Some matters to consider on acquisitions in Romania
Once a decision has been made to purchase an asset in Romania be it the business of a company or shares in a Romanian company other considerations then enter into the equation. As most lawyers and general counsels know, commercial…
Once a decision has been made to purchase an asset in Romania be it the business of a company or shares in a Romanian company other considerations then enter into the equation. As most lawyers and general counsels know, commercial decisions are made, and then it is the lawyers' job to implement such decisions.
One question to be asked is when they should have been consulted or is it the lawyers' lot to have to solve problems for their clients which could have been avoided and thereby ensure that the deal is completed with the minimum of fuss. It is an imperfect world for Romanian transactional lawyers and therefore potential purchasers need to be aware of certain issues which I have outlined below.
This article is intended to review some of the initial problems which need to be considered from the legal perspective. The first question is what type of transaction is it? Is it an asset purchase or is it the purchase of shares in the company? For a non-Romanian corporate buyer who by definition has no presence in Romania at the time of the purchase of shares the transaction does not raise any immediate problem except as outlined below. If assets are to be acquired the buyer will need to be financially registered in Romania before the closing. This will also mean that the buyer will immediately have a permanent establishment in Romania and the purchaser has immediately become a Romanian taxable entity in relation to the assets acquired.
This begs the question that will be asked at the beginning of the purchase procedure which is will there be or should there be a local company incorporated for the acquisition. As both the formation of a local company or the acquisition of assets will generate a taxable entity in Romania the identity of the acquisition vehicle is down to the requirements of the acquirer. To ring fence liabilities in Romania it may very well be that the incorporation of a local company is best in the circumstances.
Further the use of a company to facilitate the transaction may allow the acquirer to utilise a number of tax exemptions in the future and therefore the use of a company is the most sensible structure.
Some of these tax exemptions are in relation to the tax payable by the recipient company as well as the paying company. This is in relation to certain income payments between the parent and subsidiary. For example, dividends received from a Romanian company or paid to it, provided that there is in force a treaty against Double Taxation, and the shares in the company are at least 10% of the issued shares and have been held for at least one year means that there will be no withholding tax. The same type of exemption applies if there is income from a valuation, revaluation sale or transfer of shares of either a Romanian company or subsidiary in another jurisdiction provided the transaction is in relation to companies in states where Romania has a Treaty against Double Taxation.
