Romania welcomes all forms of foreign investment. The government provides national treatment for foreign investors and does not differentiate treatment due to source of capital. Romania’s strategic location, membership in the European Union, relatively well-educated workforce, competitive wages, and abundant natural resources make it a desirable location for firms seeking to access European, Central Asian, and Near East markets. U.S. investors have found opportunities in the information technology, automotive, telecommunications, energy, services, manufacturing, consumer products, and banking sectors.
The investment climate in Romania remains a mixed picture, and potential investors should undertake due diligence when considering any investment. The European Commission’s 2020 European Semester Country Report for Romania points to persistent legislative instability, unpredictable decision-making, low institutional quality, and corruption as factors eroding investor confidence. The report also noted that important legislation was adopted without proper stakeholder consultation and often lacked impact assessments.
The pace of economic reforms has slowed, and since January 2017, prior government efforts to undermine prosecutors and weaken judicial independence have shaken investor confidence in anti-corruption efforts. Political rhetoric has taken an increasingly nationalist tone, with some political leaders occasionally accusing foreign companies of not paying taxes, taking advantage of workers and resources, and sponsoring anti-government protests. On May 26, 2019, Romanians voted in favor of a rule of law referendum initiated by President Klaus Iohannis, in response to the then government’s continued weakening of the fight against corruption. A new government with a pro-business stance was installed on November 4, 2019. President Iohannis was reelected on November 24, 2019, providing stability and further support for rule of law and reform.
The Government of Romania’s (GOR) mandatory transfer of payroll taxes from employers to employees in January 2018 negatively affected all companies through additional administrative costs resulting from negotiation and registration of new labor contracts. The government’s sale of minority stakes in state-owned enterprises (SOEs) in key sectors, such as energy generation and exploitation, has stalled since 2014. The GOR has weakened enforcement of its state-owned enterprise (SOE) corporate governance code, exempting several SOEs from the code and weakening SOEs’ capability to invest through regular and exceptional dividend distributions.
Consultations with stakeholders and impact assessments are required before enactment of legislation. However, this requirement has been unevenly followed, and public entities generally do not conduct impact assessments. Frequent government changes have led to rapidly changing policies and priorities that serve to complicate the business climate. Romania has made significant strides to combat corruption, but corruption remains an ongoing challenge. Inconsistent enforcement of existing laws, including those related to the protection of intellectual property rights, also serves as a disincentive to investment. Fiscal changes, passed through Emergency Ordinance (EO114) on December 21, 2018 without prior consultation, imposed taxes on the banking, energy, and telecommunications sectors. The measure shocked markets, causing private sector backlash. The Government softened the bank tax provisions in March 2019, and on January 6, 2020 the current government repealed the measures in EO114/2018.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Romania actively seeks foreign direct investment, and offers a market of around 19 million consumers, a relatively well-educated workforce at competitive wages, a strategic location, and abundant natural resources. To date, favored areas for U.S. investment include IT and telecommunications, energy, services, manufacturing – especially in the automotive sector, consumer products, and banking. InvestRomania is the government’s lead agency for promoting and facilitating foreign investment in Romania. InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities.
Romania’s accession to the European Union (EU) on January 1, 2007 helped solidify institutional reform. However, legislative and regulatory unpredictability as well as weak public administration continue to negatively impact the investment climate. As in any foreign country, prospective U.S. investors should exercise careful due diligence, including consultation with competent legal counsel, when considering an investment in Romania. Governments in Romania have repeatedly allowed political interests or budgetary imperatives to supersede accepted business practices in ways harmful to investor interests.
The energy sector has suffered from recent changes. In 2018, offshore natural gas companies benefited from a streamlined permitting process but were hit with a windfall profit tax that previously applied only to onshore gas production. Additionally, in February 2018, legislation changed the reference price for natural gas royalties from the Romanian market price to the Vienna Central European Gas Hub (CEGH) price, resulting in a significant increase in royalties. The GOR has set July 1, 2020 as the deadline for natural gas market liberalization and January 1, 2021 as the deadline for electricity market liberalization.
Investments involving public authorities can be more complicated than investments or joint ventures with private Romanian companies. Large deals involving the government – particularly public-private partnerships and privatizations of key state-owned enterprises (SOE) – can be stymied by vested political and economic interests or bogged down due to a lack of coordination between government ministries.
The government has repeatedly reviewed Public-Private Partnership (PPP) legislation, and there are no active PPP projects under implementation to date. In December 2017, the GOR shifted the burden of mandatory payroll deductions for pensions, healthcare, and income taxes from employers to employees. To avoid reductions in employee net pay and retain labor in a tight market, many companies increased salaries to offset employee losses. Other companies, wary of further possible changes, offered monthly bonuses rather than formally amending employee contracts.
The government and foreign investors have ongoing disputes over tax matters such as the “claw back tax” on pharmaceuticals, which increased from 19 percent in Q4 2017 to 28 percent in Q4 2019. A presidential decree capping the tax at its current levels was issued in March 2020 due to concerns that further increases would impact COVID-19 medication. Additionally, Parliament passed concurrent legislation in April 2020 that, pending a presidential signature, would create classes of medication that are taxed at separate levels: 15% for medicine produced in Romania, 20% for generics, and 25% for innovative drugs. Pharmaceutical companies pay the claw back tax on all sales of drugs reimbursed through the public health system. The Ministry of Health (MOH) calculates the tax to recover the cost for reimbursed drug sales in the previous quarter that exceed its budget. Since implementation in 2009, the pharmaceutical industry has suggested numerous solutions to increase predictability and transparency in the National Health Insurance House’s computations.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities are free to establish and own business enterprises, and to engage in all forms of remunerative activity. Romanian legislation and regulation provide national treatment for foreign investors, guarantee free access to domestic markets, and allow foreign investors to participate in privatizations. There is no limit on foreign participation in commercial enterprises. Foreign investors are entitled to establish wholly foreign-owned enterprises in Romania (although joint ventures are more typical), and to convert and repatriate 100 percent of after-tax profits.
Romania has taken established legal parameters to resolve contract disputes expeditiously. Mergers and acquisitions are subject to review by the Competition Council. According to the Competition Law, the Competition Council notifies Romania’s Supreme Defense Council regarding any merger or acquisition of stocks or assets which could impact national security. The Supreme Defense Council then reviews these referred mergers and acquisitions for potential threats to national security. To date, the Supreme Defense Council has not blocked any merger or acquisition. The Romanian capital account was fully liberalized in 2006, prior to gaining EU membership in 2007. Foreign firms are allowed to participate in the management and administration of the investment, as well as to assign their contractual obligations and rights to other Romanian or foreign investors.
Other Investment Policy Reviews
Romania has not undergone any third-party investment policy reviews through multilateral organizations in over ten years. The Heritage Foundation’s 2020 Economic Freedom Report indicates recognition of secured interests in private property, but that the property registry is inadequate and impedes investment. The Report also notes that, for Romania to make the leap into the mostly free economic freedom category, the government must repair the weakest link in the country’s economic freedom chain: the low integrity of the government and its ineffective fight against corruption. Inconsistency and a lack of predictability in the jurisprudence of the courts and the interpretation of the laws remain major concerns. High levels of corruption, bribery, and abuse of power remain problems. Legislative instability, unpredictable decision-making, and the low quality of institutions create an uphill battle for business owners. Labor force participation is among the lowest in the EU and the labor market is heavily regulated.
