For seven years, Law 332/2001 has been Romania’s foreign investment law and, like most of its predecessors, it was burdened by vagueness and ambiguity, primarily caused by a myriad of amendments that parliament haphazardly tacked onto it. Some of those amendments were not even enforceable because they were in direct contradiction with European legislation regarding state aid offered to investors. The framework created by Law 332/2001 was a rickety jumble of economic provisions that did little to stimulate the massive investments that Romania needs. Yet despite this unfortunate law, real economic growth in the second quarter of 2008 rose to an almost record-breaking 9.3%. The highest levels of quarterly economic growth had been registered in July-September 2004, and October-December 2004, and were 9.8% and 9.5% respectively, making one wonder whether there is much point at all to Romania having a comprehensible general foreign investment law.

Certainly, a transparent and understandable investment law that targets specific areas of the economy for investment does make sense and that must have been the government’s thinking when, on June 27, 2008, it enacted the long awaited Government Emergency Ordinance no. 85/2008 (the “GEO”). The new GEO abrogates Law 332/2001 almost entirely (except for article 18) in an attempt to create a suitable and transparent framework for the promotion of investments. It is well-focused and contains provisions which eliminate discriminatory treatment between Romanian and foreign investors, redefines the nature of the “incentives” offered and the fields in which incentives are granted, and provides for the manner in which state or local authorities can support new investments. The GEO seeks to stimulate investment in areas that are needed by Romania such as the processing of agricultural products, the provision of heat and electricity, the development of renewable energy sources, the protection and improvement of the environment, water supply, waste management, and research and development.

The rules and regulations pertaining to investments made under the old law remain applicable to those investments, but the supervision of their proper enforcement by the authorities in charge of granting the incentives is now done in accordance with the new GEO.

Principles of the GEO

Romania now has an investment law that promotes a competitive investment environment providing incentives to registered investments with transparent and systematic procedures through which local or foreign companies can easily register; one that contains a variety of fiscal and non-fiscal incentives targeted to preferred areas of investments, export production, and the rehabilitation or expansion of existing operations. Qualified projects, depending on their category, are granted a number of incentives, including income tax holidays, tax credits, tax exemption for materials and equipment and job creation, and lower interest rates for loans. Investors are assured of the right to repatriate profits and earnings, the repayment of foreign loans and interest, and freedom from expropriation in accordance with the relevant bilateral conventions concluded by Romania with their respective country of origin. In order to stimulate investments, the GEO sets forth a series of principles in Article 2, as follows:

i) The first principle is that of the equal treatment of all investors. Romania must treat and analyze all investors equally and in a non-discriminatory manner. In the different versions of former Law 332/2001, as amended, there had been several provisions that favored foreign investors over domestic ones with fiscal tax exemptions and deductions. These were meant to attract foreign investors to Romania but they also fostered a discriminatory anti-competitive business environment that created a less than level playing field for domestic competitors in effected industries. The new GEO provides for no discriminatory treatment whatsoever and is in accordance with the relevant European legislation.

ii) Transparency – the procedures regarding the grant of incentives should be easily available to all the interested parties. In accordance with this principle, state incentives are published on the websites of the authority granting them, as well as on the web site of the Romanian Agency for Investments.

iii) The efficient use of incentives – in granting the incentives the authorities have to apply certain criteria for granting such incentives and follow their implementation. The investment should not detrimentally affect the community or damage the environment. The investment should also promote sustainable economic development. Thus the authorities have to make certain that the incentives they grant will be used efficiently in aid of the Romanian economy.

iv) Confidentiality – the entire procedure regarding the grant of incentives to investors must assure the protection of their intellectual property rights and of all data that could jeopardize their interests.

Investments – a new view

The GEO redefines the term “investment” and, as a consequence, the investor. Law 332/2001 refers only to direct investments that have a significant economic impact, while the GEO enlarges the applicability of the term “investment” by eliminating the requirement that it be “significant”. While Law 332/2001 was applicable only to investments greater than US$1 million, the GEO removes the US$1 million threshold and is applicable to all investments falling under its scope.

The GEO deems the following activities to be investments:

a) Acquiring tangible and intangible assets in order to create a new undertaking; the expansion of an existing undertaking; the fundamental improvement and diversification of the production of goods; acquiring fixed assets by an independent investor that are directly linked to an undertaking that is liquidated or would have been liquidated without the above mentioned acquisition activity;

b) The initiation of research and development projects and innovation;

c) The creation of new jobs and/or perfecting the skills of employees;

d) The initiation of renewable energy, environmental protection and sustainable development projects.

Noteworthy is that applicable investments includes the expansion of research, development and innovation, seeking thereby to create the resources for the Romanian economy’s further growth.

Incentives - redefined

The GEO defines incentives as support measures granted to investors by state or local authorities or by other agencies that administer national or local resources. In the past, incentives were granted as exemptions from taxation or as tax deductions, but the new GEO enriches the notion of incentives by adding cash and in-kind contributions, and bonuses granted by the state. Incentives may be granted in the form of: a) non-repayable financial grants if they are used to purchase assets; b) financial contributions from the state’s budget for each newly created job; or c) lower interest rates when obtaining credits.

