Subsidiaries, branches and representatives in Romania
Subsidiary characteristics:
According to Law 105/1992, the subsidiary implanted abroad has its own nationality, distinct from the commercial company that established it.
The subsidiary is conceived as an enterprise with a legal personality belonging to the commercial company in the sense that it is constituted by the company, according to the same procedure as in the case of the formation of the company, and it depends on it in economic terms.
The subsidiary has its own patrimony, delimited in the entire patrimony of the company and concludes contracts with third parties in its own name, being the holder of one or more of its own bank accounts.
Thus, it can be remembered that the subsidiary is considered as an enterprise, organized as a stand-alone company with its own legal personality, acquired under Law 31/1990 and Law 26/1990.
Branch features:
Like the subsidiary, the branch is a way to expand the founding venture, thus contributing to its goal.
Unlike the subsidiary, the branch does not become an independent legal entity, being, from this point of view, part of the organic structure of the founding primary society, the only one having the right of legal status.
With regards to the branch, Law 105/1992 states that their organic status is subject to the national law of the foreign company that established it, identifiable as such by reference to its registered office.
Considering all of this, the branch should be treated as a simple, territorially exogenous dismantling of the primary company (parent company) from a legal point of view.
The differences from the subsidiary are:
a) the branch does not have a distinct firm or its own patrimony different from the primary company that has established it, while the subsidiary possesses all these characteristics;
b) the assets of the branch belong to the parent company;
c) the branch concludes contracts with third parties either on behalf of the parent company or in its own name but on the account of the founding owner, so that the branch cannot have either its own creditors or debtors.
Representative features:
This external structure is substantially different from both the subsidiary and the branch, as it can not in any case be a commodity-producing enterprise, a service provider or a client-service provider;
The representative fulfills the role of intermediary between the primary company that has organized it and its contractual partners;
The representative therefore performs as either a trustee or a commission agent;
As a trustee, it concludes legal acts with third parties in the headquarters in the name and on behalf of the commercial company that has given it authority, and as commissioner acts against third parties in their own name but on behalf of the company;
The representative is also devoid of legal personality, which belongs to the trustee or company’s commissioner;
The procedure for registration of the representative of a foreign company in Romania is carried out exclusively through the Ministry for Business Environment, Commerce and Entrepreneurship – the Department of Foreign Trade – the Division of Commercial Policies.
About subsidiaries and branches – legal status and registration
Branches have no legal personality, while subsidiaries are legal entities.
The case of foreign companies
Foreign companies may establish branches in Romania, in compliance with Romanian law, as well as subsidiaries, agencies, representatives or other secondary establishments, if this right is recognized by the law of their organic status.
Tax registration and authorization of the operation of a branch established in Romania by a company whose head office is abroad
Preliminary operations
For branches, it is not required to pre-check the availability and/or booking of the company.
The branch company consists of the company of the legal entity that has established it, the name of the locality where its registered office is located, followed by the word „branch” and the name of the place where the branch has its headquarters.
In the case of the establishment of several branches in the same locality by the same legal person, it may be added to the provisions of par. (1) an indication to distinguish between them.
Where, exceptionally, the name of the branch is different from that of the foreign legal entity, the name of the branch will be followed by the company and legal person, and the word „branch”.
The company’s branch office in Romania will have to include the mention of the main headquarters abroad.
