Romania is one of the preferred locations to open an IT company in western Europe. Our country has tax advantages, a business climate that welcomes foreign investors and a pool of talented employees, at the same time keeping the general employment costs lower compared to other countries.
The business field offers opportunities for several types of services, from IT support and outsourcing services to programming, web design, hosting or security. There are numerous entrepreneurial opportunities in this field, however, before incorporating a new company, investors are advised to learn the basic rules of company formation in Romania, along with the special provisions that are in place in this business field.
In this article, you will learn
- how to open an IT company in Romania,
- what are the steps in forming an IT company and
- what are the fiscal incentives granted in Romania to those who decide to start an IT company in this country.
If you need more details than the ones presented herein, you can reach out to the experts at our law firm in Romania.
The IT sector definitely is the big star of these years, in Romania as everywhere else in the world.
IT companies are permanently hunting for new talents, recruitment ads are everywhere online and on street billboards, almost each day a new software product is advertised by the industry – signs of a vital industry that is in a strong process of development.
Big companies recruit their future employees from universities and most IT students choose to emigrate as soon as they complete studies. In order to stop this real exodus of talents, authorities set in place and are constantly updating a friendly legal framework dedicated to this industry, meant to encourage investors to open branches here, or start new companies in Romania, instead of taking their business elsewhere.
Opening an IT company is easier today than it was 10 years ago.
Table of Contents
Steps to open an IT company
Below, our lawyers in Romania list the most essential steps in opening a new company. They apply to IT companies, as well as to any new firm that opens in Romania:
- Choose the business scope: this is the activity sector for the business, according to the NACE codes; a primary activity is selected and it can be followed by secondary ones.
- Choose the type of company: most IT companies in Romania are incorporated as a private limited liability company, suitable for small or medium-sized businesses.
- Choose the company name: it needs to be a unique one, that does not infringe any other names already in use by registered companies.
- Establish the registered address: this address is needed for incorporation purposes, however, it can be different from the company headquarters.
- Draw up the documents: these are the company’s constitutive documents, its Articles of Association, along with other documents that may be required.
- Register the business: the new company is registered with the National Trade Register Office; once this is done, it can commence its business activities.
- Post-registration steps: these can include equipping the new office space and hiring employees; unlike other business fields, there is no need to obtain special permits and licenses for most of the activities in the IT sector.
All of these steps are detailed below by our Romanian lawyers. Foreign investors should keep in mind that the requirements described herein apply to opening a new company or a subsidiary if they choose to do business in Romania via a locally registered legal entity. Those who are interested in setting up a branch can also do so, with the mention that although the branch may be subject to lower requirements in terms of registration, accounting, and reporting, it is also registered with the National Trade Register Office.
Choosing the activity sector
The activity sector is defined according to the CAEN Code. IT firms fall into Section J, categories 58, 62 and 63 with their sub-categories:
582 Publishing of software products
5821 Publishing of computer games
5829 Publishing of other software products
62 IT SERVICES
620 Services in the IT industry
6201 Software programming activities ( customer oriented software )
6202 IT consulting activities
6203 Management activities of computer hardware
6209 Other activities pertaining to the IT industry
63 ACTIVITIES OF IT SERVICES
631 Web portals, data processing, web page administration, related activities
6311 Data processing, web page administration and related activities
6312 Activities pertaining to web portals
A new company must have one sole Main Activity Object and more (unlimited) Secondary Activity Objects. We recommend that investors choose several secondary activity objects because a subsequent addition will imply several steps and in some cases it can be a somewhat lengthy procedure. However, investors who do decide to change the company particulars after its incorporation can request the specialized service offered by our team of agents who specialize in company formation in Romania.
Choosing the legal form of the new company
The most usual legal forms chosen by IT firms are Limited liability company (SRL) and Joint-stock companies (SA). Below, we describe the main business forms that can be incorporated in Romania:
- LLC (SRL in Romanian) are the most frequent type of IT company in Romania. This type of firm is led by the General Assembly of Associates, while the daily operations are supervised by Managers appointed by the associates.
