Structuring the investment
The acquisition of Romanian real estate is usually structured either as an asset deal (by which the real estate is purchased directly) or a share deal (by the acquisition of the shares of a Romanian company owning the targeted properties).i Asset deal
The asset deal investment may be implemented either by simple acquisition of assets or as transfer of business (ongoing concern transfer). In this later case, the acquisition includes not only the property, but also the business attached to the respective asset (e.g., movable and immovable assets, agreements, employees, trademarks).
Through direct transfer of assets from the owner to the investor, the impact of the historical problems related to the title or to the vendor is diminished or even excluded.
This way, the acquirer:
- does not take over the fiscal exposures of the current owner and the obligations from the agreements that are not transferred to the investor (outside the transfer of business);
- secures a transfer of ownership in good faith and subject only to the land book registration rules;
- may register higher expenses with the fiscal depreciation than the vendor (as existing owner) and, to this end, the acquirer would register a reduced taxable profit and, implicitly, the income tax is lower; and
- may maintain certain authorisations (attached to the transferred assets) that do not lose their validity (e.g., fire-fighting permits). On the other hand, the other authorisations (e.g., operating permits) have to be obtained again by the investor.
The taxes attached to asset deal investments are higher than for share deals. The registration tax and the notary public's fees for contract's authentication amount up to 1 per cent of the transaction price.
In case of business transfer, this percentage would apply to the entire transaction price stipulated under the authenticated agreement. The taxes may be lowered by splitting the transaction documents into a framework agreement (non-authenticated) establishing the structure of the investment and, separately, an authenticated agreement having as subject matter only the immovable assets, so the taxes are applied only to the price agreed for the immovable assets.
The existing guarantees over the transaction and the assets provided by the original contractors remain in the vendor's patrimony (except for the legal guarantees), and the acquirer shall benefit only the guarantees provided by the vendor under the sale-purchase agreement (eviction and defects).
If the vendor is only a project company, there is a risk that it will no longer conduct business after the assets' transfer and it will be dissolved. In this case, it is recommended that the risk be covered through independent contractual guarantees provided by mother companies or by title insurance.ii Share deal
The share deal consists of transferring the entity (usually a company) currently owning the real estate, by transferring the shares in the respective entity.
The most commonly used corporate structures are the joint stock company and the limited liability company.
- The joint stock company is the most complex corporate structure, composed of a minimum of two shareholders, with a minimum share capital of €25,000, in Romanian lei equivalent, and complex management rules. This is the entity suited for the investors interested in capital-driven structures and the only type of company to be listed with the stock exchange.
- The limited liability company is a more simple corporate structure, which may be incorporated even by a single shareholder, with a minimum value of the share capital of 200 lei and more simple management rules. It can have maximum of 50 shareholders.
In both corporate structures, the company's obligations are guaranteed with the company's patrimony, and the shareholders are liable only to the limit of their contribution to the share capital.
Another possible investment structure for an asset deal or share deal is the joint venture agreement. The participants bring together funds, assets or both, as contribution for developing a project, the ownership on the assets remaining in the participants' patrimony. The participants establish their rights and obligations in the agreement and appoint one of them as manager, representing the joint venture.
The joint venture does not imply the incorporation of a separate entity by its partners, so all the obligations shall be guaranteed by the participants with their contributions and their patrimony.
Although the law requires that only the asset deals should be authenticated by the notary public so as to be valid, having an agreement concluded in authenticated form confers advantages on the investor when claiming the enforcement of contractual obligations.
In some cases, various formalities should be fulfilled for a valid transaction. For example, approvals for transferring special regime real estate (historical or archaeological monuments, protected areas), approvals from guarantors or persons holding specific rights on an asset (financial institutions, other creditors) and Competition Council clearance (if the transaction meets the Competition Law conditions on minimum turnover, change of control, etc.).
The investment structure should be carefully chosen, with particular attention to the ownership history (the remnants of the communist regime still affecting the ownership titles and the owners' rights and obligations), the current status of the asset, tax regime and, most importantly, the investors' profile, protection and expectations.
As of 1 January 2014, all restrictions imposed by Romanian law on land ownership by foreign individuals and legal entities from EU Member States were removed. Moreover, land acquisition by non-EU nationals is permitted subject to reciprocity, according to international treaties; however, non-EU nationals cannot acquire ownership of Romanian land in more favourable conditions than EU citizens.
Buildings are not subject to such restrictions and can be freely owned by foreign individuals and entities, to the extent that the relevant ownership is not also attached to a land quota.
It is common practice for foreign individuals and entities to indirectly acquire and hold real estate through special vehicles in the form of legal entities under Romanian company law.
Foreign investors benefit from national favourable treatment, have access to all sectors of the economy and are granted important benefits, such as the full repatriation of capital and profits obtained in Romania, full protection against expropriation and nationalisation, and access to incentives and funds provided by EU and Romanian legislation.
In the context of land market liberalisation, a new regulation was enacted in April 2014 providing a pre-emption right in favour of co-owners, lessees, neighbouring owners (irrespective of their nationality) and the Romanian state, in this order, at equal price and in equal conditions, in case of selling agricultural lands outside locality borders.
Romania supports investments implementation throughout state aid schemes, stimulating growth and sustainable development. In 2014, a new state aid package was adopted and it will be in force until 2020. Through this, Romania will benefit from approximately €43 billion of European funds.