Registration
• Application for registration;
• Tax Registration Form;
• Own-account statement signed by associates or directors, showing, as appropriate, that:
• the legal person does not carry out the declared activities, at the registered office, at the secondary offices or outside them, for a period of maximum 3 years;
• the legal person fulfills the conditions of operation provided by the specific legislation in the sanitary, sanitary-veterinary, environmental and labor protection field for the activities specified in the standard declaration;
• The decision of the competent statutory body on the establishment of the branch designating the person authorized to represent the branch;
• Memorandum and the status of the abroad professional if contained in separate documents, together with any modifications to these documents or the updated memorandum, original or certified copy, and the translation made by an authorized translator whose signature is legalized by a public notary;
• The act of empowering the representative of the branch, if it was not appointed by the decision of the competent statutory body (translated and legalized copy);
• Identity documents of persons empowered to represent the branch (copy);
• The document attesting the right of use for the office of the branch with the destination of registered office (copy);
• Application to ANAF to obtain the certificate issued by the competent financial administration, certifying that no other document for the alienation of the right to use the same building, for consideration or free of charge, has been registered for the registered office;
• Authenticated declaration of compliance with the conditions regarding the registered office, if it is evident that other documents attesting the alienation of the right of use to the same real estate intended for headquarters;
• In the case of branches of professionals from the EU member states, the foreign economic agents’ accounting documents, as they are drawn up, audited and published in accordance with the law of the Member State governing the foreign professional;
• In the case of branches of professionals from non-EU or EEA countries, documents certifying the registered office of the foreign professional, its object of activity and, at least annually, the amount of the subscribed capital, if this information is not in the documents stipulated in the articles of association and the status of the professional abroad, as well as the accounting documents of the foreign economic agent, audited and published in accordance with the Romanian law, except where the law of the foreign professional provides for regulations equivalent to those in the EU;
• The certificate, certified translation, from the register in which the foreign professional is registered, certifying the existence of the company;
Where appropriate, entries shall be made concerning:
• Opening of a court or extrajudicial insolvency procedure regarding the foreign professional;
• The dissolution of the company from abroad, names and powers of the liquidators, completion of the liquidation;
• The closure of the branch;
• The notification sent to the National Bank of Romania by the home Member State authority in the case of a branch of a credit institution, in accordance with the provisions of Art. 48 from O.G. no. 99/2006;
• Authorization of the National Bank of Romania for the establishment of the branch in the case of credit institutions established in third countries, according to Art. 67 from O.G. no. 99/2006;
• Where appropriate, the authenticated declaration on the sole responsibility of the natural person, a foreign citizen empowered to represent the branch and, as the case may be, the translation made by an authorized translator whose signature is legalized by a public notary;
• Own-account statements given by the persons empowered to represent the branch, showing that they meet the legal conditions for holding this quality (original and, where applicable, translated and legalized copies);
• Signature specimens of branch officers (original);
If applicable:
• The notice on the change of the purpose of the collective dwelling houses, provided by Law no. 230/2007 (completed on the standard form, original);
• Other prior notice provided by special laws (copy);
• Special authorization (in authentic form), lawyer or delegation for persons designated to perform legal (original) formalities;
• Evidence of payment of legal fees / fees;
Note: If a professional based abroad establishes several branches in the country, the above-mentioned documents are filed only at one of the branches, at the discretion of the professional, in the trade register where the other branches are registered, specifying the register through which the advertising formalities are ensured.
The settlement of the request falls within the competence of the director of the Trade Register Office attached to the court and/or the person or persons designated or who may / will dispose of the administration and other supporting documents than those listed.
Writing documents, obtaining authentication or, as the case may be, giving a certain date, providing guidance for the correct completion of the application for registration can be done, for a fee, through the assistance services of the Trade Register Office (TRO) attached to the court.
Forms are distributed at the ORC headquarters.
The application for registration, the documents provided by law, filed and numbered, shall be submitted by the applicant to the TRO directly, by post, by registered letter and acknowledgment of receipt or by electronic means. The request submitted in electronic form will have an extended electronic signature incorporated, attached or logically associated with it.
Establishment and registration of a subsidiary in Romania
Subsidiary, as well as other types of secondary offices (branch, representative, dependent agent, work point, agency), is an economic entity under which any company can expand its business.
While the representative and the dependent agent are secondary establishments for which, in Romania, only a foreign company can opt, the subsidiary is a stand-alone company, operating independently and autonomously, having its own registered office and distinct legal identity.
According to the legislation in force, a subsidiary established by a foreign company in Romania will have its own nationality, distinct from the parent company, under the laws of the country in which it was implanted.