According to the World Bank, economic growth rates have increased, but the benefits have not been felt by all Romanians. Progress on implementing reforms and improving the business environment has been uneven. The World Bank’s 2020 Doing Business Report and Doing Business in the European Union Report indicate that Romania ranks below the EU average in the ease of starting a business.
The National Trade Registry has an online service available in Romanian at https://portal.onrc.ro/ONRCPortalWeb/ONRCPortal.portal. Romania has a foreign trade department and an investment promotion department within the Ministry of Economy, Energy, and Business Climate. InvestRomania is the government’s lead agency for promoting and facilitating foreign investment in Romania. InvestRomania offers assistance and advisory services free of charge to foreign investors and international companies for project implementation and opening new offices or manufacturing facilities. More information is available at http://www.investromania.gov.ro/web/.
According to the World Bank, it takes six procedures and 20 days to establish a foreign-owned limited liability company (LLC) in Romania, compared to the regional average for Europe and Central Asia of 5.2 procedures and 11.9 days. In addition to the procedures required of a domestic company, a foreign parent company establishing a subsidiary in Romania must authenticate and translate its documents abroad. Foreign companies do not need to seek an investment approval. The Trade Registry judge must hold a public hearing on the company’s application for registration within five days of submission of the required documentation. The registration documents can be submitted, and the status of the registration request monitored online.
Companies in Romania are free to open and maintain bank accounts in any foreign currency, although, in practice, Romanian banks offer services only in Romanian lei (RON) and certain hard currencies (Euros and U.S. dollars). The minimum capital requirement for domestic and foreign LLCs is RON 200 (USD 47). Areas for improvement include making all registration documents available to download online in English as currently only a portion are available online, and they are only in Romanian.
Romania defines microenterprises as having less than nine employees, small enterprises as having less than 50 employees, and medium-sized enterprises as having less than 250 employees. Regardless of ownership, microenterprises and SMEs enjoy “de minimis” and other state aid schemes from EU funds or from the state budget. Business facilitation mechanisms provide for equitable treatment of women in the economy.
There are no restrictions or incentives on outward investment.
2. Bilateral Investment and Taxation Treaties
The U.S.-Romanian Bilateral Investment Treaty (BIT) on the Reciprocal Encouragement and Protection of Investment (signed in May 1992 and ratified by the U.S. in 1994) guarantees national treatment for U.S. and Romanian investors. The agreement provides a dispute resolution mechanism, liberal capital transfer, prompt and adequate compensation in the event of an expropriation, and the avoidance of trade-distorting performance requirements. In 2004, the U.S. government negotiated a political understanding with the EU and eight accession countries, including Romania, to cover any possible inconsistencies between pre-existing BITs and the countries’ impending EU obligations. A resulting revised BIT was ratified by the U.S. Senate and the Romanian Parliament in 2004 and went into effect on February 9, 2007. Other bilateral trade agreements with third countries were terminated upon Romania’s EU accession. Romania has a bilateral taxation treaty with the United States; the treaty was signed in 1973 and entered into force in 1974. It is available at https://www.irs.gov/pub/irs-trty/romania.pdf
3. Legal Regime
Transparency of the Regulatory System
Romanian law requires consultations with stakeholders, including the private sector, and a 30-day comment period on legislation or regulation affecting the business environment (the “Sunshine Law”). Some draft pieces of legislation pending with the government are available in Romanian at http://www.sgg.ro/acte-normative/. Proposed items for cabinet meetings are not always publicized in advance or in full. As a general rule, the agenda of cabinet meetings should include links to the draft pieces of legislation (government decisions, ordinances, emergency ordinances, or memoranda) slated for government decision, but this is not always the case. Legislation pending with the parliament is available at http://www.cdep.ro/pls/proiecte/upl_pck.home for the Chamber of Deputies and at https://www.senat.ro/legis/lista.aspx for the Senate. The Chamber of Deputies is the decision-making body for economic legislation. Regulatory impact assessments are often missing, and Romanian authorities do not publish the comments they receive as part of the public consultation process.
Foreign investors point to the excessive time required to secure necessary zoning permits, environmental approvals, property titles, licenses, and utility hook-ups.
Public comments received by regulators are not made public. The Sunshine Law (Law 52/2003 on Transparency in Public Administration) requires public authorities to allow the public to comment on draft legislation and sets the general timeframe for stakeholders to provide input. However, if the public authority does not follow the Sunshine Law’s public consultation timelines, no penalty or sanction applies. In some cases, public authorities have set deadlines much shorter than the standards set forth in the law.
International Regulatory Considerations
As an EU member state, Romanian legislation is largely driven by the EU acquis, the body of EU legislation. EC regulations are directly applicable, while implementation of directives at the national level is done through the national legislation. Romania’s regulatory system incorporates European standards. Romania has been a World Trade Organization (WTO) member since January 1995 and a member of the General Agreement on Tariffs and Trade (GATT) since November 1971. Romania is a member of the EU since 2007. Technical regulation notifications submitted by the EU are valid for all Member States. The EU signed the Trade Facilitation Agreement (TFA) in October 2015. Romania has implemented all TFA requirements.
Legal System and Judicial Independence
Romania recognizes property and contractual rights, but enforcement through the judicial process can be lengthy, costly, and difficult. Foreign companies engaged in trade or investment in Romania often express concern about the Romanian courts’ lack of expertise in commercial issues. There are no specialized commercial courts, but there are specialized civil courts. Judges generally have limited experience in the functioning of a market economy, international business methods, intellectual property rights, or the application of Romanian commercial and competition laws. As stipulated in the Constitution, the judicial system is independent from the executive branch and generally considered procedurally competent, fair, and reliable. Affected parties can challenge regulations and enforcement actions in court. Such challenges are adjudicated in the national court system.
Inconsistency and a lack of predictability in the jurisprudence of the courts or in the interpretation of the laws remains a major concern for foreign and domestic investors and for wider society. Even when court judgments are favorable, enforcement of judgments is inconsistent and can lead to lengthy appeals. Failure to implement court orders or cases where the public administration unjustifiably challenges court decisions constitute obstacles to the binding nature of court decisions.
Mediation as a tool to resolve disputes is gradually becoming more common in Romania, and a certifying body, the Mediation Council, sets standards and practices. The professional association, the Union of Mediation Centers in Romania, is the umbrella organization for mediators throughout the county. Court-sanctioned and private mediation is available at recognized mediation centers in every county seat.
There is no legal mechanism for court-ordered mediation in Romania, but judges can encourage litigants to use mediation to resolve their cases. If litigants opt for mediation, they must present their proposed resolution to the judge upon completion of the mediation process. The judge must then approve the agreement.
