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Open Subsidiary in Romania

An overseas corporation has multiple options if interested to open a secondary office in Romania. Among all alternatives our Legal System provides, we can easily distinguish between two general types. One category gathers business entities with legal personality and the other one includes those offices without legal personality.
 
Prior to creating a Romanian subsidiary in 2022, clients should know that this company holds a legal personality but it is still controlled by the parent company. The subsidiary is, therefore, to be considered as a Romanian entity and it can be treated accordingly by the local authorities.
 
If willing to open a subsidiary in Romania, you should also be informed that even if this business entity is created as an independent company that works independently and autonomously. It has its own office and being established on a permanent basis, the parent company is able to decide on three important aspects.
 
The parent company is the one that determines the establishment, modification and termination of activities for its subsidiary. The subsidiary in Romania has its own patrimony, it can conclude contracts on its own behalf and is fully responsible for this. It can be also the holder of one or more bank accounts.
 
Our team of company formation agents in Romania presents the main characteristics of the subsidiary below.
 
You can also reach out to us if you want to open other business forms or wish to know more about micro-companies and their advantages.
 

Creating a Romanian Subsidiary - Specific Features

 
Unlike the branch, the subsidiary is a separate legal structure from the parent company abroad. The following features are relevant when discussing this business form:
 
  • according to legal provisions, the subsidiary must be registered with the Trade Register in Romania;
  • the subsidiary’s articles of association are separate from its parent company; new constitutive documents are drawn up for the purpose of opening this business form;
  • the Romanian subsidiary can engage in business activities different from those performed by the mother company;
  • from a fiscal standpoint, the subsidiary is considered a distinct entity and it has its own management structure.
 
In practice, in order to open a subsidiary in Romania in 2022 one has to follow the same steps as those imposed by the registration process of companies. The costs for creating a Romanian subsidiary vary, depending on the type of business entity it represents.
 
Generally speaking, the decision to open a subsidiary in Romania implies that this new office may benefit from brand popularity which was already leveraged by the mother company. It also enjoys the advantage of undertaking a set of procedures and a working system already verified by the mother company.
 
Our Romania company formation agents have extensive experience in dealing with these processes being highly qualified in delivering optimal solutions for each request. We can guide you and fully assist in order to successfully complete your project goals.
 

Subsidiary independence

 
A subsidiary represents a company that is controlled or fully owned by another business entity, named holding company or parent. It operated on its own, as a distinct corporation from its parent, which is a benefit regarding liability, law regulations, and taxation.
 
If another party sues the subsidiary the parent company will not be affected. In addition, the subsidiary obligations are also separate, not being a liability for the parent company and the minimum 51% ownership gives the parent the right to appoint the subsidiary’s boar this way having control over decision-making.
 
Besides the fact that the subsidiary and the parent do not operate in the same location, they can even be in different business branches. The subsidiary may even have its own subsidiaries, this way forming a corporate group with different levels of ownership.
 

Advantages and disadvantages of a subsidiary

 
Opening a subsidiary might be an expensive a long process and offers limited control. When owned by another parent company, the management control is also owned by the company and the decision-making must follow the command chain before taking any action.
 
On the other hand, it is a very efficient tool for risk reduction as the subsidiary will be a separate legal entity. The losses of the subsidiary will not transfer to the parent company. Still, if bankruptcy occurs, the subsidiary’s obligations will be transferred to the parent if there is proof that they are effectively or legally the same.
 
Very large companies can benefit from splitting the business into smaller companies that are easier to manage and control. Therefore, subsidiaries offer greater operational efficiency. Subsidiaries offer some benefits as well in order to reduce tax liability through deductions according to the state legislation. For instance, the losses by one subsidiary may be covered through the gains of another subsidiary.
 

Subsidiary requirements

 
Romania is a very resourceful country when it comes to foreign investments as it offers many benefits, such as: double taxation treaties, reductions in tax and repatriation of profits and dividends. The Law on Commercial Companies is the one that regulates subsidiaries establishment in Romania.
 