The subsidiary is conceived as a commercial entity with a legal personality similar to that of the parent company, meaning that, being constituted by a particular company, it respects the same procedures and depends on it in economic terms. However, the subsidiary has its own patrimony, which is delineated as part of the parent company’s heritage. As well at the same time, the subsidiary may conclude contracts with third parties in its own name.
Note: It should be noted that the subsidiary is a self-contained company, having its own legal personality, according to the laws 31/1990 and 26/1990.
Steps to be followed before submitting a registration file for a subsidiary
• submitting the request for availability and/or reservation verification (original) completed with 3 names – details, in the order of preferences, respectively check availability and/or booking the emblem – form;
• proof of payment of the registration fee (separate for the company reservation, respectively the emblem).
The file to be filed with the Trade Registry for the registration of the subsidiary set up in Romania by a foreign company will include the following documents:
• registration request;
• the statements on the sole responsibility of the associates or the directors to show that all operating conditions are met, in accordance with the legislation in force;
• the decision of the general meetings of each of the involved companies approving the participation in the establishment of the subsidiary;
• the subsidiary’s memorandum;
• the decision of the competent statutory body on the establishment of the branch designating the person empowered to represent the subsidiary;
• the memorandum and the status of the foreign trader – if contained in separate documents, shall be presented together with all the amendments or the updated act, in original or certified translation;
Note: In the case of companies of traders from countries that are not members of the European Union or European Economic Area, documents certifying the registered office of the foreign trader, its object of activity and, at least annually, the sum of the subscribed capital, if this information is not included in the above mentioned documents.
• Evidence of contributions and/or proof of titles of assets contributed in kind, as well as proof of valuation of assets contributed in kind or expert report;
• In order to complete the process of setting up a subsidiary of a foreign company, if the parent company comes from a non-EU country, the accounting documents of the foreign economic agent are required, as they are prepared, audited and published in accordance with the law of the Member State governing the trader from abroad;
• the certificate from the register in which the foreign trader is registered, certifying the existence of the company, certified translation;
• if applicable, proof of availability and reservation of the firm and/or emblem;
• the signature specimens of the affiliates of the subsidiary;
• a copy of the identity documents of the founders / directors / directors / members of the supervisory board / members of the directorate / censors;
• evidence of the registered office / additional office of the subsidiary;
• evidence of payment of taxes;
• explicit mandate
Branch and subsidiary – differences
The fundamental difference between these two entities is described by the status of legal personality.
• The subsidiary is an independent company with legal personality to the parent company under its control; the branch is not an entity with its own legal personality (i.e. it does not act autonomously and does not have a stand-alone existence) but is part of the organic structure of the parent company and is economically dependent on it.
• The subsidiary has its own patrimony, while the branch has only a few assets necessary to carry out the activity assigned to it by the parent company.
• The subsidiary is registered with the Trade Registry with a minimum social capital provided by law for the form of the company under which it is incorporated; The branch also registers with the Trade Registry, but it does not have to have a minimum social capital, it only benefits from the patrimony (the mass of goods) that is attributed to it by the parent company.
• The subsidiary’s object of activity may be distinct from that of the parent company because legally the subsidiary’s company is a distinct company from the parent company; Instead, the branch may have an object of activity and can therefore only carry out the activities of the parent and its parent in its own business.
• The subsidiary is subject to the law of the State in which it has its registered office because it is an independent, stand-alone society, unlike the branch subject to the national law of the parent company which has established it and is identified by reference to its registered office.
• The subsidiary acts in its own name in relations with third parties, while the branch acts only in the name and on behalf of the parent company.
Subsidiary and representative – differences
• The subsidiary is a company with its own legal personality, independent of the parent company which has set up and under its control; The representative is not an entity with its own legal personality (i.e. it does not act autonomously and does not have a stand-alone existence), but is legally subordinated to the parent company that has constituted it.
• The subsidiary has its own patrimony and share capital, while the representative has only a set of assets necessary to carry out the business, goods that have been allocated to it by the parent company.
