Tel Aviv Conference – 24 February 2011

1. Romania-Israeli Business Opportunities through Cypriot Holding Companies- Israeli Tax on Overseas Investments Tel Aviv Conference – 24 February 2011

2. Romania – General Overview • Geographical location • Population • Political Environment • EU accession • Language, currency, time zones • Economic background

3. Geographical location • Romania is situated in the Southeastern Europe, North of the Balkan isle, at half distance between the Atlantic Coast and the Urals, inside and outside of Carpathians Arch, on the lower course of Danube. • With an area of 238,391 square km, Romania is the twelfth largest country of Europe. • Bordered by R.Moldavia, in the East, Ukraine to the North, Hungary and Serbia to the West, Bulgaria to the South, Romania sits at the crossroads of many traditional commercial routes. • The access to the sea enables connections with countries in the Black Sea basin, Mediteraneean basin and, by means of this, with the rest of the world.

4. Population • Romania has a population of 22,215,421 (estimated at the middle of 2009) with 89.5% Romanians. • The largest ethnic minorities are Hungarians (6.6%) and Roma or Gypsies (2.46%). • Ukrainians, Germans, Turks, Tatars, Serbs, Slovaks, Bulgarians, Greeks, Russians, Jews, Croats, Poles, Italians, Armenians, as well as other ethnic groups, account for the remaining 1.4% of the population. • Also, in 1924, Romanian Kingdom had 796,056 Jewish population. After 2002 there were 6,179 Jewish people counted.

5. Political environment • Romania is governed based on multi-party democratic system and segregation of the Legal, Executive and Judicial Powers. • The Constitution (amended in 2003 for conformity with the EU legislation) states that Romania is a semi-presidential democratic republic, where executive functions are shared between the President and the Prime Minister. • The President is elected by popular vote, for a maximum of two terms, and since 2003, one term is five years. • The President appoints the Prime Minister, who in turn appoints the Ministers, with the approval of the Parliament.

6. EU Accession • The country’s adhesion to the European Union in 2007, had a significant influence on its domestic policy. • As part of the process, Romania has instituted reforms, including a judicial reform, increased judicial cooperation with other member states and measures to combat corruption. • As a EU member, Romania has all the rights guaranteed, and also specific obligations.

7. Language, currency, Time zones • The official language is Romanian, an Eastern Romance language related to Italian, French, Spanish, Portuguese and Catalan. • The Romanian language is the mother tongue of around 90% of the country’s population. • The main foreign languages used in Romania are: English (5mil), French (4.5mil), German (1.5mil), Italian and Spanish (1.5mil) • The unit of currency is RON (Romanian LEU) and “BAN” is its sub-division. • Time zone is East European Zone time (GMT+2). • Romania lies in the same time zone with Israel. • Romania uses the metric system, in force since 1866.

8. Economic Background • After a GDP fall of 7.7% in 2009 and a slowdown of foreign direct investment, Romania is expecting the recovery in 2011, following the international financial trends. • According to the recent World Bank Report, Romania currently ranks 47th out of 181 economies, scoring higher than other countries in the region. • After the accession to the EU on January 1st 2007, the Romanian economy continued the process of substantial transformation, in order to consolidate the macroeconomic stability; the main directions in this regard were to achieve a high growth of the economy, low unemployment and declining inflation, enforcement of the financial discipline and fiscal sustainability.

9. ROMANIA – AN INVESTMENT OPPORTUNITY Among the notable factors: • Strategic position, at the crossroad of commercial routes, with easy access to all worldwide destinations. • Reach natural resources, proximity to energy suppliers. • Second largest market in the CEE Region. • Favorable investment legislation, taxation reform, double taxation treaties and free trade agreements signed. • Skilled labor force at low costs.

10. Key economic indicators - forecasts 2010 2011 2012 2013 • Gross Domestic Product 123.55134.08 147.05 161.87 • (in billion EUR) • Gross Domestic Product 0.5 2.4 3.7 4.4 • Grouth (%) • GDP per Capita 5.8 6.2 6.8 7.5 • (thousands EUR) • Current Account Balance (5.1) (5.3) (5.0) (5.0) • (% of GDP) • Inflation Rate 3.5 3.2 2.6 2.3 • (%) • Unemployment Rate 7.7 7.5 7.0 6.6 • (%) _____________ Source: National Commission of Prognosis

11. Personal Income Tax – Non-residents • For non-residents obtaining incomes from independent activities, performed through a permanent establishment (fixed base) in Romania, the income tax shall apply on the net income assigned to the permanent establishment – 16% -also for salaries, lease of goods, investments, pensies, every agricultural activities, prizes and other sources. • Non-residents performing dependent activities in Romania shall be taxed in Romania if at least one of the following condition is fullfiled: • Person spends more than 183 days in Romania in any twelve consecutive months; • Salary incomes are paid by a resident employer; • Salary incomes are deductible expense of a permanent establishment in Romania.

12. Corporate Income Tax • Any legal entity, carrying out a business (except micro-enterprises – 3% of the turnover) is subject to Profit Tax – 16%. • Permanent establishment (PE) shall be treated as a distinct taxable entity, even if it doesn’t have Romanian legal personality; PE shall be registered for tax proposes before doing business and shall keep the financial accounting. • Deductible expenses shall be considered only those carried out to release taxable incomes.