Laws and Regulations on Foreign Direct Investment
Romania became a member of the European Union on January 1, 2007. The country has worked assiduously to create an EU-compatible legal framework consistent with a market economy and investment promotion. At the same time, implementation of these laws and regulations frequently lags or is inconsistent, and lack of legislative predictability undermines Romania’s appeal as an investment destination.
Romania’s legal framework for foreign investment is encompassed within a substantial body of law largely enacted in the late 1990s. It is subject to frequent revision. Major changes to the Civil Code were enacted in October 2011 including replacing the Commercial Code, consolidating provisions applicable to companies and contracts into a single piece of legislation, and harmonizing Romanian legislation with international practices. The Civil Procedure Code, which provides detailed procedural guidance for implementing the new Civil Code, came into force in February 2013. Fiscal legislation is revised frequently, often without scientific or data-driven assessment of the impact the changes may have on the economy.
Given the state of flux of legal developments, investors are strongly encouraged to engage local counsel to navigate the various laws, decrees, and regulations, as several pieces of investor-relevant legislation have been challenged in both local courts and the Constitutional Court. There have been few hostile takeover attempts reported in Romania. Romanian law has not focused on limiting potential mergers or acquisitions. There are no Romanian laws prohibiting or restricting private firms’ free association with foreign investors.
Competition and Anti-Trust Laws
Romania has extensively revised its competition legislation, bringing it closer to the EU Acquis Communautaire and best corporate practices. A new law on unfair competition came into effect in August 2014. Companies with a market share below 40 percent are no longer considered to have a dominant market position, thus avoiding a full investigation by the Romanian Competition Council (RCC) of new agreements, saving considerable time and money for all parties involved. Resale price maintenance and market and client sharing are still prohibited, regardless of the size of either party’s market share. The authorization fee for mergers or takeovers ranges between EUR 10,000 (USD 10,858) and EUR 50,000 (USD 54,291). The Fiscal Procedure Code requires companies that challenge an RCC ruling to front a deposit while awaiting a court decision on the merits of the complaint.
Romania’s Public Procurement Directives outline general procurements of goods and equipment, utilities procurement (“sectorial procurement”), works and services concessions, and remedies and appeals. An extensive body of secondary and tertiary legislation accompanies the four laws and has been subject to repeated revisions. Separate legislation governs defense and security procurements. In a positive move, this new body of legislation moved away from the previous approach of using lowest price as the only public procurement selection criterion. Under the new laws, an authority can use price, cost, quality-price ratio, or quality-cost ratio. The new laws also allow bidders to provide a simple form (the European Single Procurement Document) to participate in the award procedures. Only the winner must later submit full documentation.
The public procurement laws stipulate that challenges regarding procedure or an award can be filed with the National Complaint Council (NCC) or the courts. Disputes regarding execution, amendment, or termination of public procurement contracts can be subject to arbitration. The new laws also stipulate that a bidder has to notify the contracting authority before challenging either the award or procedure. Not fulfilling this notification requirement results in the NCC or court rejecting the challenge.
The EC’s 2020 European Semester Country Report for Romania notes that despite improved implementation, public procurement remains inefficient. According to the report, 97% of businesses think corruption is widespread in Romania, and 87% say it is widespread in public procurement managed by national authorities.
Expropriation and Compensation
The law on direct investment includes a guarantee against nationalization and expropriation or other equivalent actions. The law allows investors to select the court or arbitration body of their choice to settle disputes. Several cases involving investment property nationalized during the Communist era remain unresolved. In doing due diligence, prospective investors should ensure that a thorough title search is done to ensure there are no pending restitution claims against the land or assets.
ICSID Convention and New York Convention
Romania is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Romania is also a party to the European Convention on International Commercial Arbitration concluded in Geneva in 1961 and is a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). Romania’s 1975 Decree 62 provides for legal enforcement of awards under the ICSID Convention.
Investor-State Dispute Settlement
Romania is a signatory to the New York Convention, the European Convention on International Commercial Arbitration (Geneva), and the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). There have been 15 ICSID cases in total against Romania. Three of them involved U.S. investors. The arbitral tribunal ruled in favor of Romania in two of them. Six investor-state arbitration cases against Romania are currently pending with the International Center for Settlement of Investment Disputes (ICSID). Local courts recognize and enforce foreign arbitral awards against the government. There is no history of extrajudicial action against investors.
International Commercial Arbitration and Foreign Courts
Romania increasingly recognizes the importance of investor-state dispute settlement and has provided assurances that the rule of law will be enforced. Many agreements involving international companies and Romanian counterparts provide for the resolution of disputes through third-party arbitration. Local courts recognize and enforce foreign arbitral awards and judgments of foreign courts. There are no statistics on the percentage of cases in which Romanian courts ruled against state-owned enterprises (SOEs).
Romanian law and practice recognize applications to other internationally known arbitration institutions, such as the International Chamber of Commerce (ICC) Paris Court of Arbitration and the United Nations Commission on International Trade Law (UNCITRAL). Romania has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania. Additionally, in November 2016, the American Chamber of Commerce in Romania (AmCham Romania) established the Bucharest International Arbitration Court (BIAC). This new arbitration center focuses on business and commercial disputes involving foreign investors and multinationals active in Romania.
According to the World Bank 2020 Doing Business Report, it takes on average 512 days to enforce a contract, from the moment the plaintiff files the lawsuit until actual payment. Associated costs can total around 27 percent of the claim. Arbitration awards are enforceable through Romanian courts under circumstances similar to those in other Western countries, although legal proceedings can be protracted.
Romania’s bankruptcy law contains provisions for liquidation and reorganization that are generally consistent with Western legal standards. These laws usually emphasize enterprise restructuring and job preservation. To mitigate the time and financial cost of bankruptcies, Romanian legislation provides for administrative liquidation as an alternative to bankruptcy. However, investors and creditors have complained that liquidators sometimes lack the incentive to expedite liquidation proceedings and that, in some cases, their decisions have served vested outside interests. Both state-owned and private companies tend to opt for judicial reorganization to avoid bankruptcy.
In December 2009, the debt settlement mechanism Company Voluntary Agreements (CVAs) was introduced as a means for creditors and debtors to establish partial debt service schedules without resorting to bankruptcy proceedings. The global economic crisis did, however, prompt Romania to shorten insolvency proceedings in 2011.
According to the World Bank’s Doing Business Report, resolving insolvency in Romania takes 3.3 years on average, compared to 2.3 years in Europe and Central Asia, and costs 10.5 percent of the debtor’s estate, with the most likely outcome being a piecemeal sale of the company. The average recovery rate is 34.4 cents on the dollar. Globally, Romania stands at 56 in the ranking of 190 economies on the ease of resolving insolvency.
4. Industrial Policies
Currently, customs and tax incentives are available to investors in six free trade zones. State aid is available for investments in free trade zones under EU regional development assistance rules.
