only on a
state-controlled basis. All business enterprise in Romania was subordinate to
the "Five Year Plan" and the interests of the government. This structure,
coupled with the intense suspicion of foreigners in general-and foreign
capitalist in particular-discouraged investment in Romania for more than 30
years. For the size of its economy, Romania had some of the fewest outside
companies of any country in Eastern Europe. The changes made by the new
government have been radical both in approach and in effect. Foreign capital
may now enter Romania almost unfettered. It must be remembered, however, that
the new Romanian legal structure has yet to be tested. This chapter will
discuss the new legal framework of the Romanian commercial sector and its
practical effect in the fields in which foreign capital may be invested.

Areas of Investment

     Foreign capital may be invested in industry, agriculture, construction,
tourism, scientific and technological research, foreign trade, banking
services and most other fields. Foreign firms may not invest in the munitions
industry, narcotics, drugs or certain other activities.

STRUCTURE AND OPERATION OF FOREIGN-OWNED COMPANIES

     Foreign companies may establish commercial enterprises in Romania either
through joint ventures with local firms or with 100% foreign ownership. The
terms of the venture, including its duration, are governed by a "Contract of
Association" between the parties. This is the Romanian equivalent of Articles
of Incorporation of a Western firm. Romanian law is written in such a way,
however, as to imply that there will generally be a Romanian party in
commercial enterprises and the Contract of Association represents the
agreement between foreigners and local residents.

Transfer of Profit

     Foreign firms may do business in Romania either as stock or as limited
liability companies. The organization and operation of firms are generally
specified in the Contract of Association and are subject to Romanian law. All
profits made in Romania may be transferred abroad after payment of taxes,
social insurance, and observance of other obligations of law and the
provisions of the Contract of Association.

Contract of Association

     A Contract of Association is applicable to joint ventures and those 100%-
owned by foreigners. This contract must provide the following:

     - Name of corporation;

     - Object of the corporation;

     - Registered office;

     - Duration of the company;

     - Capital and means for subscription of shares and for transfer of shares
or capital;

     - Number in value of the shares or capital;

     - Rights and obligations of the parties;

     - Other obligations mutually agreed by the parties.

Statutes

     Under Romanian law. "Statutes" are the Romanian equivalent of Bylaws.
These Statutes are an integral part of the Contract of Association. They
generally include provisions regarding the organization and operation of the
company, including:

     - General meeting;

     - Organization;

     - Exercise of voting rights;

     - Organization of the board of directors;

     - Method by which the board of directors adopts decisions (simple
majority, super majority or unanimity);

     - The appointment of arbitrators;

     - Responsibilities of managing directors;

     - Methods for writing off the profit and loss accounts;

     - Calculation and distribution of profits;

     - Methods for settling disputes between partners and company;

     - Methods of winding up the company.

Voting

     In a joint venture, the parties may agree to unanimous voting of the
members present at a legally constituted general meeting of the partners with
regard to matters concerning:

     - Business activities;

     - The approval of the balance sheet and of the profit and loss account;

     - Distribution of profits;

     - Appointment of executive bodies of the company;

     - The proportion in which the partners are to be represented in
management bodies;

     - The appointment, remuneration and dismissal of executive bodies as well
as any other matters expressly provided in the "Statutes."

Contribution of Assets

     The assets brought by the parties to the company as well as those
acquired later represent the company's property unless the parties provide
differently in the Statutes. Contributions in kind made by a foreign party
to the capital of the firm are exempt from customs duties.

Transfer of Shares

     Shares or capital can be transferred only with the approval of a general
meeting of the partners consistent with the provisions of the company's
Contract and Statutes.

Contributions

     Contributions of the parties to the subscribed capital of the firm may
consist of a financial contribution, the contribution of goods required to
carry out the investment and contributions of intellectual property rights
and other rights. These contributions are generally established in the
company's Contract and Statutes.

     The Romanian party to a joint venture may contribute the right to use
land or buildings. Alternatively, rent paid for the use of buildings by the
Romanian party may be included as its capital contribution.

