Once a decision has been made to buy an asset in Romania, whether it is the business of a company or shares of a Romanian company, other considerations then come into play. equation. As most attorneys and general counsel know, business decisions are made, and then it’s the lawyers’ job to implement those decisions.
A question to ask is when they should have been consulted or is it the lot of lawyers to have to solve problems for their clients that could have been avoided and thus ensure that the case is concluded with the minimum hassle. It is an imperfect world for Romanian transactional lawyers and therefore potential buyers should be aware of some issues which I have outlined below.
This article aims to go over some of the initial issues that need to be considered from a legal perspective. The first question is what type of transaction is it? Is it a purchase of assets or is it the purchase of shares of the company? For a non-Romanian buyer company which, by definition, is not present in Romania at the time of the purchase of shares, the transaction does not raise any immediate problems, except as described below. If assets are to be acquired, the buyer will need to be financially registered in Romania prior to closing. This also means that the buyer will immediately have a permanent establishment in Romania and that the buyer has immediately become a Romanian taxable entity in relation to the acquired assets.
This raises the question that will be asked at the start of the buying process, whether there will or should there be a local company incorporated for the acquisition. Since the incorporation of a local company or the acquisition of assets will generate a taxable entity in Romania, the identity of the acquisition vehicle depends on the requirements of the acquirer. To limit liability in Romania, it may very well be that the incorporation of a local company is the best in the circumstances.
In addition, using a company to facilitate the transaction may allow the acquirer to utilize a number of tax exemptions in the future and therefore using a company is the preferred structure. more sensible.
Some of these tax exemptions relate to the tax payable by the beneficiary company as well as by the paying company. This concerns certain income payments between the parent company and the subsidiary. For example, dividends received from or paid to a Romanian company, provided that there is a double taxation treaty in force, and that the shares of the company represent at least 10% of the issued shares and are 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 a Romanian company or a subsidiary in a other jurisdiction, provided that the transaction concerns companies located in states where Romania has concluded a treaty against double taxation.
Other tax issues that often arise relate to stock exchanges or mergers to facilitate the acquisition. Sometimes there are stock exchanges, but often the merger and split are more likely. In these cases, there is no tax problem as such, although the situation must be analyzed on a case-by-case basis.
Romania follows the most normal paths when it comes to taxation of the target company in any transaction. In most cases, since the target is a legal entity, the tax regime of the target and its tax situation will not be modified by the change in ownership of the shares of the company.
The costs of the transaction will also have to be reviewed in relation to the taxes which could be due following the acquisition. In Romania, these are limited. For the acquisition of shares or shares, the only tax to be paid will be that collected by the Official Journal for the publication of the shareholders’ resolution. These are not calculated on the value of the transaction and are minimal. However, if there are transferred assets and these assets are real estate, there will be notary fees and land registration fees. Notary fees are charged according to the value of the property. The minimum value is fixed by the notarial table of real estate values.
Another issue that could be considered by the acquiring company is the issue of interest deductibility on the funds used to finance the purchase. As a general rule, interest will not be deductible and generally applies to all businesses and is linked to the implementation of anti-tax avoidance directives. However, there is an exemption relating to self-employed taxpayers allowing full deductibility of interest and exchange losses. The issue of the availability of any tax exemptions should be carefully considered for any acquisition and the buyers finance department or independent advisors should consider this issue.
Since tax-related issues may arise after the closing of the purchase of a company or the assets, it is also prudent for the acquiring company to consider retaining a portion of the purchase price until that the total tax liability of the parties has been established. The issue of any unpaid tax liability will become apparent during the due diligence phase of the transaction and should therefore be covered in the transaction documents. Depending on the nature of the holdback, any holdback may be considered a conditional payment of the purchase price and treated accordingly.
By acting as the Romanian advisor of this type of transactions, we have found that often the questions will be resolved during the negotiation of the share purchase agreement. However, the watchword for any buyer should be to take good legal and tax advice to ensure that the whole transaction is undertaken with the minimum tax liability for both parties as permitted by law.
Hammond Partnership can trace its origins to 1990 when Nicholas Hammond became the first foreign lawyer to open an office in Romania after January 1990. Hammond Partnership brings the experience of lawyers from different legal disciplines to provide a full-service commercial law firm in Romania for foreigners and Romanian customers. With international and Romanian lawyers, they are able to anticipate obstacles, seize opportunities, resolve cases and conclude transactions. The firm’s senior lawyers have many years of combined legal experience in Romania and the UK, acquired by participating in transactions of all sizes and natures.
Nicholas Hammond (in the opening photo) is an English lawyer who has worked in Romania and practiced law since 1990. Prior to his arrival in Romania, he ran a large law firm based in the city of London which decided to open a office in Eastern Europe. He opened a law firm in Bucharest in June 1990, becoming the first law firm to be registered in Romania after the revolution. Subsequently, he transferred the Romanian office to the leading law firm in the City of London and headed their office in Bucharest for several years.
He then decided to open his own law firm in Romania, which he did and has operated and managed his own office since 2004. The firm Hammond and Associates operates under the name Hammond Partnership.
During his stay in Romania, he dealt with all aspects of Romanian law both for companies and for individuals, Romanians and foreigners. He has experience in many areas of law, but has focused on business and all aspects of commercial matters, including real estate.
He was for many years administrator of the British Romanian Chamber of Commerce and contributed to its development in Romania.
This is native content supported by Hammond Partnership.