The existing Romanian legal system is the result of economic, social and structural reforms that started at the beginning of 1990.
The Romanian legislation is still in a continuous process of modernisation with a view to Romania's accession to the EU which is currently estimated for 2007.
Constitutional Structure
Constitution
The Romanian Constitution was adopted following a free and public National Referendum on 21 November 1991 and was revised on 29 October 2003, also upon approval by National Referendum.
The Constitution sets out the main principles of the structure of the state, the powers granted to state bodies, both the economic and social rights and the civil and political rights of citizens and provides legal guarantees for the observance of these rights by third parties and by public authorities.
More than ten years after its adoption, the Constitution was amended in order to remedy defects which have been raised both by society generally and by legal academics. The revision of the Constitution was also focused on providing principles that are in accordance with the European acquis.
The Law for the revision of the Romanian Constitution (published in the Official Gazette of Romania, part I, no. 171 of 22 September 2003) was passed on 22 September 2003 and subsequently ratified by a National Referendum in October 2003.
The Structure of the State
Romania is a sovereign, independent Republic. The country is organised from an administrative point of view into communes, towns and counties. By law some towns are designated as municipalities.
The Constitution provides the general powers which are vested in the state public authorities. Accordingly:
- the Romanian Parliament is the supreme representative body of the Romanian people and the legislative authority of the State,
- the President of Romania represents the Romanian State in international relationships, and is a guarantor of the observance of the Constitution and the proper functioning of the public authorities;
- the Government ensures the implementation of the domestic and foreign policy of the country, and carries out the general management of public administration.
The Powers of the Executive
Under the Romanian Constitution, the President of Romania and the Romanian Government are the Executive powers.
The President of Romania performs two functions as head of the Romanian State and head of the Executive branch. In his capacity as head of the Executive, the President of Romania is the Commander-in-Chief of the Armed Forces and presides over the High Council of National Defence.
The Romanian Government consists of the Prime Minister, Ministers, and other members established by law. As a part of the Executive, the Romanian Government carries out the general management of public administration. In order to carry out its executive powers, the Government has the right to issue Ordinances, Emergency Ordinances and Decisions.
Legislative Process
In accordance with provisions set out in the Romanian Constitution, Parliament passes three types of laws which are constitutional, organic, and ordinary laws. The Government issues Ordinances, Emergency Ordinances and Decisions.
Organic laws provide regulations in specific fields set out in the Constitution (e.g. the electoral system; the organisation and functioning of the political parties; the general legal status of property and inheritance etc.).
Ordinances are subsidiary legislation in that they are issued only pursuant to a Law which has been passed by Parliament authorising the issue of such Ordinances. Ordinances can only be issued in areas outside the scope of organic laws (ie pursuant to ordinary laws). In exceptional cases, the Government may adopt Emergency Ordinances.
As subsidiary legislation, governmental decisions are issued only for the purposes of organising the implementation of laws.
The Romanian Parliament consists of the Chamber of Deputies and the Senate. Following the revision of the Romanian Constitution, the Chamber of Deputies became "the first chamber", i.e. the chamber that passes at first instance laws regarding the adoption of the international treaties, and organic laws in specific fields. The Senate represents the "decisional chamber" that passes the final form of the laws.
The legislative initiative lies with the Government, Deputies, and Senators, but is also open to a minimum number of citizens having the right to vote. Currently, upon the amendment of the Constitution, the minimum number of citizens is 100,000.
Citizens are not allowed to take the legislative initiative in the following areas: taxation, international affairs, amnesty or recommendations of mercy.
The Government carries out its legislative initiative by submitting drafts to one of the Chambers of the Parliament.
Organic laws must be passed by the majority of members of each Chamber, whilst ordinary laws must be passed by the majority of members present when the vote is taken.
In all cases, laws passed by the Parliament are submitted for promulgation to the President of Romania.
Judicial System
The judicial system in Romania is administrated by the High Court of Justice ("Inalta Curte de Casatie si Justitie") and by the other courts established by law.
As a civil code the Romanian court system is not a precedent-based system and, therefore, whilst precedents may be presented to the court as examples of solutions in similar cases, the court is not bound to observe such precedents.
Also, the Romanian court system is not a jury-based system and, accordingly, the Romanian courts consist only of judges.
The Romanian court system is organised into three levels:
- Local courts (i.e. "Judecatorie" and "Tribunal") – organised in each County and in Bucharest;
- Courts of Appeal – in Romania there are 15 Courts of Appeal; and
- the High Court of Justice.
In some specific trials, the court hearings must be attended by a prosecutor attached to the Public Ministry.
Disputes regarding taxes are, as a general rule, deferred, in the first instance, either directly to the Romanian ordinary courts (administrative contentious sections) or to specialised departments organised within the Ministry of Public Finance, with subsequent recourse to the competent courts.
Proceedings in front of the Romanian courts are regulated by the Code of Civil Procedure, (as amended).