Targeted Areas of Activity

Law 332/2001 was applicable to all direct investments, except for the financial, banking, insurance and reinsurance fields and, investments harming the environment, national security and defense, or public safety and moral order. The GEO’s scope of activities for investment is specifically targeted to the following fields: the processing of agricultural products; renewable energy; protection and improvement of the environment; drinkable water distribution, sanitation and waste management; informatics and communication; activities of research, development and innovation of new products; and activities improving and enhancing the labor force, for example training, recruiting, and new employment.

Granting incentives

In order to grant incentives, the state authorities have to issue decisions or administrative acts regarding the programs of state incentives or individual incentives (i.e., for applicants outside the government program) they wish to implement. Such programs have to be published both on their web sites and on the web site of the Romanian Agency for Investments and in the Official Gazette of Romania. The state incentive programs include the types of activities to which the investments must apply; the categories of investments for which incentives can be granted, and their value; and the types of incentives that can be granted under the respective program.

Conditions to be met

The investment and the investor must meet certain conditions in order to benefit from incentives. Some investment conditions are closely related to the economic features of the place or locality where the investment is to be made such as one in an area of low economic development or a higher unemployment rate than the national average. Other conditions are related to the purpose of the investment such as building or modernizing infrastructure, investments based on research, development and innovation or which require hi-tech, use renewable energy, assure the protection of the environment or are meant to provide better professional training for their employees or generate new jobs.

If an investor considers making an investment in Romania for which he wants to obtain certain facilities under the GEO he has to submit his investment project together with the request for incentives to the competent central or local authority. He has to submit such application prior to the actual implementation of the investment project. In case the investor is considering investments that fall under the scope of one of the previously published and approved state incentive programs, the authority simply verifies whether the investor fulfills the criteria for receiving the incentive and approves or denies his application. However, if the investor is requesting incentives that fall outside of an approved state incentive program, i.e., for individual incentives, upon the receipt of his application, the competent central or local authority may issue a letter of intent addressed to the investor regarding the incentives. Such incentives as provided by the letter of intent are conditioned upon the prior approval of the European Commission before the investment project can be implemented. This is because the European Commission is the only authority competent to approve state aid in the member states.

There are additional conditions that an investor has to meet. One of them is that the investor does not have any debts to the state budget. Another condition is that the investor has not benefited from any state guaranteed loans in the past. A third condition is that the investor has not asked the Ministry of Economy and Finance to pay the sums due for internal or external credits previously guaranteed by the state. The investor must not be undergoing enforcement procedures or be the subject of an insolvency or dissolution procedure. The last condition to be met is that the investor must not be subject to a recovery decision having as its purpose the recovery of state aid.

The investor – incentive provider partnership

The Romanian Investment Agency (hereinafter the RIA) represents a focal point for both the investor and the central or local authorities. The purpose of this institution is to facilitate contacts between the investor and the central or local authorities. The RIA also has an active role through its prerogative to counsel and assist the investor, upon request, concerning the program that can be used to obtain incentives. Moreover, the cooperation between the RIA and an investor may be based on a protocol (upon the investor’s request) that contains the necessary support measures for the investment project, the competent authorities involved, eligibility criteria and other issues. In order to benefit from incentives, the investor has to submit to the central or local authority a request for incentives, an investment plan and the entire documentation as provided by the chosen state incentive program. The competent authority must analyze the documentation, assess whether the conditions are met and issue its preliminary approval within 30 working days from the date of submission of the request containing the complete documentation. The competent authorities need to also inform the RIA of the decision.

Investors’ projects may not fit into an already established state incentive program. In this case there is another possibility, i.e., to submit the investor’s plan and documentation to the authorities. In such a situation, the competent authorities will analyze and then determine whether the investor may benefit from a different form of state incentives (outside an existing incentive program), adapted to the particular case. In order to benefit from such individual incentives, the investor and his investment must meet the same conditions as when applying within an existing state incentive program.

Law 332/2001

As previously noted, the GEO abrogates all of the provisions of Law 332/2001 except Article 18 regarding companies that have made investments which have exceeded US $1 million. Article 18 provides that if these companies are voluntarily liquidated within a period of less than 10 years, they will be obligated to pay all the taxes due for the entire period of time for which the investment was functioning, as well as penalties for all taxes and fees that would have already been paid if the investor had not benefited from the incentives. These sums are to be paid with priority from the sums obtained from the liquidation process.


One of the most important innovations of the GEO is the equal treatment provided for all investors regardless of whether they are foreign or domestic. The procedures that have to be followed and the conditions that must be met are the same for everyone, as are the benefits that can be obtained from state incentives. Prior to the enactment of the GEO, foreign investors had more privileges and as a consequence of this discriminatory treatment, Romanian business operated at a competitive disadvantage. The new GEO, which clears the misty clouds that shrouded Law 332/2001, should direct Romania’s economic boom towards areas of investment opportunities that are most beneficial to the economy and provide greater attention to research, development and innovation which are the backbone of any growing economy.

The article was published based upon approval of:

Rubin Meyer Doru & Trandafir