In 2007, Romania adopted EU regulations on regional investment aid, and instituted state aid schemes for large investments, SMEs, and job creation. Both Romanian and EU state aid regulations aim to limit state aid in any form, such as direct state subsidies, debt rescheduling schemes, debt for equity swaps, or discounted land prices. The European Commission (EC) must be notified of and approve GOR state aid that exceeds the pre-approved monetary threshold for the corresponding category of aid. To benefit from the remaining state aid schemes, the applicant must secure financing separate from any public support for at least 25 percent of the eligible costs, either through his own resources or through external financing, and must document this financing in strict accordance with Ministry of Finance guidelines. Under amendments passed in 2010, the state aid scheme for regional projects scores applications based not only on the economics of the project, but also on the GDP per capita and unemployment rate for the county of intended investment. When granting state aid, the Ministry of Finance requires that the state revenues through taxes equals the state aid granted. Numerous foreign and U.S firms have successfully applied for and received Romanian State Aid.
The renewable energy support through Green Certificate System, part of the Renewable Energy Law, provided incentives for certain types of renewable energy. The support is not available for renewable energy investments made after January 1, 2017, but investors that qualified under the support system can trade certificates until 2032. The Green Certificates are traded in parallel with the energy produced. The Green Certificates are intended to provide an additional source of revenue for renewable energy producers. Repeated revisions to the support system — including deferring release of the certificates and lowering the mandatory green certificate quota that consumers and suppliers have to acquire — have created instability, however, in the renewables investment climate. Energy intensive industrial consumers receive exemptions from acquiring green certificates.
As an EU member state, Romania must receive EC approval for any state aid it grants not covered by the EU’s block exemption regulations. The Romanian Competition Council acts as a clearinghouse for the exchange of information between the Romanian authorities and the EC. The failure of state aid grantors to notify the EC properly of aid associated with privatizations has resulted in the Commission launching formal investigations into several privatizations. Investors should ensure that the government entities with which they work fully understand and fulfill their duty to notify competition authorities. Investors may wish to consult with EU and Romanian competition authorities in advance to ensure a proper understanding of notification requirements.
Companies operating in Romania can also apply for aid under EU-funded programs that are co-financed by Romania. When planning a project, prospective applicants must bear in mind that the project cannot start before the financing agreement is finalized; the application, selection, and negotiations can be lengthy. Applicants also must secure financing for non-eligible expenses and for their co-financing of the eligible expenses. Finally, reimbursement of eligible expenses – which must be financed upfront by the investor – is often very slow. Procurements financed by EU-funded programs above a certain monetary threshold must comply with public procurement legislation. In an effort to increase the rate of EU funds absorption, Romania has amended regulations to allow applicants to use the assets financed under EU-funded programs as collateral. However, Government of Romania entities’ understaffing and lack of management expertise, cumbersome procedures, and applicants’ difficulty obtaining private financing still significantly impede the absorption and implementation of EU funds.
Foreign Trade Zones/Free Ports/Trade Facilitation
Free Trade Zones (FTZs) received legal authority in Romania in 1992 under the authority of the Ministry of Transportation. General provisions include unrestricted entry and re-export of goods, and exemption from customs duties. The law further permits the leasing or transfer of buildings or land for terms of up to 50 years to corporations or natural persons, regardless of nationality. Foreign-owned firms have the same investment opportunities as Romanian entities in FTZs. Currently six FTZs, primarily located on the Danube River or close to the Black Sea, operate: Sulina, Constanta-Sud Agigea, Galati, Braila, Curtici-Arad, and Giurgiu. The administrator of each FTZ is responsible for all commercial activities performed within the zone.
Performance and Data Localization Requirements
The government generally does not mandate local employment. The notable exception is the Offshore Law (Law 256/2018), which requires that at least 25 percent of the employees of offshore titleholders have to be Romanian citizens with fiscal residence in Romania. There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors or their employees. There are no government-imposed conditions on permission to invest. The government does not require investors to establish or maintain data storage in Romania. Romania neither follows nor is there legislation requiring a “forced localization” policy for goods, technology or data. Romania does not have requirements for foreign IT providers to turn over source code or provide access for government surveillance. Romania’s Constitutional Court has twice ruled such specific legislative drafts are unconstitutional. There are no measures that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the country. There are no performance requirements imposed as a condition for establishing, maintaining or expanding an investment.
5. Protection of Property Rights
The Romanian Constitution, adopted in December 1991 and revised in 2003, guarantees the right to ownership of private property. Mineral and airspace rights, and similar rights, are excluded from private ownership. Under the revised Constitution, foreign citizens can gain land ownership through inheritance. With EU accession, citizens of EU member states can own land in Romania, subject to reciprocity in their home country.
Companies owning foreign capital may acquire land or property needed to fulfill or develop company goals. If the company is dissolved or liquidated, the land must be sold within one year of closure and may only be sold to a buyer(s) with the legal right to purchase such assets. Investors can purchase shares in agricultural companies that lease land in the public domain from the State Land Agency.
The 2006 legislation that regulates the establishment of specialized mortgage banks also makes possible a secondary mortgage market by regulating mortgage bond issuance mechanisms. Commercial banks, specialized mortgage banks, and non-bank mortgage credit institutions offer mortgage loans. Romania’s mortgage market is now almost entirely private. The state-owned national savings bank (CEC Bank), also offers mortgage loans. Since 2000, the Electronic Archives of Security Interests in Movable Property (AEGRM) has overseen the filing of transactions regarding mortgages, assimilated operations, or other collateral provided by the law as well as their advertising. Most urban land has clear title, and the National Cadaster Agency (NCA) is slowly working to identify property owners and register land titles. According to the National Cadaster Plan, 2023 is the deadline for full registration of lands and buildings in the registry. According to NCA data, 1.9 million hectares of land and 37.7% of the estimated real estate assets (buildings) were registered in the cadaster registry as of March 2020.
Romania has made marginal improvement in implementing digital records of real estate assets, including land. The 2020 World Bank Doing Business Report ranks Romania 46 for the ease of registering property. The cadaster property registry is far from complete, and the lack of accurate and complete information for land ownership continues to be a challenge for private investors and SOEs alike.
Intellectual Property Rights
Romania remains on the Watch List of the U.S. Trade Representative’s Special 301 Report in 2020. Online piracy and the use of unlicensed software continue to present challenges for intellectual property-intensive industries. While the enforcement of intellectual property rights (IPR) lacks priority status at the policy level, law enforcement authorities, including prosecutors and police officers, and IP-intensive industry cooperate at the working-level. Low penalties for IPR violations impede investigations and do not offer any meaningful deterrent to further IPR crimes. This has led to innovative approaches to prosecuting IPR crimes within this constrained legal and fiscal environment: to increase the odds of IPR cases advancing in court, law enforcement authorities, when appropriate, are bundling related charges of fraud, tax evasion, embezzlement, and organized crime activity alongside IPR violations. Not only has this increased the odds of IPR cases going to court, it also strengthens the evidence of “social harm” stemming from IPR violations as lack of social harm was often cited as a reason for dismissing IPR cases in the past.
