Sorry to you all for missing the blog post last week. The Catholic Easter and the Romanian Orthodox Easter did not coincide and therefore there was the gap. Anyway a Happy Easter to you all whenever you celebrated it.
During the last few months as previously mentioned we have seen an increase in international business activity and interest in Romania. As a Romanian law firm we often deal with the initial stages of a foreign company entering the Romanian market and are called upon to advise them.
Rather than immediately opening an office we have noticed a growing trend for foreign companies to first test the waters without setting up corporate entity or branch. Rather than using an agent they will hire a Romanian to work for them in Romania as their representative. This is a very good way to test the market especially if you are selling goods and products as distinct from services into Romania and wish to keep your cost base and liability to a minimum. By doing this you naturally limit your cost exposure as well as your liability. Appointing an employee is a first step and then later you may progress to appointing an agent or distributor or even opening your own office/branch/company. The use of a country representative is in my view a good first step and handled properly it can be very good for all concerned.
Last month we dealt with such an issue. A client was referred to us as they had a Romanian on their payroll and wish to appoint him as the area manager to look after their business not only in Romania but also in the surrounding countries. We were approached as to the best way to achieve this. The Romanian employee wanted for personal reasons to be employed under an English law contract at the same time preserving his social security benefits and paying tax in Romania.
Based on the information which we were given we were able to give advice as the best way to approach the issue. Romanian law allows a non-resident company to employ a Romanian national in Romania on a foreign employment contract provided it complies with the mandatory provisions in the Romanian Labour Code. This gives foreign employers greater scope to hire a Romanian in Romania. The areas which needed some investigation and clarity were with regard to the termination provisions in the contract as well as other benefits that were available under Romanian law. The client’s standard form of UK employee contract was reviewed and we were pleased to see that it complied with most of the compulsory terms required by Romanian law. Indeed we have noticed over the years that there is no magic in any one countries employment contracts as they all now seem to try to have a balance between the employer and the employee. With some minor alterations which the client accepted their contract could be amended.
One area that the company did need clarification on was the question of the payment of social security and tax. In the past I have warned about the tendency in Romania for the employer to talk “gross salary” and the employee to talk “net salary”. This is a fact which we always bring up in initial discussions concerning employees otherwise the whole situation can get out of control. Fortunately in the current case there had been an understanding that the Client was always talking a gross figure.
In the current case as the employee was being based in Romania then tax would be payable in Romania. The employer would be liable to pay the social security payments to the Romanian Government as any other employer and the employee would pay his income tax and social security payments to the Romanian state just as any other individual.
The only additional cost that the employer would face would be in appointing a “fiscal representative” in Romania to enable it make for them the payments for which they were liable. Fortunately there are a number of companies who supply this service and we were able to make the connection between the client and the payroll company.
We were able to deal with the Client enquiries and drafting and implementation issues because we were approached early in the matter. Often in Romania if you leave problems they do not go away but can escalate. This was not the case this time. As in all businesses planning ahead paid off.