Currency of Contribution

     The contribution of the parties to the capital of the company is
generally specified in the company's Contract and Statutes. The value of goods
contributed by each party is also established, as is the currency and foreign
trade value of cash contributions. Cash contributions are generally placed in
an account with a Romanian banking institution in the name of the company.

Registering a Company

     To form a company, the parties prepare a "Memorandum of Association"
(in Romanian), a "Study of Technical and Economic Efficiency" outlining
how the company intends to pursue its objectives, the Contract of
Association and the Statutes.

Government Approval

     Government approval is required for foreign firms to establish
wholly-owned subsidiaries in Romania. Joint venture companies also need
the nominal acquiescence of the Ministry coordinating the given field of
activity, based upon advice from the Ministry of Foreign Trade and Ministry
of Finance. Commercial companies in the production field also require the
advice of the Ministry of National Economy.

Registration Fees

     Upon filing the documents noted above, the newly-formed entity must
pay a registration fee in lei equivalent to $500 (U.S.). Upon approval,
the company's Contract of Association and Statutes are published in the
Official Monitor of Romania.

Changes

     Changes in the Contract of Association must be approved by the
government of Romania.

Raw Materials

     Commercial entities in Romania may acquire raw materials, supplies and
other commodities. These can be either procured in Romania or imported.
Prices (either in lei or foreign currency) can be negotiated through
independently negotiated contracts.

Sales of Goods

     A company may market merchandise abroad at prices which it establishes
in foreign currency. Within Romania, the goods may be sold directly for
lei or foreign currency at independently negotiated prices but are subject
to a "goods circulation" tax.

Accounting

     The accounting and capital of the firm may be expressed in either
"hard" currency or in lei. If the parties agree to express the capital and
accounting operations in lei, the conversion of other currency to lei
must be made at the official conversion rate.

Capital Reserve

     Reserve funds must be allocated from the profits of the company through
terms established in the Contract of Association and the Statutes. Funds
remaining after deductions of the reserve funds and taxes are distributed to
the partners in proportion to their contributions to the subscribed capital.
A part of these distributions must be set aside for future development of the
company.

Depreciation

     According to Romanian law, companies must include depreciation in
their costs. Assets are considered "fixed funds" until their value is
fully written off. The depreciation period(s) is generally established
in the bylaws or at general meetings of the parties. Depreciation periods
may not be longer than the standard operating lifetimes specified in the
Romanian law. Destruction of fixed assets before the full annuity period
must be included in the production and selling costs to the extent it is not
covered by insurance.

Banking

     Companies in Romania must open accounts with banks in which all funds
(in foreign currency and lei) are collected and paid. Interest is payable
on any sums on deposit. The foreign currency account of a corporation is
calculated according to the parties' financial contributions, the company's
foreign currency revenues and foreign currency borrowings. For foreign
currency payments, profits due to foreign owners are made from the company's
foreign currency account. The lei funds of the company are made up of the
partners' capital shares and foreign currency receipts through the Romanian
Bank of Foreign Trade at the official rate on the date of the exchange as
well as from profits made from the selling of goods, the performance of
works and services in the domestic market at lei prices and from lei credits.

Reinvestments

     Profits (in foreign currency and lei) due to the foreign party can be
used by it for making new investments in the same company or in other
companies in Romania. Profits in lei can be used to purchase Romanian
merchandise and services.

Profits in Lei

     Of the annual profits in lei due to the foreign owner, a maximum of
8% of the foreign company's financial share of the capital can be transferred
abroad in convertible currency through the Romanian Bank of the Foreign
Trade.

Wages and Salaries

     Wages of the company's Romanian and foreign personnel are established
by the parties themselves. Taxes on wages and social security payments for
Romanian personnel are paid in the currency established in the Contract of
Association.

Control of a Commercial Company

     Partners in joint ventures in Romania must be given, upon request,
information concerning the company's activities, state of assets, profits
and losses, etc. These rights are generally established in the Statutes.