- Start-up LLC (SRL-D): similar to the LLC, the number of shareholders is limited to 5; this type of company can be maintained for a limited time; it has to be converted to a LLC.
- Joint-stock companies (SA in Romanian) are bigger firms, with at least 2 shareholders, whose share capital is evenly divided into shares which can be nominal, or tradable.
- Commandite company: the simple and the share commandite company allow for two types of shareholders: fully liable and partly liable.
- Collective company: the shareholders have unlimited liability; however, this is not a very popular bususiness form.
The LLC or the SRL remains the most popular business form in Romania not only because the shareholders have limited liability (up to the extent of the invested capital) but also because it has a low minimum share capital of 200 RON, approximately 42 EUR or 47 USD.
All new companies must be registered with the National Trade Register Office (ONRC), a body whcih operates within Romania’s National Chamber of Commerce of Industry. Investors will also need to open a bank account with a chosen bank branch in Romania and deposit the minimum share capital. The proof of payment will be included in the documents submitted for registering the company with the ONRC.
When choosing the most appropriate business form for starting an IT company in Romania, investors can consider the following issues listed below by our Romanian lawyers:
- the number of company founders;
- the available capital;
- the taxes applicable to the chosen type of legal entity as well as the requirements for VAT registration.
- the annual accounting and reporting requirements (for example, these are generally more complex for the SA compared to the SRL).
Registering the name of the company
Before choosing the name of their future company, entrepreneurs should check the availability of the name on ONRC’s web site https://portal.onrc.ro/ONRCPortalWeb/ONRCPortal.portal. Then they will apply for a name reservation at the same institution. It is recommended to prepare more than one company name, in the eventuality in which the first option is not available.
Setting up a registered office
The new company’s HQ can be established either on its own property, or under a rental or bailment agreement signed by the company with the owner of the space, based on the name reservation certificate issued by ONRC. The costs associated with equipping the office space should be take into consideration by business owners. The experts at our Romanian law firm can help you with the rental agreement.
Establishing the Articles of association
The provisions to be included in the Articles of Association depend on the legal form chosen for the new company.
However, there are several provisions they must include, regardless of the legal form:
- main activity object,
- eventual secondary activity objects,
- name of the company and reservation number issued by ONRC.
- the names of the company directors and the administrator as well as other information.
The company formation experts at our law firm in Romania can help you prepare the Articles of Association.
Fiscal incentives granted to IT employees
The fiscal incentives granted to the employees of the IT sector have are essential to the development of this industry, as they benefit to employees and employers alike.
Companies can thus stimulate their personnel, encouraging skilled individuals to stay in Romania, rather than go to work abroad.
The legal framework is provided by the Joint Order 409/4020/737/703 regarding the employees of the computer software industry, issued in 2017 by the ministries of Communication and Information Society, National Education, Labor and Social Justice, Public Finance.
According to the document, the employees of Romanian-based economic companies that operate in the computer software industry (CAEN code 5821, 5829, 6201, 6202, 6209), enjoy the tax exemption provided by article 60, para. 2 of Law 227/2015 on the Fiscal Code, with regards to their salary incomes and incomes assimilated to salaries, under certain conditions.
The provisions of the joint order came into force on July 1st 2017 and take effect on incomes starting with July 2017.
Compared to the previous similar legislation, the Order brings a limitation that was disputed by the industry:
- the activity of each employee which enjoys the tax exemption must have generated to the employer incomes worth at least 10,000 euros or equivalent, during the year covered by the tax exemption.
IT startups are exempted from this limiting provision, as they must not demonstrate that they made incomes worth 10,000 euros per software programmer.
In order to enjoy this tax exemption, the employee must have a university diploma issued by an accredited institution of higher education, and he must be hired on a job within a specialized IT department of the employer company.