Requirements for opening a subsidiary in Romania in 2022:
 
  1. Application for registration – the filled-in form and the form for the fiscal registration; an additional form for foreign investments may be required;
  2. Certificate of good standing of the parent company (or equivalent);
  3. Memorandum and Articles of Association of the parent;
  4. The subsidiary’s Articles of Association;
  5. Resolution of the parent company regarding the decision to open the subsidiary;
  6. Proof of registered or physical office (depends on the activity of the subsidiary);
  7. Information on the Administrator of the subsidiary – the appointed individual; along with the relevant identification documents;
  8. Signature specimen of representatives for both subsidiary and parent;
  9. Proof of company name availability.
 
When the subsidiary is registered by a third party, proof of appointment of required. This is in the form of a power of attorney and our team can act on the behalf of interested foreign companies willing to incorporate a subsidiary in Romania.
 
All of the above-mentioned documents must be submitted to the National Trade Register Office and must be translated.
 
The preliminary name check is required for the subsidiary, just as for a locally registered company, the SRL, for example. This is an essential step and it ensures the use of a company name that is not already taken by another legal entity operating on the market.
 
The name is included in all of the registration documents, thus explaining the need to perform the name check before drafting the subsidiary’s constitutive documents.
 
The name check request is submitted to the National Trade Register Office. Our team can help foreign companies handle this stage in advance through a power of attorney.
 

Subsidiary taxation in 2022

 
Subsidiaries must request a tax identification number from the National Agency for Fiscal Administration, known as the unique identification number.
 
The annual tax returns and monthly VAT returns are submitted accordingly to the same agency.
 
An alternative VAT cash accounting system is available for certain local suppliers established in the country. One of the conditions is for the taxpayer to haven annual turnover below RON 4.5 million.
 
The tax experts in our team can give you more details about VAT registration, which is mandatory when the taxpayer has an annual turnover of over RON 300,000.
 
Below, our team of company formation experts highlights the most important corporate taxes:
 
  • Corporate income tax: the standard corporate income tax rate is 16%, however, a lower rate is available to micro-companies, of 1% or 3% of their revenue (with certain exceptions), depending on the annual turnover and whether or not they have employees in the respective tax year;
  • Withholding tax: a 5% withholding tax rate applies on dividend payments made to a non-resident company unless reduced by a tax treaty;
  • Value-added tax: a standard 19% tax rate applies, and two other lower rates of 5% and 9% are available;
  • Social security contributions: the employer pays 2.25% of the gross salary as employment insurance; in some cases, the contribution also includes the employer’s portion for the pension.
 
The tax year applicable in Romania is the same as the calendar year. However, subsidiaries can change the date for the completion of their financial statements in accordance with the parent company. This can mean that the parent company abroad will adjust its reporting date.
 
When a foreign company engages in activities in the country through multiple permanent establishments, the common requirement is for the said foreign entity to designate one of its permanent establishments to fulfill the tax obligations.
 

Open a Romanian subsidiary with our help

 
Our team provides complete assistance to foreign investors interested in opening a subsidiary in Romania.
 
The differences between the available business forms can be further explained upon request.
 
Foreign companies that wish to maintain a certain level of independence from their Romanian counterpart are advised to take into account the incorporation of a subsidiary, compared to the branch. The latter is not an independent business form, and the parent company is liable for the debts and obligations of its Romanian branch. Moreover, the branch is limited to performing the same business activities as the parent company, while the subsidiary can engage in the same activities and in additional ones, as may be required.
 
The business activities a Romanian subsidiary can engage in are listed in the NACE codes.
 
Another option available to foreign companies in Romania is to open a representative office. Unlike the branch and the subsidiary, the office is not permitted to engage in any commercial activities, and it can be used solely for market research or promotional activities.
 
The representative office can be the first step for foreign companies willing to test the Romanian market, followed by opening a branch or opening a subsidiary in Romania.
 
Contact our team of Romania company incorporation specialists if you wish to know more about the subsidiary or any other type of business form.

by Cristian Darie

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