Government Control

     At least one delegate from the Ministry of Finance of Romania must belong
to the organization within the company controlling its accounting activities.

Foreign Personnel

     Rights and obligations of foreign personnel may be established by the
board of directors or the management committee. Foreigners may be employed
in management positions. Foreign personnel of a company may transfer their
wages abroad through the Romanian Bank of Foreign Trade. A portion of
wages to be transferred abroad may be established by the management of the
company. Contributions to social insurance by a company for foreign personnel
must be paid in foreign currency, the amount established by then prevailing
law. For foreign personnel ordinarily resident in another country, companies
deduct from the contribution for social insurance a quarterly payment
which goes to the "super-annuation fund." Foreign personnel may, however,
waive coverage under the Romanian social insurance services, in which
case the company can avoid making social insurance payments.

Dissolution

     Procedures for dissolution, including obligations and responsibilities
of liquidators and distribution among partners of assets of a dissolving
company, are generally established in the Statutes. A deed of dismemberment
and liquidation of the company must be registered with the Ministry of
Finance and is published in Romania's Official Monitor.

Arbitration

     Litigation between companies or natural persons may be brought before
Romanian courts. The parties may agree, however, that litigation arising
from commercial relations between companies be resolved by arbitration
(generally the Arbitration Commission of the Chamber of Commerce and
Industry of Romania).

TAXES

     Foreign companies doing business in Romania are subject to an annual
tax of 30% of profits.

Tax Basis for Computation

     Corporate taxes are computed on annual profits before distribution to the
shareholders. The tax basis is generally the difference between the total
amount of income collected, and the amount of expenses incurred. Reserve
funds (mentioned previously) are used as deductions against computed profits
but the contributions of the reserve funds are limited to 5 percent of the
profits each year until the total reserve fund accounts for 5 percent of the
invested capital.

Tax Holiday

     Companies established with a foreign partner are exempt from tax
for two years after taxable income is actually realized. The Ministry of
Finance can approve a 50 percent reduction of tax on profits for yet another
three years upon application. Tax on profits is automatically reduced by
50 percent if profits are reinvested by the foreign participant in the same
company, or another company in Romania. In the event a company begins to
make profits during the second half of a year, the tax exemption may also
be granted for profits made in the first half of the following year.

     Taxation for a current fiscal year is computed by a company within five
days following the closing of the balance sheet for the prior year. Final
taxation for the prior year is established concurrently with the provisional
taxation.

Provisional Taxation

     Provisional taxes must be filed by a written statement together with
a copy of the balance sheet with the financial department of the City Hall
of Bucharest or of the district where the company has its registered office.
The financial department of the district will check the tax computations
and establish differences, which will be verified in the company within 15
days from the filing date. Provisional taxes for the current year will
be paid in equal quarterly installments through the bank where the company
keeps its account for the end of each quarter. Differences between estimated
and final tax must be paid within 10 days from the date of receipt of the
notification from the financial authorities. Funds paid above those due will
be credited to the account for the current year or returned.

Appeals

     Companies may appeal tax assessments within 20 days upon receipt of
notification from the department. The appeals must be filed with the financial
department which has established the difference. The department will notify
the company of this decision within 30 days. Decisions of the financial
department can be appealed to the Ministry of Finance. These will be resolved
by a committee consisting of delegates of the Ministry of Finance and
the Chamber of Commerce and Industry presided over by a judge of the
Supreme Court.

Tax Evasion

     Evading taxation is punishable by a fine of 25 percent of the evaded
tax. Late payments are subject a fine of 0.05 percent per day but not more
than double the tax due.

Garnishment

     The Ministry of Finance and the financial departments of the districts
have the power to garnish the company's funds held in banking institutions for
unpaid taxes.

Statute of Limitations

     The statue of limitations for corrections in taxes due is two years.
Prosecution for unpaid taxes must be commenced within five years of the
time final decision on taxes to be paid was due.

Export Surtax

     Profits remaining after taxes are assessed a separate "surtax" of 10
percent if transferred abroad.