Foreign Direct Investment in Romania: Government Efforts

The Romania government is set to launch a new agency with a strong focus on investment and foreign trade. The new agency, Arice, will be established based on InvestRomania, a subsidiary of Romania’s Ministry of Entrepreneurship and Tourism. According to George Agaftei, one of the agency’s architects and state counselor to Nicolae Ciuca, the national head in charge of the new agency, the country has developed the required investment policy and operational strategy for the new agency.

For investors in Romania and beyond, the avenue to make profits by investing in foreign assets is higher than before. The policies regulating foreign investments allow investors to make strategic investments with excellent profit potential while spending less on fees and taxes. Suppose you’re considering investing in Romania as a foreign investor. In that case, you can either invest in stocks of Romania companies, engage in forex trading by trading the Romania currency, the Romania Leu, or build a business in the country.

According to George Agaftei, the aim of Arice is on the latter, a type of investment called foreign direct investment. Investors who invest in Romania will benefit from more favorable tax rates than their home country, including high-profit returns due to more extensive market outreach.

Why Romania is launching Arice in 2023

1.  To attract foreign direct investments

The new establishment aims to enhance the operations of InvestRomania and bolster forex trading opportunities to attract high-profile investments from local and international investors. It highlights relevant business opportunities, competitive edge in doing business in Romania, and investment potential. They do this by attending international trade fairs, conducting investment conferences, and ensuring investors can find relevant information and resources.

2.    To guide investors in establishing their businesses in Romania.

Arice will also be a facilitator and guide for investors interested in creating new businesses or expanding the scope of their operations to Romania. They will ensure investors have personalized assistance, details, and direction on the investment process, legislative framework, regulations, and business environment. In collaboration with InvestRomania, the agency will also help investors navigate administrative procedures, provide introductions to relevant government agencies and local authorities, and offer support in resolving any issues or challenges that may arise during the investment process.

3.    To facilitate the promotion of innovation in specific sectors

Arice will also focus on attracting strategic investors to invest in IT, renewable energy, healthcare, tourism, software development, and research & development sectors. This move is to ensure that Romania produces more value-added products and services.

As incentives for investors and entrepreneurs, the country places zero income tax on the IT and research & development sectors. The government, through Arice, aims to engage in partnerships with industry participants, organizations, and clusters to advance the visibility of these sectors and offer personalized aid to prospective investors who demonstrate an interest in these domains.

Foreign direct investments in Romania: the journey so far

From 2012 to 2021, the most significant foreign direct investments were in the real estate and construction sectors. By 2019, the value of tangible and intangible fixed assets of FDIs in the industry sector was nearly 20.5 billion euros. Moreover, a third of the FDI was directed toward the manufacturing industry, with the most lucrative sub-sectors being automotive, transport equipment, oil processing, and metallurgy.

By the end of 2021, the real estate and construction sectors surpassed retail and emerged as the second-largest sector in FDI stock, following the manufacturing industry. The overall FDI stock climbed by 70% to EUR 100.3 bln in the same period.

However, the Romanian government now focuses on revolutionizing the direction of foreign direct investments in IT, healthcare, renewable energy, and research sectors. As of 2022 alone, Central bank data showed that FDI in Romania hit €10.7bn, the highest recorded volume. As more investors venture into FDIs in Romania, the country reaps the ripple effect via an improved economy, higher employment rates, and infrastructural development.

Top 5 reasons Romania is a suitable country for foreign investments

Here are five reasons why Romania is suitable for foreign direct investments.

1.    Startup financing

Romania provides financial assistance to early-stage businesses and startups via various funding campaigns. These campaigns focus on providing certain incentives, including financial aid from government organizations, development banks, and venture capital funds through grants, loans, equity investments, and subsidies. The Ministry of Economy, Entrepreneurship, and Tourism has developed initiatives like Startup Nation and Startup Romania to assist and fund innovative firms.

2.    Business incubators and accelerators

Romania has set up business incubators and accelerators nationwide to foster and assist early-stage businesses, specifically those in sustainable technologies. These initiatives give business owners access to essential environments where they can access office spaces, networking opportunities, and mentorship. Additionally, they provide training courses, seminars, and advice on marketing, fundraising, and business growth. TechHub Bucharest, Cluj Startups, and Impact Hub Bucharest are a few examples of well-known incubators and accelerators in Romania.

3.    Innovation and research grants

Through funding schemes and grants, the Romanian government promotes innovation and research. These grants are intended to promote technical innovation, research and development initiatives, and joint ventures between universities and industry. Organizations like ANCSI and IMT-Bucharest offer assistance and support for such innovative initiatives.

4.    Tax incentives

Romania provides tax incentives and many other favorable economic benefits to early-stage businesses to promote investment and company expansion. These incentives include tax exemptions for specific income categories; for example, income from the IT and renewable energy sectors is tax-free. They also provide tax deductions for expenses related to research and development and reduced corporation tax rates for small and medium-sized businesses (SMEs). Additionally, the government has streamlined administrative processes and lowered regulatory barriers to new firms.

5.    International cooperation

The Romanian government strongly focuses on working actively with international organizations to support its economic growth by attracting opportunities that support startups and early-stage firms. The country is part of the European Investment Fund (EIF), which offers grants to entrepreneurs and SMEs. Romania also enjoys funding for research and innovation projects from EU programs such as Horizon Europe. Startup founders are also selected as beneficiaries of the funding rounds.

Romania remains one of the most sought-after emerging economies among foreign investors. Its focus on sectors such as manufacturing, agriculture, IT, software development, renewable energy, and tourism has contributed heavily to its rapidly booming economy. The fast-paced growth can be primarily attributed to the increased international trade and foreign direct investments it has experienced since joining the European Union in 2007.