The employer is the one who is required to prepare a separate file for each employee for whom the tax exemption is applied for. The employee file will include the payroll for each individual as well as the personal documents attesting the qualifications of the employee, as stated above (proof of higher education, baccalaureate diploma and others). The documents that need to be prepared in case of the company include the following:
- the company’s constitutive documents.
- the organizational chart
- the individual labor agreement
- proof of engagement in programming activities, computer software creation activities, etc.;
- the income statement clearly stating the income derived from creating computer software.
The adequate submission of these files is important for benefiting from the tax exemption. The employer must make sure that he prepares both categories of files: the one for each employee and the one for the company. We recommend reaching out to our team of attorneys in Romania for an evaluation of the submitted documents, as well as proper counseling on this matter, so that the submission is compliant and your request will not be rejected. In the event of a tax inspection, the authorities can request the evaluation of the files for the purpose of confirming that the conditions for the tax exemption are truly fulfilled.
Romania has consolidated its position as a top location to base an IT company in the region. The recent developments in the local laws, including the tax exemptions for hiring employees, have contributed to the creation of an attractive regime. This has encouraged many foreign companies to either relocate in the country or to outsource their activities to Romania, with the said activities including actual programming and software production.
Investors can open an IT company in Romania by following a few key steps, as outlined in this article. Please keep in mind that these guidelines are only general ones and the actual process for company registration in Romania can differ and require additional steps. Because the IT sector is one that allows for certain benefits, investors will need to be prepared to also provide the authorities with the needed additional files for the employees, in order to benefit from the tax exemptions. One of our lawyers in Romania can help entrepreneurs comply with the latest requirements and legal provisions for this business sector. You can always reach out to us if you have any questions before commencing the actual company registration process.
The IT sector in Romania
According to an industry study published by the Employers’ Association of the Software and Services Industry, the following data was recorded for Romania:
- 500 million euros/year: this is the approximate relatively constant growth rate of the IT industry in Romania in recent years.
- 5,9 billion euros: the estimated market value, out of which 4,8 billion is generated by the software and services sector and 1,1 billion from other activities in the IT market.
- 7,3 billion euros: the estimated growth until 2022, a 25% growth.
- 2,7 billion euros: this is the estimated amount generated by large companies in this business field (those with more than 250 employees);
- 2,1 billion euros: the estimated revenue generated by small companies with no more than 50 employees.
- 10%: the percentage of foreign-capital IT companies in Romania that manage to generate 73% of the market value; their annual growth is a relatively stable one of approximately 12%.
According to the same source, geographical data concerning the IT sector in the country reveal that Bucharest produces approximately 63% of the revenue in the field. Other important area are the north-west regions in the country, with 18%, the central regions with 6% and the west of the territory with 5%.
Romania is also a country that records a constant growth of the number of employees in the IT industry. the average for tis is 10% per year and companies are frequently searching for specialists. According to preliminary estimates, a strong demand for IT professionals is expected in the coming years in the north-west region of the country.
Employee productivity also remains a good one in this particular business field despite the recent changes to the social security laws that make it mandatory for the employee to pay certain amounts (and the companies have absorbed this cost). One of our employment specialists at our Romanian law firm can provide more details about these recent changes.
The IT sector continues to display a reasonable percentage of growth despite the local political changes. Exports are expected to remain important in this sector, with an estimate of 78% of exports for the IT market in 2019 (according to preliminary data), representing a significant growth compared to the last two years.
Investors who wish to know more about the legal and fiscal regime for IT companies in Romania can reach out to our Romanian lawyers.
Our law firm provides solid background for all clients interested to set up an IT Romanian company.
The business team in this law firm delivers solutions indicating all necessary details referring to the process of incorporation.
Please contact one of our lawyers in Bucharest to give you a free consultation regarding your company formation inquiries.