Expert Guide on Use of outsourced IT personnel in Romania

Yes.

Yes.

Yes. 

IT staff can be hired under services or consultancy agreements. They can be organised either as freelancers (i.e. self employed individuals registered with the relevant Trade Registry) or they can use micro-companies for this purpose (small limited liability companies set up by the respective person(s)).

Yes.

It is common for teams to be hired via an outsourcing company. Further legal requalification risks could become relevant depending on the outsourcing structure. For example, depending on the operational setup/workflow, the outsourcing structure may be requalified into a temporary work agency, carried out without having a proper licence in place. In addition, the outsourcing structure could trigger a TUPE/ARD automatic transfer of IT staff from the end-client to the outsourcing company or vice versa, depending on the actual factual circumstances of the outsourcing.

There is a risk of re-qualification of such contracted arrangements into an employment relationship. This risk depends greatly on the actual factual set up and circumstances in which the IT service provider performs their work.

Under Romanian tax legislation, in certain cases the labour or tax authorities have the right to re-qualify transactions/activities carried out by individuals from independent activities into dependent activities, if certain criteria set forth in the Romanian Fiscal Code are met, e.g. if the service provider has only one client or if the service provider uses the facilities of the company or if specific conditions under the local Labour Code are met. Consequently, the same legal regime or tax regime as for individual employment agreements would apply to these services agreements, which might have a financial impact on both the company and the service provider. Hence, IT companies should be careful when using services agreements with IT personnel rather than employment agreements.

Romanian Tax legislation regulates seven “independence criteria” for an activity to qualify as an “independent activity”. At least four out of the seven independence criteria must be met in order for revenues obtained from such activity to be qualified as “independent”. If this threshold is not met, then revenues obtained from the activity will be deemed as obtained from “dependent activities”, and taxed as salary income. If the revenue had been initially qualified as independent (with the associated tax regime), but is subsequently requalified by the tax authorities as resulting from “dependent activities”, both the payor (the beneficiary of the services) and the payee (the service provider) will be jointly and severally liable for any difference in tax that should have been paid had the qualification been accurately done from the beginning.

In certain cases, service providers may also apply to a court requesting that it recognise that the service relationship in fact disguised an employment relationship.

No. 

In principle no, but it depends on the size of the team and how the personnel are to be hired, e.g. under employment agreements or services agreements. If the foreign company prefers to hire IT personnel under employment agreements, it will need to register as an employer with the local registries, such as the Trade Registry. For this purpose, it can use a subsidiary, set-up and registered in Romania as a separate legal entity, a branch, or a representative office. If the intention is to retain the personnel under services/consultancy agreements, this can be done directly by the foreign entity, but there are cases where a local presence may be necessary for tax reasons.

N/A

No.

Not recommended. Leasing an office directly without having a local presence can create the risk of a permanent establishment, and related tax risks. If the IT personnel work from such premises, this also significantly increases the risk of requalification. Such scenario should be assessed on a case-by-case basis.

Yes.

This should be assessed on a case-by-case basis given the risks related to permanent establishment and related tax risks.

An IT services agreement or consultancy agreement. This should also include IP assignment provisions. 

IP assignment agreement.

Yes, as long as the customer is a foreign entity. If both parties (intermediary and customer) are Romanian entities, payments should always be made in the local currency, RON, as Romanian law mandates this.

No. Moral rights are inalienable (among others, moral rights include the right to be recognised as the “author” of work).

Not specifically/as otherwise regulated in other jurisdictions.

Romania follows the general rule that the person who actually creates a work is the legally recognised author of that work, confirming that, for works created in the performance of duties specified in the individual employment contract, the economic rights belong to the author of the work created. However, the use of the work by the employer, within the scope of its activity, does not require the authorisation of the employee-author.

IP assignment agreement, which can be a standalone document or included in the main contract with the IT services provider.

Yes, but with caveats. 

Noncompete clauses are often used in practice, especially where the contractor is retained as an employee.  Regarding post-term non-solicitation undertakings, given recent case-law at the level of the Romanian Competition Council (and other competition regulators in the EU) sanctioning no-poach agreements, including non-solicitation clauses, as a restriction by object, these arrangements should be avoided or entered into only with prior legal assistance.

Yes.

In principle, parties should be able to choose the law applicable to the contract between them.

Certain mandatory provisions of the law otherwise applicable in the absence of choice (e.g. in a service agreement, the law otherwise applicable in the absence of choice would typically be the law of the contractual party which carries out the characteristic performance of the contract, which in this case would be the service provider)  may potentially apply despite the contractual choice of law.

Yes. 

Commonly used in practice in agreements, although not expressly regulated as such by Romanian law. They should be adjusted to local rules and concepts. The concepts of warranties and indemnities are not recognised as such under Romanian law, but there are similar Romanian law concepts which can be adapted to match these English law concepts. Additionally, they are widely used in practice in Romanian contracts, but less tested in case-law.