• The subsidiary is set up and operates in one of the forms prescribed by law for commercial companies (for example, joint-stock company, limited liability company) and has the legal status of the form of company in which it was formed; The representative is not a distinct form of society, but only an extension of the parent company that constituted it.
• The subsidiary’s business may be distinct from the parent company and may be modified at any time during the existence of the entity in such a way as to best serve the commercial interests of the respective subsidiary at a particular moment; Instead, the object of activity of the representative must be in accordance with the activity of the parent company, the representative being unable to perform operations of another nature or contrary to those of the parent company.
• While the subsidiary operates and engages in business relations with others, in its own name the representative does not act on its own behalf but only as an intermediary between the parent company and its trading partners.
The differences between subsidiaries and representatives listed above are applicable to any type of representative. In addition to these, the following specific differences should be considered only by representatives from Romania of foreign companies:
• The subsidiary is registered with the Trade Registry and the representative of a foreign company is registered with the Ministry for Business Environment, Commerce and Entrepreneurship under completely different procedures.
• The subsidiary’s fiscal status is also different from that of the representative: while the subsidiary pays a profit tax of 16% or 3% – for micro-enterprises, the representative of a foreign company owes to the state an annual tax equal to the equivalent in lei of 4,000 EUR.
Establishment of foreign company representative in Romania
The representative, as the external structure of a commercial company, is an entity lacking legal personality, this status belonging to the mandating or commissioning company.
The representative, as the name suggests, can only represent the interests of the parent company, distinguishing itself from subsidiaries and branches by the fact that it can in no circumstances be a service provider, a producer or a performer of works.
Thus, the representative performs the function of intermediary between the company that established it and its contractual partners, having mandate or commissioner functions.
As a trustee, a representative may enter into legal acts with third parties in the parent company’s home country on its behalf.
As a commission agent, the representative will act against third parties in their own name but under the aegis of the commissioning firm.
Therefore, the representative cannot carry out gainful activities, it cannot have its own income, but only expenses, being supported by the parent company that has set up and represents it. For a representative to be active on the market, it is necessary to pay an annual fee for the functioning of the representative, according to the provisions in force.
The registration procedure for a representative of a foreign company in Romania is done exclusively through the Ministry for Business Environment, Commerce and Entrepreneurship – the Department of Foreign Trade – the Commercial Policies Division. Under the law, a foreign company may have representatives in Romania on the basis of an authorization issued strictly for that purpose.
Note: Foreign companies may be represented in Romania on the basis of a contract and by Romanian offices, including those set up on their own initiative.
In accordance with Art. 5 and 6 of Decree-Law no. 122 from 24.04.1990, published in the Official Gazette of Romania, Part I, no. 54 of 25.04.1990, the documents required to be issued for the authorization of a representative office of a foreign company are as follows:
1. certificate in original of the Chamber of Commerce and Industry – Trade Registry (in the country where the company is located), which confirms the legal existence, the object of activity and the social capital of the foreign company;
2. a certificate of creditworthiness, originally issued by a commercial bank through which the foreign company carries out its financial operations;
3. Statute (or memorandum of association) copy, attesting the form of organization and the functioning of the foreign company;
4. original authorization of the head of representative issued by the foreign firm, authenticated by a lawyer or notary.
The above documents, together with translations certified by a notary office in Romania and with a copy of the space contract where the representative office will operate, shall be filed with the Ministry for Business Environment, Commerce and Entrepreneurship Registry – Commercial Policies Division, Calea Victoriei no. 152, 1st District.
At the same time, a certificate issued by the National Agency for Fiscal Administration, General Direction of Public Finances of Bucharest – Foreign Service and Embassies (in the province, from the County Financial Administration) is filed, which confirms the payment of the operating fee in value $1,200 / year ($300 / quarter), payable in lei at the NBR exchange rate on the day of payment (in accordance with the provisions of Article 1 of GD No. 1222/1990).
The deadline for issuing the operating authorization is 30 days from the date of submission of the documents.
