Romania-Israeli Business
Opportunities through Cypriot
Holding Companies- Israeli Tax
on Overseas Investments
Tel Aviv Conference – 24 February 2011
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Geographical location
Population
Political Environment
EU accession
Language, currency, time zones
Economic background
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Romania is situated in the Southeastern Europe,
North of the Balkan isle, at half distance between
the Atlantic Coast and the Urals, inside and outside
of Carpathians Arch, on the lower course of
Danube.
With an area of 238,391 square km, Romania is the
twelfth largest country of Europe.
Bordered by R.Moldavia, in the East, Ukraine to the
North, Hungary and Serbia to the West, Bulgaria to
the South, Romania sits at the crossroads of many
traditional commercial routes.
The access to the sea enables connections with
countries in the Black Sea basin, Mediteraneean
basin and, by means of this, with the rest of the
world.
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Romania has a population of 22,215,421
(estimated at the middle of 2009) with 89.5%
Romanians.
The largest ethnic minorities are Hungarians
(6.6%) and Roma or Gypsies (2.46%).
Ukrainians, Germans, Turks, Tatars, Serbs,
Slovaks, Bulgarians, Greeks, Russians, Jews,
Croats, Poles, Italians, Armenians, as well as
other ethnic groups, account for the remaining
1.4% of the population.
Also, in 1924, Romanian Kingdom had 796,056
Jewish population. After 2002 there were 6,179
Jewish people counted.
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Romania is governed based on multi-party
democratic system and segregation of the
Legal, Executive and Judicial Powers.
The Constitution (amended in 2003 for
conformity with the EU legislation) states that
Romania is a semi-presidential democratic
republic, where executive functions are shared
between the President and the Prime Minister.
The President is elected by popular vote, for a
maximum of two terms, and since 2003, one
term is five years.
The President appoints the Prime Minister, who
in turn appoints the Ministers, with the
approval of the Parliament.
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The country’s adhesion to the European
Union in 2007, had a significant influence
on its domestic policy.
As part of the process, Romania has
instituted reforms, including a judicial
reform, increased judicial cooperation with
other member states and measures to
combat corruption.
As a EU member, Romania has all the rights
guaranteed, and also specific obligations.
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The official language is Romanian, an Eastern
Romance language related to Italian, French,
Spanish, Portuguese and Catalan.
The Romanian language is the mother tongue
of around 90% of the country’s population.
The main foreign languages used in Romania
are: English (5mil), French (4.5mil), German
(1.5mil), Italian and Spanish (1.5mil)
The unit of currency is RON (Romanian LEU)
and “BAN” is its sub-division.
Time zone is East European Zone time
(GMT+2).
Romania lies in the same time zone with Israel.
Romania uses the metric system, in force since
1866.
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After a GDP fall of 7.7% in 2009 and a slowdown of
foreign direct investment, Romania is expecting the
recovery in 2011, following the international
financial trends.
According to the recent World Bank Report,
Romania currently ranks 47th out of 181 economies,
scoring higher than other countries in the region.
After the accession to the EU on January 1st 2007,
the Romanian economy continued the process of
substantial transformation, in order to consolidate
the macroeconomic stability; the main directions in
this regard were to achieve a high growth of the
economy, low unemployment and declining
inflation, enforcement of the financial discipline and
fiscal sustainability.
ROMANIA – AN INVESTMENT
OPPORTUNITY
Among the notable factors:
 Strategic
position, at the crossroad of
commercial routes, with easy access to all
worldwide destinations.
 Reach
natural resources, proximity to
energy suppliers.
 Second largest market in the CEE Region.
 Favorable investment legislation, taxation
reform, double taxation treaties and free
trade agreements signed.
 Skilled labor force at low costs.
2010 2011 2012 2013
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Gross Domestic Product
123.55
134.08
147.05
161.87
Gross Domestic Product
0.5
2.4
3.7
4.4
GDP per Capita
5.8
6.2
6.8
7.5
(5.1)
(5.3)
(5.0)
(5.0)
Inflation Rate
3.5
3.2
2.6
2.3
Unemployment Rate
7.7
7.5
7.0
6.6
◦ (in billion EUR)
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◦ Grouth (%)
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◦ (thousands EUR)
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Current Account Balance
◦ (% of GDP)
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◦ (%)
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Source: National Commission of Prognosis
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For non-residents obtaining incomes from
independent activities, performed through a
permanent establishment (fixed base) in
Romania, the income tax shall apply on the net
income
assigned
to
the
permanent
establishment – 16% - also for salaries, lease
of
goods,
investments,
pensies,
every
agricultural activities, prizes and other sources.
Non-residents performing dependent activities
in Romania shall be taxed in Romania if at least
one of the following condition is fullfiled:
◦ Person spends more than 183 days in Romania in any
twelve consecutive months;
◦ Salary incomes are paid by a resident employer;
◦ Salary incomes are deductible expense of a permanent
establishment in Romania.
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Any legal entity, carrying out a business
(except micro-enterprises – 3% of the
turnover) is subject to Profit Tax – 16%.
Permanent establishment (PE) shall be
treated as a distinct taxable entity, even if it
doesn’t have Romanian legal personality;
PE shall be registered for tax proposes
before doing business and shall keep the
financial accounting.
Deductible expenses shall be considered
only those carried out to release taxable
incomes.
