The Romanian legal system is formalist, and recent legislative changes have turned it into an excessively formalist one.

In what sense?

In the sense that, although verbal agreements are recognized by law as contracts, a handshake is not enough. Some of the reasons are imposed by law and others by practice. For example, if a dispute arises between the contracting parties, an agreement that is not embodied in a written contract can hardly be proven and not always completely. Therefore, although the law recognizes these “gentlemen’s agreements” as valid, the parties do not benefit from sufficient legal protection.

Situations that arise in the absence of written contracts

There are situations in which people choose to make verbal agreements and then send each other e-mails. What happens with this correspondence, what value does it have if we want to prove what was established through the verbal agreement?

According to the law, correspondence is only a secondary means of evidence. In no case does it have the “force” of a written contract. Sometimes correspondence can be even harmful for the parties because people tend to say as much as possible in correspondence. Either this is completely wrong. Any correspondence of the “fluvial novel” type has the effect of distorting the initial understanding.

Even the accepted invoices are not a guarantee for obtaining a court decision to compel the debtor to pay. People need to understand that invoices are NOT a contract. They have the role of an accounting supporting document and, possibly, a notification. But it does not clarify the contractual aspects and, sometimes in litigation, they can even be successfully fought.

On the other hand, verbal agreements are difficult to prove, but also difficult to execute. For what reason? For the simple reason that we are all human.

The answer is as simple as it is complicated to take this into account.

In negotiations, people promise, make compromises, increase, etc. and, in the end, conclude an agreement. Everyone has their own image of the details. Everyone has their own image of the discussion, which most often does NOT coincide with that of the contractual partner. In a way it is normal, because two contractual partners are in reality two people with opposite goals that converge in a single point, namely that they chose each other to carry out an operation and in this way they have mutual claims.

As an exercise in imagination, let’s say that the parties agree to paint a house in exchange for a price. But he does not conclude a written contract, but a verbal agreement. They establish that the materials are included in the established price. However, during the execution of the work, the provider realizes that the material requirement is much higher than anticipated, because only with the uncovering can he notice that some additional repairs are also necessary.

What happens in this case?

The owner will probably refuse to add some costs, and the provider will refuse to continue the work because it becomes too expensive for him. However, none of them will know how to proceed if their understanding has not become a written contract. Like in the previous example, in any type of convention, elements of surprise may appear or, even if they are not a surprise, the parties may not remember the details they did not consider important at the time of the agreement.

Our advice as specialists is that any agreement, however simple it may seem, should be transposed into a written contract. And any written contract should contain the details that the parties consider important, the expectations they have from the contractual partner. However, the drafting of the contract must be left in the hands of a legal specialist. Just like health, just like in any field where expertise and an overall vision is needed, a legal specialist will know: how to draw up a contract according to the needs of his client, he will know how to guide him along a path as sure as possible, you will know how to anticipate the effects of certain commitments.

All these things are called “Preventive Attitude”.

If you are foreign investor in Romania (legal or natural person) you should be aware of the double taxation treaties that Romania has signed so that not to pay taxes in more than one country. Romania has been signing this kind of treaty since before 1989.

In 2001 Romania and the Federal Republic of Germany signed such a Double Taxation Avoidance Agreement concerning mainly taxes on income and on capital. This Agreement refers to the following types of taxes which are under Romanian tax law: tax on income, tax on profit, tax on property, tax on agricultural income, tax on dividends. In the case of Germany the types of taxes covered by the present agreement are: the tax on income, the tax on corporation, the tax on land, and the commercial tax.

The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of this Convention in addition to, or in place of, the existing taxes. Income derived by a resident of one of the countries from immovable property (including income from agriculture or forestry) situated in the other country may be taxed in that other country.

In the case of dividends paid by a company of one of the countries to a resident of the other country these may be taxed by that other country. However the rate of tax imposed by the first-mentioned Contracting State on such dividends shall not exceed 5 percent of the gross amount of the dividend.

Business profits of a resident of one of the country shall be exempt from tax by the other country unless the resident has a permanent establishment in that other country. If the resident has a permanent establishment in that other country, tax may be imposed by that other county on the industrial or commercial profits of the resident but only on so much of them as are attributable to the permanent establishment.

This Convention for the Avoidance of Double-Taxation also contains stipulations on the taxation of capital gain, independent professions, pensions etc. It is important to be noted that the stipulations of these Conventions must also be corroborated with EU regulations (applicable in Romania through the Fiscal Code).

If you are foreign investor in Romania (legal or natural person) you should be aware of the double taxation treaties that Romania has signed so that not to pay taxes in more than one country.

Romania has been signing this kind of treaty since before 1989. This is also the case for the United States of America. These two Contracting Parties have signed such a convention in 1974.

This Treaty refers to the following types of taxes which are under Romanian tax law: profit tax for mixed companies (Romanian and foreign); income tax obtained from agricultural activities; rentals; nonresidents; wages, salaries, fees, copyrights, and income from any other source received by individuals; enterprises other than mixed companies or state enterprises.

In the case of the United States, the Federal income taxes imposed by the Internal Revenue Code (other than social insurance taxes). This enumeration is not imitative.

Income from immovable property, including royalties and other payments in respect of the exploitation of natural resources and gains derived from the sale, exchange, or other disposition of such property or of the right giving rise to such royalties or other payments, may be taxed by the State in which such immovable property or natural resources are situated.

In the case of dividends paid by a corporation of one of the Contracting States to a resident of the other Contracting State these may be taxed by both Contracting States.

However the rate of tax imposed by the first-mentioned Contracting State on such dividends shall not exceed 10% of the gross amount of the dividend.

Industrial or commercial profits of a resident of one of the Contracting States shall be exempt from tax by the other Contracting State unless the resident has a permanent establishment in that other Contracting State.

If the resident has a permanent establishment in that other Contracting State, tax may be imposed by that other Contracting State on the industrial or commercial profits of the resident but only on so much of them as are attributable to the permanent establishment.

This Convention for the Avoidance of Double-Taxation also contains stipulations on the taxation of capital gain, independent professions, pensions etc.