Any foreign legal person having a representative office authorized to operate in Romania, according to Cap. II, art. 122 and 123 (1) of the Law no. 571 / 22.12.2003, has the obligation to pay an annual tax, which is the equivalent in lei of the amount of 4,000 EUR, at the exchange rate of the foreign exchange market communicated by the NBR the day before the one in which the payment is made.
Registration in Romania of the representative of a foreign foundation
Order no. 26/2000 on associations and foundations
The Foundation is the subject of law established by one or more persons who, on the basis of a legal act between the living or the cause of death, constitutes a patrimony that is permanently and irrevocably affected by the achievement of a general interest or, as the case may be.
The original patrimonial assets of the Foundation must include assets in kind or in cash, the total value of which is at least 100 times the gross minimum salary in the economy at the time of foundation.
Foreign legal persons without a patrimonial purpose may be recognized in Romania, subject to reciprocity, on the basis of the prior approval of the Government, by registering with the Register of Associations and Foundations of the Bucharest Court Registry if they are validly constituted in the state of their nationality and their statutory purposes do not contradict public order in Romania.
For this purpose, the representatives of foreign legal persons must attach to the application the following documents, in authenticated copies and legalized translations:
a) the memorandum in the state of which the foreign legal persons have their nationality;
b) status (to the extent that it exists as an act of its own);
c) the decision of the governing body of that legal person, requesting recognition in Romania;
d) the status of the future representative in Romania of that legal person, including provisions regarding the registered office, the legal capacity and the persons representing the foreign legal person;
e) the decision of the Romanian Government to approve the application for recognition in Romania of the applicant legal person.
At the same time, according to the law no.105 of 22 September 1992 on regulating the relations of private international law, the following issues are regulated:
Foreign legal persons with a valid patrimony, established in the state of their nationality, are fully recognized in Romania.
Foreign legal persons without patrimonial purpose may be recognized in Romania on the basis of the prior approval of the Government, by a court order, subject to reciprocity, if they are validly constituted in the state whose nationality they have and the statutory purposes they pursue do not contravene the social order and economic developments in Romania.
The recognition decision shall be published in the Official Gazette of Romania and in a central newspaper and shall be subject to appeal within 60 days from the date of the last publication.
A recognized foreign legal person benefits from all the rights deriving from its organic law, except for those which the issuing State refuses by its legal provisions.
The foreign legal person recognized in Romania operates on the territory of the country under the conditions established by the Romanian law regarding the exercise of economic, social, cultural or other activities.
Tax issues
The tax result of a permanent establishment
(1) Foreign legal persons who carry out activity through a permanent establishment in Romania have the obligation to pay the profit tax for the taxable profit that is attributable to the permanent establishment.
(2) The tax result is determined in accordance with the rules set out in chap. II Law no. 227/2015 regarding the Fiscal Code, amendments Law no. 136 of 13 June 2017 under the following conditions:
a) only the revenue attributable to the permanent establishment shall be taken into account for determining the tax result;
b) only the expenses incurred for the purpose of obtaining such income are taken into account for determining the tax result.
The tax result of the permanent establishment is determined by treating it as a separate person and by using the transfer pricing rules to determine the market value of a transfer made between the foreign legal person and its permanent establishment. For expenditure allocated to the permanent headquarters by its head office, the supporting documents must include evidence of actual cost bearing and reasonable allocation of these costs to the permanent establishment using the transfer pricing rules.
According to the provisions of Law no. 571/2003 regarding the Fiscal Code, as subsequently amended and supplemented art. 15, par. (2), nonprofit organizations are exempt from income tax on income such as:
– contributions,
– registration fees,
– cash or in-kind membership contributions,
– registration taxes established according to the legislation in force;
– donations and money or goods received through sponsorship;
– dividends and interest earned from the placement of disposable income;
– income for which tax is payable on shows;
– resources obtained from public funds or non-reimbursable grants;
– amounts made from occasional shares such as fundraising events with participation fees, holidays, raffles, conferences, used for social or professional purposes according to their status;
– exceptional proceeds from the disposal of tangible assets owned by non-profit organizations other than those that are or have been used in an economic activity;
– the amounts received as a result of non-compliance with the donation/sponsorship conditions, according to the law, provided that the respective amounts are used by the nonprofit organizations in the current or the following years, in order to achieve their purpose and objectives, according to the memorandum or status, as appropriate;
– the amounts received from the income tax due by natural persons, according to the provisions of Title III (2%);
– for the incomes from economic activities achieved up to the equivalent in lei of 15.000 Euro, in a fiscal year, but no more than 10% of the total income exempt from the payment of the profit tax;
– other expressly provided
Nonprofit organization means any association, foundation or federation established in Romania, according to the legislation in force, which uses its own incomes and assets for a general, community or non-patrimonial activity.