Following recent amendments to the Code of Civil Procedure in both civil and commercial litigation the competent courts at first instance are either the Judecatoria or the Tribunal, depending on the value of the claim.
Court decisions issued by the Judecatoria and the Tribunal can be appealed by way of submitting an appeal application to the Court of Appeal. The High Court of Justice is the competent body as regards appeals against decisions issued by the Courts of Appeal at second instance. The decisions issued by the High Court in judging second appeals are binding on the lower courts as to the legal issues and the evidence that must be produced in front of them.
Tribunals also have jurisdiction at first instance in matters concerning labour claims, administrative complaints lodged against local administrative bodies, industrial property, enforcement of decisions issued by foreign courts etc.
Commercial disputes may be referred to arbitration if it is agreed by the contracting parties. In such cases, the proceedings are governed by the special regulations provided for under Book IV of the Code of Civil Procedure and Decision No. 3/10.091999 issued by the Board of the Court of Arbitration.
Arbitration is a private procedure referred either to a sole arbitrator or to an Arbitral Tribunal.
In 2001 the Government introduced a summary payment procedure. The summary payment procedure is an expedited debt recovery procedure applicable only in cases where the claims are related to overdue debts under a contract signed by the debtor, or in other written instruments set out in the law (eg. invoices, commercial correspondence etc.). When the judgment at first instance becomes final, the creditor has the right to enforce its claim against the debtor through the judicial enforcement agents.
Specific regulations on the enforcement of decisions issued by foreign courts are provided under Law no. 105/1992 on private international relationships.
Ensuring the conformity of laws and Ordinances with the Constitution is vested in the Romanian Constitutional Court.
Basics of the Civil and Commercial Law System
The Romanian legal system is a codified system strongly influenced by French legislation.
The main Codes are:
- Commercial Code of 1887;
- Civil Code of 1864;
- Code of Civil Procedure of 1865;
- Customs Code of 1997;
- Fiscal Code of 2003;
- Fiscal Procedure Code of 2003.
Recently, a new Fiscal Code has been enacted by the Romanian Parliament and entered into force on 1 January 2004. The new Fiscal Code replaces the existing tax legislation on personal income tax, profit tax, micro-enterprises tax, representative office tax, tax on foreign income, VAT, excises and local taxes.
Apart from regulations governing civil and commercial relationships generally, there are also specific codes such as the Labour Code, Customs Code and Air Code.
Tax Legislation
The legal framework on taxation is mainly given by the newly enacted Fiscal Code.
The main taxes are as follows:
- Profit tax: The general tax rate of Profits Tax is 25 % calculated on the accounting profit. Representative offices are taxed at a fixed amount of Euro 4,000 per year.
- Value Added Tax (VAT): The rate of VAT is 19% although some specific products and services are not subject to taxation. The new Fiscal Code also introduced the reduced VAT quota (9%) for pharmaceutical products, editing and sale of books, newspapers, magazines and educational materials, hotel accommodation, entrance to museums, historical monuments, for proteases and orthopaedic products.
- Excise Duties: Excise Duties are owed on sales or importation of specific goods (eg. alcohol, coffee, tobacco, mineral oil, oil and gas). The tax varies for each product.
- Land and Property Taxes: Land and Property Taxes are provided by Title IX of the Fiscal Code and the rate depends on the location of the property.
- Personal Income Tax: Currently the rates depend on the level of income.
A wide range of incentives have been granted to investments which have a significant impact on the economy, investments in disadvantaged zones and in free trade zones, and for production and related activities carried out in industrial parks. There are also incentives available to small and medium enterprises (SMEs), oil and gas incentives and customs incentives.
Foreign Investment Legislation
Romanian law currently provides for two types of investments (i.e. direct investments and portfolio investments) and prescribes the principle of non-discrimination between foreign and local investors. In 1999, the tax incentives provided by Government Ordinance no. 92/1997 were suspended by Law no. 36/1999 regarding the State Budget.
As provided under Law no. 332/2001, investments are considered as being significant if their value is more than USD 1 million. That Law also provides specific incentives applicable to significant direct investments (the said incentives refer to custom tax exemptions, favourable VAT payment rules, the possibility of carrying forward losses for five years etc.).
Romania is a party to a number of international treaties for the avoidance of double taxation.
The Government's Programme for 2001 – 2004 has established the main objectives to facilitate Romania's accession to European Union. The most significant projects seek to:
- improve the business environment and to assure that trade relationships are governed by competition rules;
- enact a law providing that each new act regarding investments shall be published, in order to avoid discretionary interpretations of its provisions, that may be made by administrative authorities;
- provide regulations in order to increase free capital trade, according to the current tendencies in the European Union;
- provide regulations for the development of the utilities sector;
- enact new acts regarding agriculture;
- promote measures for the development of transportation infrastructure;
- improve legislation on IT;
- finalise the privatisation process;
- provide regulations for the support of small and medium enterprises;
- take measures for the development of international trade relationships.