Romania is a signatory to international conventions concerning IPR, including the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and has enacted legislation protecting patents, trademarks, and copyrights. Romania has signed the Internet Convention to protect online authorship. In January 2020, Romania passed a law to enhance the transparency of collective rights management of copyrights. While Romania has the legal framework to protect IPR, enforcement remains weak and ineffective, especially in the area of internet piracy. Notorious physical markets for pirated goods have largely been eliminated, but unlicensed use of software and online hosting services for pirated content remain prevalent. Several content hosting services reportedly located in Romania have appeared in stakeholder nominations for the Notorious Markets Report. Romania has passed broad IPR protection enforcement provisions as required by the WTO yet judicial enforcement remains lax.
Romania is both a transit and destination country for counterfeit goods. Customs officers can seize counterfeit products ex-officio and destroy them upon inspection and declaration by the rights holder. The government is responsible for paying for the storage and destruction of the counterfeit goods. The National Customs Directorate reported the seizure of 6.11 million pieces of counterfeited goods in 2019, compared to 1.25 million pieces of counterfeited goods in 2018, 1.55 million pieces in 2017, 1.52 million pieces in 2016, and 6.17 million pieces in 2015. Customs authorities said the increase reflected more rigorous information sharing between EU customs authorities in line with EU Regulation 608/2013 regarding counterfeit seizures. Additionally, the Customs Directorate noted closer trans-border cooperation under the EC’s Anti-Fraud Office. Matches, ball bearings, cigarettes, cosmetics, clothing, toys, pens, and tools accounted for most of the items seized. The Customs Directorate did not report any seizures of counterfeit medicines for the third consecutive year. Authorities seized increasing quantities of cigarettes, ball bearings, clothing, belts, perfumes and cosmetics, and car accessories. Seized quantities of condoms, handbags, footwear, and mobile phone accessories significantly dropped. According to both the National Customs Directorate and the national police, the vast majority of counterfeit goods seized in Romania originate in China.
Romania is a party to the World Intellectual Property Organization (WIPO) Patent Cooperation Treaty and the Paris Convention . Romanian patent legislation generally meets international standards with foreign investors accorded equal treatment with Romanian citizens under the law. Patents are valid for 20 years. Romania has been a party to the European Patent Convention since 2002. Patent applications can be filed online. Since 2014, Romania has also enforced a distinct law regulating employee inventions. The right to file a patent belongs to the employer for up to two years following the departure of the employee.
Romania is party to the Madrid Agreement, the Singapore Treaty, and the Trademark Law Treaty. In 1998, Romania passed a trademark and geographical indications law, which was amended in 2010 to make it fully consistent with equivalent EU legislation at that time. The EU has since adopted a new Trademark Directive (EU Directive 2436/2015) that was to be implemented by all EU member states by January 2019. Romania is the single EU member state that has not yet implemented this legislation. Trademark registrations can be filed online and are valid for ten years from the date of application and renewable for similar periods.
Romania is a member of the Berne Convention, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. The Romanian Copyright Office (ORDA) was established in 1996 and promotes and monitors copyright legislation. The General Prosecutor’s Office (GPO) provides national coordination of IPR enforcement, but copyright law enforcement remains a low priority for Romanian prosecutors and judges. Many magistrates still tend to view copyright piracy as a “victimless crime” and this attitude has resulted in weak enforcement of copyright law. Due to the popularity of downloading pirated content, copyright infringement of music and film is widespread throughout Romania.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
Capital Markets and Portfolio Investment
Romania welcomes portfolio investment. In September 2019, the Financial Times and the London Stock Exchange (FTSE) promoted the Bucharest Stock Exchange (BVB) to Emerging Secondary Capital Market status from Frontier Capital Market classification. The decision comes into force beginning September 1, 2020, when the BVB will transfer from FTSE Frontier Index to FTSE Global Equity Index Series (GEIS). The Financial Regulatory Agency (ASF) regulates the securities market. The ASF implements the registration and licensing of brokers and financial intermediaries, the filing and approval of prospectuses, and the approval of market mechanisms.
The BVB resumed operations in 1995 after a hiatus of nearly 50 years. The BVB operates a two-tier system with the main market consisting of 83 companies. The official index, BET, is based on an index of the ten most active stocks. BET-TR is the total return on market capitalization index, adjusted for the dividends distributed by the companies included in the index. Since 2015, the BVB also has an alternative trading system (MTS-AeRO) with 297 listed companies – mostly small- and medium-sized enterprises (SMEs) – and features a relaxed listing criteria. The BVB allows trade in corporate, municipal, and international bonds. Investors can use gross basis trade settlements, and trades can be settled in two net settlement cycles. The BVB’s integrated group includes trading, clearing, settlement, and registry systems. The BVB’s Multilateral Trading System (MTS) allows trading in local currency of 15 foreign stocks listed on international capital markets.
Despite a diversified securities listing, international capital and financial markets have adversely affected the Romanian capital market and liquidity remains low. Neither the government nor the Central Bank imposes restrictions on payments and transfers. Country funds, hedge funds, private pension funds, and venture capital funds continue to participate in the capital markets. Minority shareholders have the right to participate in any capital increase. Romanian capital market regulation is now EU-consistent, with accounting regulations incorporating EC Directives IV and VII.
Money and Banking System
Thirty-four banks and credit cooperative national unions currently operate in Romania. The largest is the privately-owned Transilvania Bank (17.7 percent market share), followed by Austrian-owned Romanian Commercial Bank (BCR-Erste, 14.4 percent); French-owned Romanian Bank for Development (BRD-Société Générale, 11.3 percent); Dutch-owned ING (9.01 percent); Italian-owned UniCredit ( 9.0 percent); and Austrian-owned Raiffeisen ( 8.7 percent).
The banking system is stable and well-provisioned relative to its European peers. According to the National Bank of Romania, as of December 2019, non-performing loans accounted for 4.08 percent of total bank loans. As of December 2019, the banking system’s solvency rate was 20.0 percent, which has remained steady over recent years.
The government has encouraged foreign investment in the banking sector, and mergers and acquisitions are not restricted. The only remaining state-owned banks are the National Savings Bank (CEC Bank) and EximBank, comprising 8.1 percent of the market combined.
While the National Bank of Romania must authorize all new non-EU banking entities, banks and non-banking financial institutions already authorized in other EU countries need only notify the National Bank of Romania of plans to provide local services based on the EU passport.
The Romanian Association of Banks has promoted a dialogue with interested parties – institutions, representatives of consumers’ associations, businesses, and the media – to improve the legal framework to allow adoption of digital technologies in the financial and banking sectors.
Foreign Exchange and Remittances
Romania does not restrict the conversion or transfer of funds associated with direct investment. All profits made by foreign investors in Romania may be converted into another currency and transferred abroad at the market exchange rate after payment of taxes.
Romania’s national currency, the Leu, is freely convertible in current account transactions, in accordance with the International Monetary Fund’s (IMF) Article VII.
There is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital gains, returns on intellectual property, or imported inputs. Proceeds from the sales of shares, bonds, or other securities, as well as from the conclusion of an investment, can be repatriated.