Nonprofit organizations owe income tax only to the portion of the taxable income corresponding to non-exempt incomes.
Nonprofit organizations that carry out economic activity must distinguish separately the income and expenses related to the activities carried out for the purpose of obtaining profit, according to the accounting regulations.
For economic activity the same groups of expenditures and revenues used by companies are used.
The organization of management accounting is mandatory when carrying out economic activities. In this way, the expenses are collected and distributed by destination, respectively by activities, sections, phases of manufacture, etc., the production cost of the products, services, as well as of the production and services under execution is calculated. The way of organizing management accounting is at the discretion of each nonprofit organization, depending on the specifics of its own activity and needs.
Funding
In accordance with art. 46 of OG 26/2000, NGO funding sources consist of:
a) Members’ contributions – in the case of associations;
b) interest and dividends arising from the placement of available funds under legal conditions – in the case of associations and foundations;
c) dividends of companies governed by Law no. 31/1990, set up by associations or federations;
d) income from direct economic activities – in the case of associations and foundations;
e) donations, sponsorships or ties – in the case of associations and foundations;
f) resources obtained from the state budget or from local budgets – in the case of associations and foundations;
g) other income provided by law – in the case of associations and foundations.
The main forms of direct financing from the public budget are:
• subventions – financial support from the state budget to cover direct costs occasioned by the provision of some services;
• subsidies – a form of financial support from the state budget granted directly to NGOs;
• grants – are financial transfers to an NGO to pursue a public interest activity without the pursuit of profit generation and are closely related to the purpose of the organization. The beneficiary organization will contribute to the project by providing co-financing from external sources to the grant. These grants are awarded on the basis of a competition and following an evaluation process of the proposal.
EU grants
Grants or so-called projects funded by non-reimbursable funds that are a way of supporting the activities of an NGO.
The process of accessing a grant is lengthy when it comes to the EU, due to the procedures that need to be accomplished (documenting, completing a form, establishing partnerships, etc.), but if this step is passed, it is then hard to start the implementation, after which the evaluation of the projects, which must be carried out with the greatest attention and in accordance with the requirements of the financiers in order not to risk losing the financing offered.
The advantage of such a source of income is that it is a significant help in making projects that cannot be supported financially because of very large budgets.
One disadvantage, however, is that, in most cases, NGOs still have to contribute 20% of the total budget of the project.
Grants from foreign government institutions (other than the EU)
This category includes the various foreign government institutions that invest in social development, education, environment, etc.
Economic activities (services, goods, etc.) – social enterprise + fee for services
An increasingly common concept in the NGO environment called social enterprise is what some people call a component of an organization’s financial strategy.
In other words, it is a source of income, which comes from any activity undertaken by the NGO, which supports the mission of the organization.
Sponsorship of money/goods/services from companies
An important source of income, of course, comes from the sponsorships made by various companies to the NGO. The purpose of these sponsorships is to support their work through financial support (money sponsorship), but also by offering goods or products that can help NGOs in their activities.
Targeting 2% of income tax by individuals
Every individual has the right to dedicate 2% of income tax to a non-governmental association, foundation or organization.
Targeting this percentage can be done between January and May by completing a simple form by any employee (Form 230), but also by people who have income from other sources (Form 200). These forms have to be submitted to local financial administrations, and the income from these forms will be charged to the NGO’s account only at the beginning of the next year.