Against the backdrop of declining global demand, ongoing trade tensions and significantly reduced growth in the Eurozone, the forecast for the evolution of foreign investments is optimistic in 2020. EU membership, fairly good international relations, low public debt, a competitive industrial sector and an adequate business environment are positive things to be considered by investors, says Business-Review.eu.
An important question regarding the evolution of investments in 2020 is whether the value of IT&C FDI will increase. In recent years, fiscal facilities have stimulated foreign investments and kept the Romanian IT industry competitive, in a race for investments with other countries that have zero income taxes for programmers, such as Ukraine, Poland or Belarus. The deficit in IT workforce at the EU level is so great that the elimination of fiscal facilities could result in a massive reduction in the number of specialists in the country, and a major negative impact on inbound investments (FDI).
In Romania, there has been a lot of talk lately about tax facilities in the IT field, and some have even floated the idea of eliminating them. It is premature to say whether these tax facilities will in fact be eliminated, but a debate on finding a new competitive advantage for Romanian IT is needed in the context of the competition with countries in the region to attract foreign investors.
A possible solution would be in the field of Research and Development. From a government’s point of view, economic growth and attracting foreign investment remain the main objectives, and the levers used in other countries have mainly been related to fiscal policies applicable among players in the R&D field. Other countries introduced extremely attractive fiscal measures in 2019, for example Indonesia, which announced generous tax deductions of up to 300 percent for activities carried out on its territory. Other examples we can mention are: Singapore’s increase in the value of tax deductions of up to 250 percent of expenses, respectively 200 percent in Poland, according to the “Worldwide R&D Incentives Reference Guide 2019” global study by EY.
“However, countries such as Italy have introduced two less generous measures since the previous fiscal year, namely the obligation to certify cost efficiency and the technical report to describe the R&D activities carried out by a company,” said Claudia Sofianu, partner in the Tax and Legal Assistance Department at EY Romania.
Can Romania attract a new car manufacturer?
2020 should be the year during which a new plan is developed to attract a third car manufacturer to Romania, adding to Renault in Pitesti and Ford in Craiova, in the context of Romania having lost out on three major investments in the sector over the past ten years. Volkswagen possibly picking Romania as the location for a new multi-brand vehicle assembly plant was widely debated last year.
Besides some important advantages that a country could offer to an automaker – infrastructure, a competitive labour force and a large network of original equipment manufacturers (OEM) concentrated in the region – the strategy to attract a new investor in the automotive sector will need to include projects such as: a dual schooling system to train human resources in cooperation with the academic and research environments, state aid for utilities through the setup of an “industrial park” comprising the factory and several component suppliers, and the creation of a dedicated center for Research, Advanced Technologies and Digitisation.
On a global level, Romania needs strategic thinking regarding the development of its car industry, including a digital component. This is necessary in the context in which the European Union is lagging behind other global competitors (US, Southeast Asia), not so much in terms of production, but rather in the digitisation of products and processes.
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