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Standard
24%
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Reduced
9%
5%
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Exemptions
Supplies of goods
and services in the
course of business
with an annual
turnover exceeding
EUR 35,000.
Cultural services,
books&newspapers,
medicines, dental &
medical devices,
hotel accom.
Supply of houses as
part of social policy
Supplies of goods
and services as listed
in the VAT Directive
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Entities established outside the EU and
performing taxable transaction in Romania
(having the place of supply in Romania) are
obliged to appoint a VAT representative, in
order to register as taxable persons and to
comply with all their VAT obligations.
The VAT representatives deals with any VAT
aspect related to the foreign entity’s
business in Romania and VAT on behalf of
the foreign entity.
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Capital
gains
are
generally
taxable
withholding tax, personal income or
corporate income rates (standard rate is
16% in both cases), excepting:
◦ Gains from transfer of listed shares – 1% for a
period greater than 365 days from acquiring date.
◦ The
transfer
of
personal
(non-business)
immovable property of Romanian individuals –
between 0 – 3% upon the value of transaction
and the type of transfer.
◦ Lower rates/exemption provided by double tax
treaties.
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Employers
◦ Standard/difficult/special working conditions
 29.20% / 34.20% / 39.20%
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Employees
 16.50%
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Self-employed
only)
(mandatory
contributions
 37.30%
Public
pension
contribution,
health
insurance,
unemployment contribution, professional illness
contribution, medical leaves contribution, insolvency
found, labor commision.
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For incomes obtained from Romania by nonresidents, tax payers have the obligation to
calculate, withhold and pay the tax to the State
budget.
The withholding tax rate is, generally, 16%
excepting residents of EU and EFTA State
members; all rates subject to reduction where
specified in a tax treaty.
Double tax treaties established for certain incomes
the right of the source state (Romania) to tax those
incomes within a limit of a ceiling (maximum rate)
Reduced withholding tax rates provided by a tax
treaty are applicable when a valid tax residence
certificate is supplied, which has to be provided
anually, in original, to the tax payer.
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The best double tax treaties concerning
Romania:
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Austria
Cyprus
Finland
Germany
Ireland
Luxembourg
Malta
Netherlands
Slovenia
Other Arab countries
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Romania does not have legislation on holding type
companies.
For tax optimization for foreign investments purposes, the
use of holding companies registered in Cyprus has the
following advantages:
◦ There is no withholding tax for dividends obtained from
participations older than two years.
◦ Low level of Corporate tax in Cyprus (10%).
◦ Cyprus favours business relations with offshore
jurisdictions.
◦ Low administrative costs.
◦ Low costs for accounting and financial audit.
◦ Excellent banking system which ensures easy operation of
transactions, as well as security and confidentiality.
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Cyprus trading companies that deliver goods and services to
Romanian companies are not subject to taxation in
Romania.
According to Double Tax Treaty from November 16, 1981,
the following income is subject to source taxation (in
Romania):
 Dividends for participations of less than 2 years –
10%
 Interest – 10%
 Royalties – 5%
 Commissions - 5%
Withholding in Romania fiscal credit for taxation in
Cyprus.
ROMANIA – FISCAL CHALLENGES
IN A REGIONAL CONTEXT
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Romania is surrounded by low taxation countries:
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Bulgaria (EU);
Hungary (EU);
Serbia;
Ukraine;
Moldova.
Thus, Romania will need to adopt the following competitive
measures:
Reduction of main fiscal taxes;
Reduction of social contributions;
Simplification of Fiscal Code, application norms and fiscal procedure;
Adoption of legislation on holdings;
Extension of the application of simplified tax norms in intra-communitarian
relations;
 Adoption of incentives for foreign business and investments;
 Etc.
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ROMANIA – INVESTMENT OPPORTUNITIES
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In the past: the real estate boom from 2004 – 2008 created
added value of 200-300% in a short period of time.
At present time: multiplicative gain is foreseen for
investments in the following areas:
 Transportation infrastructure (road and railway);
 Civil infrastructure;
 Energy infrastructure;
 Green energy production capacities (wind, solar,
biomass);
 Safety industry
 IT&C;
 Nanotechnology;
 Other top technology areas.
ROMANIA – INVESTMENT OPPORTUNITIES
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In the future: there will be investments in the
following areas – with the purpose of having a
sustainable development of Romania:
 Agriculture – culture of energy plants;
 Animal breeding – pig breeding facilities (low production at
present time; ecologic breeding and agriculture);
 Investments with social and environment impact – with the
purpose of aligning to Europeans standards:
 Building of social habitations;
 Social infrastructure outside cities;
 Reducing the impact of household waste on the
environment and energy valuation;
 Etc.
ROMANIA – LEGISLATION RELATED TO
INVESTMENTS WITH ECONOMIC IMPACT
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Legislative facilities, warranties and state
incentive (up to 50%) for investments
(domestic or foreign) differentiated per
investment values and new employment
opportunities created;
Efficient legislation for public acquisitions,
concessions and public and private
partnerships;
Easy access to EU funds and co-financing of IFI
(International Financial Institutions).
Your investment partner in Romania!
“No other company is more proactive than Riff Holding
International; any investor shall be able to find under the
same umbrella multidisciplinary services starting with the
establishment of the company in Romania, accounting, audit,
consultancy and tax optimization, legal assistance and all
other support services which ensure full success of business”
Marius Stancescu
[email protected]
+40 722 620030
www.riff.ro
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