Romania implemented regulations liberalizing foreign exchange markets in 1997. The inter-bank electronic settlement system became fully operational in 2006, eliminating past procedural delays in processing capital outflows. Commission fees for real-time electronic banking settlements have gradually been reduced.
Capital inflows are also free from restraint. Romania concluded capital account liberalization in September 2006, with the decision to permit non-residents and residents abroad to purchase derivatives, treasury bills, and other monetary instruments.
Sovereign Wealth Funds
Plans to establish a Sovereign Development and Investment Fund (SDIF) were repealed by the current government in January 2020.
7. State-Owned Enterprises
According to the World Bank, there are approximately 1,200 state-owned enterprises (SOEs) in Romania, of which around 300 are majority-owned by the Romanian government. There is no published list of all SOEs since some are subordinated to the national government and some to local authorities. SOEs are governed by executive boards under the supervision of administration boards. Implementation of the Corporate Governance Code (Law 111/2016) remains incomplete and uneven.
SOEs are required by law to publish an annual report. Majority state-owned companies that are publicly listed, as well as state-owned banks, are required to be independently audited. Many SOEs are currently managed by interim boards, often with politically appointed members that lack sector and business expertise. The EC’s 2020 European Semester Country Report for Romania noted that the corporate governance law is still only loosely applied. The appointment of interim boards has become a standard practice. Administrative offences carry symbolic penalties, which do not change behavior. The operational and financial results of most state-owned enterprises deteriorated in 2019.
The Ministry of Economy, Energy, and Business Climate has a broad portfolio, including energy generation assets, natural gas production, copper, uranium, coal, salt, and mineral waters. According to the EU’s Third Energy Package directives, the same entity cannot control generation, production and/or supply activities, and at the same time control or exercise any right over a transmission system operator (TSO). Consequently, natural gas carrier Transgaz and national electricity carrier Transelectrica are under the Government’s General Secretariat. The Ministry of Infrastructure has authority over the entities in the transportation sector, including rail carrier CFR Marfa. Privatization has stalled since 2014. The government has repeatedly postponed IPOs for hydropower producer Hidroelectrica, currently slated for 2021.
As a member of the EU, Romania is required to notify the EC’s General Directorate for Competition regarding significant privatizations and related state aid. Prospective investors should seek assistance from legal counsel to ensure compliance with relevant legislation. The state aid schemes aim to enhance regional development and job creation through financial support for new jobs or investment in new manufacturing assets. The Ministry of Finance issues public calls for applications under the schemes. The government’s failure to consult with, and then formally notify, the EC properly has resulted in delays and complications in some previous privatizations.
Private enterprises compete with public enterprises under the same terms and conditions with respect to market access and credit. Energy production, transportation, and mining are majority state-owned sectors, and the government retains majority equity in electricity and natural gas transmission.
Romanian law allows for the inclusion of confidentiality clauses in privatization and public-private partnership contracts to protect business proprietary and other information. However, in certain high-profile privatizations, parliament has compelled the public disclosure of such provisions.
8. Responsible Business Conduct
Romania adhered to the OECD Declaration on International Investment and Multinational Enterprise in 2004. The government regularly sends representatives to the working sessions of the OECD Investment Committee and its Working Party on Responsible Business Conduct. Romania established an OECD National Contact Point in 2005 to promote the OECD Guidelines for Multinational Enterprises. Romania’s investment promotion agency InvestRomania currently serves as the contact point.
Several NGOs in Romania monitor, advocate, and raise concerns on RBC issues. No high-profile cases of private sector impact on human rights were recorded in 2019. However, the National Council for Combating Discrimination (CNCD), the government agency responsible for applying domestic and EU anti-discrimination laws, imposed several fines on companies for discrimination against their own staff or prospective employees. The cases involved gender-based discrimination and harassment over labor union membership and childcare leave. The government has not fully implemented a law which prohibits discrimination against persons with physical, sensory, intellectual, and mental disabilities in employment, education, transportation, and access to health care.
Romania does not participate in the Extractive Industries Transparency Initiative (EITI), but is an adherent to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas since 2012.
Romania’s fight against high- and medium-level corruption, a model in Southeastern Europe over the past decade suffered significant setbacks between 2016 and late 2019 due to a concerted campaign under the previous government to weaken anti-corruption efforts, the criminal and judicial legislative framework, and judicial independence. Judicial institutions, NGOs, the EU, and NATO allied governments have all raised concerns about legislative initiatives that furthered this trend in that time period. In Transparency International’s 2019 Corruption Perceptions Index, Romania’s score fell from 47 in 2018 to 44 out of 100. This is among the lowest ranking of EU member states, tying with Hungary and ranking one position above Bulgaria. The current government has begun rolling back the negative actions of the prior government, but this effort will take some time to have full effect.
Domestic and internal rule-of-law observers and law enforcement criticized the wide range of amendments that the former government introduced to the criminal and criminal procedure codes as weakening the investigative toolkits, including in fighting corruption between 2016 and 2019. In July 2019, the Constitutional Court found these changes unconstitutional, and the current government plans to revise these codes.
The European Commission (EC) under the Cooperation and Verification Mechanism (CVM), and the Council of Europe’s (COE) Group of States Against Corruption (GRECO) prepared 2019 reports prior to the current National Liberal Party (PNL) government taking power in November 2019. The October 2019 report, which covered actions taken through June 2019, confirmed the backtracking from the progress made in previous years and set out in the November 2018 report. The report also emphasized that “The key institutions of Romania need to collectively demonstrate a strong commitment to judicial independence and the fight against corruption as indispensable cornerstones, and to ensure the capacity of national safeguards and checks and balances to act.” GRECO’s July 2019 Interim Compliance Report warned that statutes enacted through emergency ordinances, or with insufficient transparency and public consultation, will weaken judicial independence. A June 2019 Venice Commission report was also highly critical of the use of Emergency Ordinances. The Constitutional Court found most of those changes unconstitutional. A May 2019 non-binding referendum bans the use of Emergency Ordinances for issues related to the justice sector.
After a political and media campaign against the National Anti-Corruption Directorate (DNA) resulted in the dismissal of the Chief Prosecutor of the DNA in 2018, the position remained vacant until a new government took power in November 2019. The government filled the position in March 2020. Meanwhile the prosecutor’s office set up by the previous government to investigate and prosecute judges and prosecutors, which appeared to only be undertaking politically motivated cases, continues to operate. The current government’s efforts to disband or reform it stalled during the COVID-19 crisis. Successful court challenges of the High Court of Cassation and Justice’s procedures triggered the review of numerous high-level corruption cases. Both the national cabinet and Parliament adopted codes of conduct, yet their overly general provisions have so far rendered them inconsequential. Conflicts of interest, respect for standards of ethical conduct, and integrity in public office in general remained a concern for all three branches of government. Individual executive agencies enforced sanctions slowly, and agencies’ own inspection bodies were generally inactive.
