|  2017-01-13

An insight into the professional services market in 2016

We see a growing interest of Romanian entrepreneurs to outsource financial, accounting and tax services to professionals.





1. As Rödl & Partner is a multidisciplinary company with contributions to audit services, accountancy services, human resources, fiscal, business and legal consultancy; which of these sectors has performed the best in 2016 and why?

In 2016, the best performing sectors were the tax consulting, transfer pricing, financial and accounting services. The constant legislative changes and new regulations that sometimes must be enforced immediately, the heavy, constraining and unclear tax system, as well as the difficulties in obtaining legal provisions in a foreign language when addressing fiscal issues to the competent authority in Romania are the main elements that determine potential investors to turn to a professional company specialized in tax consulting.

Moreover, we see a growing interest of Romanian entrepreneurs to outsource financial, accounting and tax services to professionals, thus avoiding and preventing a series of misinterpretations of the law and ensuring a higher confidence and certainty, in the context of the legislative instability. Also, due to the recent legislative changes in 2016 related to transfer pricing, we see this as a potential business line growth in the future.

2. What do you tell your clients about an economy which is growing at almost 5%/ year in terms of risks and opportunities?

Most of our clients base their decision-making on sound research processes, in order to come up with an educated decision before investing in Romania or expanding their existing business. According to the data confirmed by the National Institute of Statistics in October, in the second quarter, the Romanian economy grew by an almost eight-year high of 6.0% based on high consumption. In terms of opportunities, the Romanian economic climate reflects a stronger demand for labour and a good chance to develop and stimulate investments. At the same time, the risks are related to the quality of growth, the main problem being that the growth is based on consumption.

3. How have you perceived the business appetite in Romania in 2016 and what are the perspectives for 2017?

We are confident that the general trend of economic growth will be maintained in 2017 and its positive impact on the business environment, felt in 2016, will continue the next year even if the International Monetary Fund warns that the economic growth registered this year in Romania will be followed by a slowdown to 3.8 percent, slightly over the 3.6 percent advance forecast in April. Even so, Romania is expected to register next year the highest economic growth pace in Europe.

Another good news is the decline of the unemployment rate. According to IMF, the rate dropped from 6.8 percent in 2015 to 6.4 percent in 2016, and it’s expected to reach 6.2 percent in 2017.


Although the IMF estimations for this year regarding the evolution of consumer prices in Romania have been updated from minus 0.4 percent in April to minus 1.5 percent at present, placing Romania among the top positions in Europe in respect to the negative average of annual inflation, for 2017, the IMF expects a positive consumer price index in Romania, registering an increase of 1.7 percent.

We also consider the growing potential of other important regions in Romania, development opportunities that can have a significant contribution in reducing regional disparities and encourage interregional competitiveness. We take for example Cluj–Napoca, which has always been an important destination for foreign investors, being among the top cities in Romania to do business in and increasingly attractive in terms of real estate.

4. From your own/ your clients’ experience, which economic sectors – from the ones mentioned above – will register growth in 2017?

Apart from the IT sector, which over the past years has proved to be a constant driver of Romania’s economic growth, agriculture and public investments are going to be under close scrutiny next year, since they can generate a substantial amount of sustainable growth over the next years. Plus, we consider that the automotive industry, one the most important engines of economic growth, will most likely continue to consolidate. We also appreciate that the real estate market in Romania will go forward with its positive trend. Services and industry are likely to generate the most significant contribution to the real growth of the GDP for this and next year.

5. As we have witnessed a large decrease in the VAT rate in Romania in 2016, how would you characterize this measure: opportunistic, required, unnecessary or mandatory? Please explain your option.

The new and differentiated VAT rate for food products and non-alcoholic drinks was one of the biggest retailing events of the past years in Romania, as it has been reduced from 24% to 9%, enforced starting the 1st of June. Along with other tax changes, the 1st of January 2016 also marked the decrease in the general VAT rate, from 24% to 20%.

Since the previous rate was intended as a measure to increase public revenues during the economic crisis, the recently decreased rate aims to support domestic consumption and the overall economic growth in Romania, but also to support electoral strategies, considering the two series of elections in 2016 (local and legislative). Moreover, 2017 is expected to bring an additional VAT rate reduction, decreasing the tax to 19%, back to the rate applied in 2010, before the original increase.