13. Value Added Tax (VAT) • Standard 24% Supplies of goods and services in the course of business with an annual turnover exceeding EUR 35,000. • Reduced 9% Cultural services, books&newspapers, medicines, dental & medical devices, hotel accom. 5% Supply of houses as part of social policy • Exemptions Supplies of goods and services as listed in the VAT Directive

14. VAT Representative • Entities established outside the EU and performing taxable transaction in Romania (having the place of supply in Romania) are obliged to appoint a VAT representative, in order to register as taxable persons and to comply with all their VAT obligations. • The VAT representatives deals with any VAT aspect related to the foreign entity’s business in Romania and VAT on behalf of the foreign entity.

15. Capital Gains • Capital gains are generally taxable withholding tax, personal income or corporate income rates (standard rate is 16% in both cases), excepting: • Gains from transfer of listed shares – 1% for a period greater than 365 days from acquiring date. • The transfer of personal (non-business) immovable property of Romanian individuals – between 0 – 3% upon the value of transaction and the type of transfer. • Lower rates/exemption provided by double tax treaties.

16. Social Security Contribution • Employers • Standard/difficult/special working conditions • 29.20% / 34.20% / 39.20% • Employees • 16.50% • Self-employed (mandatory contributions only) • 37.30% Public pension contribution, health insurance, unemployment contribution, professional illness contribution, medical leaves contribution, insolvency found, labor commision.

17. Withholding Taxes • For incomes obtained from Romania by non-residents, tax payers have the obligation to calculate, withhold and pay the tax to the State budget. • The withholding tax rate is, generally, 16% excepting residents of EU and EFTA State members; all rates subject to reduction where specified in a tax treaty. • Double tax treaties established for certain incomes the right of the source state (Romania) to tax those incomes within a limit of a ceiling (maximum rate) • Reduced withholding tax rates provided by a tax treaty are applicable when a valid tax residence certificate is supplied, which has to be provided anually, in original, to the tax payer.

18. Double Tax Treaties • The best double tax treaties concerning Romania: • Austria • Cyprus • Finland • Germany • Ireland • Luxembourg • Malta • Netherlands • Slovenia • Other Arab countries

19. Cyprus Holding Companies • Romania does not have legislation on holding type companies. • For tax optimization for foreign investments purposes, the use of holding companies registered in Cyprus has the following advantages: • There is no withholding tax for dividends obtained from participations older than two years. • Low level of Corporate tax in Cyprus (10%). • Cyprus favours business relations with offshore jurisdictions. • Low administrative costs. • Low costs for accounting and financial audit. • Excellent banking system which ensures easy operation of transactions, as well as security and confidentiality.

20. Cyprus Trading Companies • Cyprus trading companies that deliver goods and services to Romanian companies are not subject to taxation in Romania. • According to Double Tax Treaty from November 16, 1981, the following income is subject to source taxation (in Romania): • Dividends for participations of less than 2 years – 10% • Interest – 10% • Royalties – 5% • Commissions - 5% Withholding in Romania fiscal credit for taxation in Cyprus.

21. ROMANIA – FISCAL CHALLENGES IN A REGIONAL CONTEXT • Romania is surrounded by low taxation countries: • Bulgaria (EU); • Hungary (EU); • Serbia; • Ukraine; • Moldova. Thus, Romania will need to adopt the following competitive measures: • Reduction of main fiscal taxes; • Reduction of social contributions; • Simplification of Fiscal Code, application norms and fiscal procedure; • Adoption of legislation on holdings; • Extension of the application of simplified tax norms in intra-communitarian relations; • Adoption of incentives for foreign business and investments; • Etc.

22. ROMANIA – INVESTMENT OPPORTUNITIES • In the past: the real estate boom from 2004 – 2008 created added value of 200-300% in a short period of time. • At present time: multiplicative gain is foreseen for investments in the following areas: • Transportation infrastructure (road and railway); • Civil infrastructure; • Energy infrastructure; • Green energy production capacities (wind, solar, biomass); • Safety industry • IT&C; • Nanotechnology; • Other top technology areas.

23. ROMANIA – INVESTMENT OPPORTUNITIES • In the future: there will be investments in the following areas – with the purpose of having a sustainable development of Romania: • Agriculture – culture of energy plants; • Animal breeding – pig breeding facilities (low production at present time; ecologic breeding and agriculture); • Investments with social and environment impact – with the purpose of aligning to Europeans standards: • Building of social habitations; • Social infrastructure outside cities; • Reducing the impact of household waste on the environment and energy valuation; • Etc.

24. ROMANIA – LEGISLATION RELATED TO INVESTMENTS WITH ECONOMIC IMPACT • Legislative facilities, warranties and state incentive (up to 50%) for investments (domestic or foreign) differentiated per investment values and new employment opportunities created; • Efficient legislation for public acquisitions, concessions and public and private partnerships; • Easy access to EU funds and co-financing of IFI (International Financial Institutions).

25. Your investment partner in Romania! “No other company is more proactive than Riff Holding International; any investor shall be able to find under the same umbrella multidisciplinary services starting with the establishment of the company in Romania, accounting, audit, consultancy and tax optimization, legal assistance and all other support services which ensure full success of business” Marius Stancescu marius.stancescu@riff.ro +40 722 620030 www.riff.ro