In June 2019, the previous government adopted a sizable Administrative Code by emergency ordinance. The Code weakened the authority of the National Civil Service Agency to oversee civil service by merit-based selection, lowered the voting requirements for transferring management of properties by local councils, and limited local elected officials’ legal liability for official acts by shifting it to civil servants. Implementation of the 2016-2020 national anticorruption strategy, which the previous government adopted in 2016, has been slow, especially with regard to prevention efforts. The strategy focused on strengthening administrative review and transparency within public agencies, prevention of corruption, increased and improved financial disclosure, conflict of interest oversight, more aggressive investigation of money laundering, and passage of legislation to allow for more effective asset recovery. The strategy includes education in civics and ethics for civil servants, a requirement for peer reviews of state institutions, stepped-up measures to strengthen integrity in the business environment, a significant decrease in public procurement fraud, and an increased role for ethics advisors and whistle-blowers. There has been little action in these areas, especially on the prevention component. Absent political support from the top, the new National Agency for Managing Seized Assets (ANABI) has only made limited progress.
Romania implemented the revised Public Procurement Directives with the passage in 2016 of new laws to improve and make public procurement more transparent. The National Agency for Public Procurement has general oversight over procurements and can draft legislation, but procurement decisions remain with the procuring entities. State entities, as well as public and private beneficiaries of EU funds, are required by law to follow public procurement legislation and use the e-procurement system. Sectoral procurements, including private companies in energy and transportation, also have to follow the public procurement laws and tender via the e-procurement website. The February 2020 EU Country Report for Romania points out that public-procurement remains inefficient.
In October 2016, the “Prevent” IT system, an initiative sponsored by the National Integrity Agency for ex-ante check of conflicts of interests in public procurement, was signed into law. The mechanism aims to avoid conflicts of interest by automatically detecting conflict of interests in public procurement before the selection and contract award procedure.
The laws extend to politically exposed persons yet at the same time, politicians frequently criticize magistrates in the media and judicial decisions are often treated with a lack of respect. Laws prohibit bribery, both domestically and for Romanian companies doing business abroad. The judiciary remains paper-based and inefficient, and Romania loses a number of cases each year in the European Court of Human Rights (ECHR) due to excessive trial length. Asset forfeiture laws exist, but a functioning regime remains under development. Fully 80 percent of cases in the court system are property related.
While private joint stock companies use internal controls, ethics, and compliance programs to detect and prevent bribery, since 2017 the government has rolled back corporate governance rules for state-owned enterprises and has repeatedly resorted to profit and reserves distribution in dividends to bolster the budget. U.S. investors have complained of both government and business corruption in Romania, with the customs service, municipal officials, and local financial authorities most frequently named. According to the EC’s 2020 European Semester Country Report for Romania, since 2013, the share of companies that perceive corruption as a problem increased in Romania by 23 percentage points, the largest increase in the EU. This result stands in stark contrast with the EU average, which continued to decrease (now at 37%). Overall, 97% of businesses think that corruption is widespread in Romania, and 87% say it is widespread in public procurement managed by national authorities. On a more positive note, 50% of respondents think that those engaged in corruption would be caught by police, and 43% think that those caught for bribing a senior official receive appropriate sanctions. These results are both higher than the EU average.
Romania is a member of the Southeast European Law Enforcement Center (SELEC). NGOs enjoy the same legal protections as any other organization, but NGOs involved in investigating corruption receive no additional protections. Recent regulations have increased costs and administrative burdens for NGOs and reduced the pool of potential donors.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
Romania is member of the UN Anticorruption Convention and the Council of Europe’s Group of States Against Corruption (GRECO). Romania is not a member of the OECD Anti-Bribery Convention.
Romania expressed interest to join the new anti-corruption working group of the Open Government Partnership initiative.
Resources to Report Corruption
Contact at government agency responsible for combating corruption:
Romania does not have a history of politically motivated damage to foreign investors’ projects or installations. Major civil disturbances are rare though some have occurred in past years. Anti-shale gas protestors invaded the site of a U.S. energy company’s exploratory well in 2013, damaging the perimeter fence and some equipment.
During the February 2017 anti-government protests, and intermittently during the previous government, some government leaders pointed to “multinationals” as among the orchestrators. As of March 2019, the government has taken no adverse action against the multinational companies, and public attention has diminished.
11. Labor Policies and Practices
Romania has traditionally boasted a large, skilled labor force at comparatively low wage rates in most sectors. The labor pool has tightened in highly skilled professions, in particular the information technology and health sectors, due to emigration and a deteriorating primary and secondary education system that fails to adequately prepare many graduates, particularly in rural areas, for university. The university system is generally regarded as good, particularly in technical fields, though foreign and Romanian business leaders have urged reform of outdated higher education curricula to better meet the needs of a modern, innovation-driven market. Payroll taxes remain steep. As a result, an estimated 25 to 30 percent of the labor force works in the underground economy as “independent contractors” where their salaries are neither recorded, nor taxed. Even for registered workers, underreporting of actual salaries is common.
The unemployment rate in Romania declined by 0.3 percent from 4.2 percent in 2018 to 3.9 percent in 2019, but additional data show a shrinking labor supply. At 67.8 percent in 2018, the labor force participation rate — the portion of the working age population (15-64 years) who are employed or actively seeking employment — remains among the lowest in the EU. Romanian employers in the engineering, machinery, IT services, and healthcare sectors report difficulties in hiring and retaining employees as Romania faces a shortage of medium- to high-skill workers. As Romania’s emigration crisis deepens, other industries including food service and construction also face worker shortages. According to the EC, Romanians were the largest working age group of EU citizens residing in other member states in 2018 (2,524,000 persons). Many emigrants are younger and more qualified than the remaining population, constraining the supply of skilled labor. The World Bank estimates that between 2000 and 2018, Romania’s population fell from 22.5 million to 19.5 million, with emigration accounting for more than 75 percent of the decline. Unemployment among youth aged 15-24 increased from 16.2 percent in 2018 to 16.8 percent in 2019 and the number of young people neither in education, employment, nor training (NEETs) remains very high. Romania faces a shortage of healthcare staff as doctors and nurses continue to seek work abroad, motivated not only by the higher salaries, but also by the country’s antiquated medical system. According to the Ministry of Health, 10,000 doctors left Romania between 2017-2018.
The government lacks a comprehensive strategy to remedy labor shortages despite having taken some steps in recent years to attract and retain talent. Employees in some sectors have benefitted from fiscal incentives. For example, IT professionals are eligible for certain income tax exemptions. In addition, in 2018, the GOR introduced an additional income tax and social contributions exemption for a period of ten years for employees in the construction sector. The provision also introduced a specific minimum wage of RON 3,000 (USD 717) for construction workers. In 2017, the government adopted a unitary wage law to establish a more consistent framework for wages across the public sector. The law provided for a salary increase of at least 25 percent for most public sector employees; wages for some workers in the healthcare sector doubled in nominal terms as of March 2018. Discussions with unions and businesses continue on the specific applications of the Unitary Wage Law.