The previously mentioned tax reduction from 24% to 20% has been heavily covered by the media in 2015, as Romania applied one of the highest VAT rates in Europe. This lead to growing consumers’ expectations, but through the perspective of the macroeconomic environment of Romania, it is believed to have minimal effects and to be less significant than desired.

Non-grocery products registered a 3% drop in the retail price, reflected in the new values displayed by retailers in early 2016 and welcomed by customers, however it has had an insufficient effect in changing buying habits, with an insignificant influence in consumer migration to higher priced products or even in consumption increase.


6. Real estate is one of the business sectors you are supporting. How do you perceive this sector in 2016 and what are the perspectives for 2017?

As we already mentioned above, the real estate market has recovered and will continue the positive evolution. According to the CBRE Romania report, for the first half of 2016, the investments in this sector registered the highest level of the last 5 years. Moreover, it is noted that, for H1 2016, the total investment volume was over EUR 359 million, compared to approx. EUR 107 million, registered in the same period of 2015. Investment, office and industrial markets are expected to have a significant growth.

The highlight of 2015 was the investment market, which registered a significant revival in transactional activity for the first time after the crisis, showing an increased investment interest in Romania through new market entries and solid transactions. The outsourcing sector dominated the office segment, as local market opportunities attracted companies to enter the market or to develop their activity.


7. Do you feel there are barriers left for the foreign capital in Romania? Do you see any business barriers for the national capital in Romania?

According to the latest survey conducted by the Chambers of Commerce representing the German economy in Central and Eastern European countries, Romania remains a trustful investment destination for German companies. Foreign investors believe that the economic climate, the prospects for the Romanian economy and personal expectations regarding their own business have improved compared to last year. The efforts to access more European financing stand by the recent improvements in the absorption of EU funds. The Romanian government has engaged, as a priority objective, to absorb 80% of the EU funds allocated in the budget for 2007-2013. A business barrier that Romania is facing lately is the lack of workforce. We have companies investing in Romania, in the central and Western regions, which are seeking for workforce in neighboring countries.


Due to the multifaceted investment climate, potential investors in Romania are advised to perform careful due diligence before making any investment. However, significant progress has been made by the Romanian government in recent years, in an effort to enhance transparency, improve tax administration and collection, while supporting a legal framework favorable to foreign investment.


In order to increase the level of foreign direct investment attraction and retention, a higher progress must be made in eliminating heavy bureaucracy and in reaching economic stability, transparency and predictability.


8. What should we expect and what should we not expect from the new fiscal, accountancy and audit regulations in 2017?

Regarding accounting regulation, no significant changes are expected in 2017, but rather some adjustments intended to clarify certain accounting treatments that can lead to misinterpretation. The accounting policies and procedures have already been stabilized through the adoption of Order 1802/2014 of December 29, 2014 which provides the Accounting Regulations on the annual individual and consolidated financial statements, rules which aim to be compliant to the International financial reporting standards (IFRS).

In the audit sector, we foresee that the standards regarding the performance in financial audit applied by the Chamber of Financial Auditors of Romania (CAFR) will continue to be aligned with the changes that are carried out at European level in the next period. An important public interest project, which affects the audit profession in Romania, is the new audit reform based on the Directive 2014/56/EU of 16 April 2014 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts. The audit reform has the role to strengthen the financial stability of the Public Interest Entities (PIE) and consolidate public trust in the audit profession. The Directive was under consultation until 7 November, 2016. Rödl & Partner is an active member of the CAFR working group and contributes to the development audit profession in Romania.

Some of fiscal changes expected in 2017 are already mentioned in the current Tax Code. We believe that upcoming elections will more likely influence the tax structure and bring new fiscal changes, depending on the tax measures adopted by the future government.

9. What is Rödl & Partner’s message for the Romanian business environment?

The country’s economy is developing, as proven by the latest positive macroeconomic indicators, which underline diversity, complexity, European and international standards and global connectivity in many sectors. Romania remains a successful destination for foreign investors due to its undeniable strengths, such as dynamic economic environment and skilled human resource, offered by various prestigious educational institutions, able to provide highly qualified workforce. Furthermore, measures are prepared by the government to support companies in order to develop vocational schools to solve training issues. As well, the current economic climate and the future prospects of the Romanian economy are above Central EU average, even if problems persist in certain poorer regions, in the transport infrastructure sector, as well as in health and education.


We believe that a predictable, level playing field and a stable business, political and legislative environment is the key to progress for Romania, guaranteeing stability and grow potential also for investors.


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