The Labor Code regulates the labor market in Romania, controlling contracting, jurisdiction, and the application of regulations. It applies to both national and foreign citizens working in Romania or abroad for Romanian companies. As an EU member state, Romania has no government policy that requires the hiring of nationals, but it has annual work permit quotas for other non-EU nationals. For 2020, the government increased annual work permits to 30,000, up from 20,000 in 2019. Work permits are valid for one year and are renewable with an individual work contract. Employers pay a EUR 100 (USD 10813 or RON 473) tax for most foreign workers with the exception of seasonal workers and those present in Romania on student visas, for whom the tax is EUR 25 (USD 278 or RON 117). The government also reduced the cost of employing non-EU citizens in 2018. The amended legislation no longer requires employers to pay a minimum wage equivalent to the gross average wage. Normal minimum wage law applies with the exception that highly skilled non-EU workers must receive at least twice the gross minimum wage. Foreign companies still resort to expensive staff rotations, special consulting contracts, and non-cash benefits.
Since Romania’s revolution in 1989, labor-management relations have occasionally been tense, the result of economic restructuring and personnel layoffs. Trade unions, much better organized than employers’ associations, are vocal defenders of their rights and benefits. Employers are required to make severance payments for layoffs according to the individual labor contracts, company terms and conditions, and the applicable collective bargaining agreements. The Labor Code differentiates between layoffs and firing; severance payments are due only in case of layoffs. There is no treatment of labor specific to special economic zones, foreign trade zones, or free ports.
Romanian law allows workers to form and join independent labor unions without prior authorization, and workers freely exercise this right. Labor unions are independent of the government. Unions and employee representatives must typically notify the employer before going on strike and must take specific steps provided by law before launching a general strike, including holding discussions and attempting reconciliation with management representatives. Companies may claim damages from strike organizers if a court deems a strike illegal. Labor dispute mechanisms are in place to mediate any conflicts between employers and employees regarding economic, social, and professional interests. Unresolved conflicts are adjudicated in court according to the civil code. The employee, employer, or labor union may initiate proceedings. In 2019, employees from household appliances, electrical and railcar industries went on strike. They sought higher pay, better working conditions, and sufficient staffing.
Union representatives alleged that few incidents of antiunion discrimination are officially reported because it is difficult to prove legally that employers laid off employees in retaliation for union activities. The government has generally respected the right of association, and union officials state that registration requirements stipulated by law were complicated, but generally reasonable. The current law permits, but it does not impose, collective labor agreements for groups of employers or sectors of activity. Companies with more than 21 employees may use collective bargaining, which provides for written agreements between employees and the employer or employers’ association. According to the Ministry of Labor, companies and employees had finalized 5,886 collective labor agreements as of the third quarter of 2019. Since 2014, Parliament has periodically considered reintroducing collective bargaining nationwide, a practice that previously established minimum pay and working conditions for the entire economy but the Social Dialogue Act eliminated in 2011.
As an EU and International Labor Organization member state, Romania observes international labor rights. The law prohibits all forms of forced or compulsory labor, but enforcement is not uniform or effective. As penalties are insufficient to deter violations, reports indicated that such practices continued to occur, often involving Roma, disabled persons, and children. The minimum age for most forms of employment is 16, but children may work with the consent of parents or guardians at age 15, provided the tasks correlate with their abilities. Employment in harmful or dangerous jobs is forbidden for those under the age of 18; the government maintains a list of dangerous jobs in which the employment of minors is restricted.
Romania does not waive or derogate labor laws and regulations to attract or retain investments. Since 2011, employers have had more flexibility to evaluate employees based on performance and hiring and firing procedures have been significantly relaxed. The main objective for Romania’s national labor strategy for 2014-2020 is the development of an efficient, dynamic, and flexible workforce. Romania aims to ensure that by 2020, 70 percent of people aged 20-64 will have access to a quality job which rewards them based on their capacity and competence and ensures a decent standard of living.
The minimum wage has nearly tripled in nominal terms since 2012, rising from RON 700 (USD 167) to RON 2,230 (USD 530) per month in 2020. In addition, the government introduced a differentiated minimum wage in December 2018, decreeing that employees with a university degree, as required by the job description and one year on the job, must receive at least RON 2,350 (USD 569) monthly, 5 percent more than other minimum wage workers earn. Despite these measures, Romania has the highest rate of employed persons at risk of poverty among EU member states: 15 percent in 2018. Conversely, wage increases have been outpacing productivity growth since 2016. This led to a marked acceleration of hourly labor costs, which posted a 12 percent nominal increase for the fourth quarter of 2019 as compared with the same period in 2018.
Separately, in December 2019, Parliament reduced payroll taxes for part-time workers. The bill reversed 2017 provisions when in an effort to curtail underreporting of work, the government increased the minimum required payroll taxes that employers must pay for their part-time employees to equal those for a full-time employee earning minimum wage. Coupled with the change in the legal tax incidence of social contributions described above, the law had the unintended consequence that some employees owed more in social contributions than their monthly earnings. Subsequently, the government issued an ordinance in February 2018 to allow part-time workers to pay social contributions for their actual gross income only, mandating that the employer make up the difference. Effective January 1, 2020, part-time employees are taxed based on their actual earnings, and employers do not cover additional charges.
In 2018, the government passed new legislation clearly articulating the way the labor code applies to companies employing teleworkers, defining the distinction between teleworkers and employees who work full-time from home. In addition, a new law regulating internships established standards for the number of interns a company may hire, as well as contract length, minimum pay, and reporting requirements. The law creates a dedicated Internship Register under the supervision of the Local Labor Force Employment Agency. Contract length may not exceed 720 hours or six months. Interns cannot work more than 40 hours per week and must receive wages equivalent to at least 50 percent of the gross minimum wage. Interns who are minors can work a maximum of 30 hours per week and six hours per day. Interns may not make up more than five percent of a company’s workforce. Finally, after Emergency Ordinance 114/2018 restricted day workers to just a few categories (mainly in agriculture), the government backtracked in April 2019 and expanded again the range of activities in which day workers can be employed and included temporary work related to fairs, trade shows, support activities for artistic events and catering, zoos and natural parks as well in the maintenance of green spaces. The Labor Inspectorate has allocated funds to set up an IT system for the Electronic Day Workers Register. Individuals cannot be employed as day laborers for more than 120 days per calendar year with the exception of those working in vineyards, seasonal animal rearing, or seasonal activities in university botanical gardens for whom the limit is 180 days per year. Workers may not serve as a day laborer for more than 25 consecutive calendar days without a labor contract. Laborers who violate this law are subject to fines of up to RON 2,000 (USD 478).
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
The Overseas Private Investment Corp. (OPIC), now the U.S. International Development Finance Corporation (DFC), has been authorized to do business in Romania since the signing of the 1992 bilateral agreement. OPIC-supported investment funds in Romania and Southeast Europe include the 2013 Treetops Capital Agribusiness Fund (Romania), and the 2012 Accession Mezzanine Capital (Poland, Romania, Bulgaria, Ukraine, and Czech Republic). The 2009 OPIC-supported non-bank financial institutions in Romania included CAPA Finance, Verida Credit, and Express Finance. Third country governments do not provide significant investment financing or insurance to their firms in Romania to a level that makes it difficult for U.S. firms to compete.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)