August 2024

The third revision of the Classification of Activities in the National Economy (NACE, abbreviation from Nomenclature statistique des Activites economiques/Statistical classification of economic activities) will be effective in 2025 and may result in internal changes for businesses active in Romania. Corina Roman discussed with Alexandru Boiciuc, editor-in-chief at avocatnet.ro, the overall context and potential implications, as well as the “red flags” and possible solutions available to businesses, as the deadline approaches.

What is the importance of NACE codes for one’s commercial activity?

NACE codes were designed to help draw up statistics at industry or industry sector level or to prepare statistics per type of activity conducted. Such statistics are important not only at national level, but also at international level, since they allow for the drafting of policies at a macroeconomic level, which are meant to aid in the development of certain activity sectors.

For example, the International Labour Organization (ILO), the International Monetary Fund (IMF) or UNESCO are international bodies processing data collected with the help of certain reference classifications (such as the NACE classification) and they integrate the outcome of such process in their own studies.

On the other hand, these codes also have an administrative relevance. Namely, depending on the NACE codes declared as being carried out by a company

• there might be several tax implications (the company may qualify or not for certain tax regimes or it may benefit or not from certain types of tax incentives/State aid), or
• certain authorizations might be required (such as, for example, the obtaining of environmental licenses/permits) or certain activities may not be conducted simultaneously (for example, the business scope of specialized companies and of individual private detectives’ practices can only be one).

We understand that a third revision of the NACE codes comes in the context of certain changes occurring at European level. Is there major news that should be also known to those conducting business activities or intending to set up companies soon?

A third revision of the NACE Codes at national level is indeed relying on a series of changes already implemented both at European and global level. To better understand the origin of this changes, we must highlight that there are certain reference classifications at international level, which are the result of years of negotiations, agreements and standardization talks.

To be able to use data in an interconnected manner, such classifications systems must have a standardized structure at least at a macro/superior level. The more standardized the data collecting system is, the more relevant and straightforward will the review of the collected data be. Hence, the data collected at national level must be put in a format in line with the reference systems existing at European and international level.

Consequently, the European level has been influenced by a superior level, namely that of the specialized bodies conducting their activity in this field worldwide. More precisely, the amendments brought by this third review performed in the EU were triggered by the United Nations’ Statistical Commission’s fifth review of the International Standard Industrial Classification of All Economic Activities (ISIC rev. 5).

However, these changes made at global level have been caused by a series of factors, the most important ones being globalization and digitalization, which basically reshaped the industry in a very short time.

From the entrance into force of the updated version of the NACE codes back in January 2008, although only 16 years have passed, the economic and social realities have changed substantially. That is why, for example, one will notice that multiple changes have been made now to NACE codes that concern the environmental protection, information technology and commerce.

With respect to what the future has in store for those of us who already incorporated companies, as well as for those that will incorporate companies in 2024, our recommendation is to allocate time and resources for an update of the company’s business scope in 2025.

Since certain classes of codes have been compressed, while others have been reorganized and expanded, each company will need to review the activities it carries out and match them with the new classifications applicable starting with 2025.

Are the newly incorporated companies (and not only them) going to be affected in any way by the entrance into force of the revised version of the NACE codes? (for example, do they have to check the codes they are currently using and, if the case, make any formalities with the Romanian Trade Registry Office?)

Yes, there will be indeed an impact on companies after the entrance into force of the new NACE codes. The alignment to the new legal provisions concerning the NACE codes is not an option, but a requirement for all directors of these companies, who, among others, have the obligation to ensure compliance with the regulations in force throughout the existence of the company.

The first step, which can be taken even now, is to verify the NACE codes currently included in the articles of association, as well as those currently authorized with the Romanian Trade Registry Office. For those companies that still have inconsistencies between the NACE codes included in the articles of association and the NACE codes declared as authorized for business with the Romanian Trade Registry Office, the update of the articles of association was already required in light of new changes brought by Law 265/2022, which already imposed companies to maintain in their articles of association only those activities which are also authorized for business with the Romanian Trade Registry Office.

After this step, for those activities actually carried out, companies will need to check the compliance with new NACE codes as per the classification that will produce effects starting with 2025. As such, a mapping of the new business scope will be made according to NACE code rev. 3.

After performing this mapping, the next steps necessary for the update of the articles of association will need to be taken (such as, for example, obtaining the approvals required at the level of shareholders, filling in new sworn statements by directors) and registration of all changes to the Romanian Trade Registry Office.

A very important aspect that needs to be taken into consideration, which many companies forget about, is that the amendment of a documentation based on which a certain authorization or license had been issued, may lead to a forfeiture of the validity of the respective authorization or license if not notified in due time to the issuing authority. As such, the recommendation would be to verify the authorizations, licenses or permits obtained for carrying out the activity, see if there is any change in the NACE codes declared for the obtaining of those documents and, if the case, notify the issuing authority within the deadlines and in line with the procedures set forth by the law in order to avoid any invalidation of the respective document.

In addition to the fines that might be triggered by the loss of the right to carry out a certain activity previously authorized/licensed, there is also a risk of absolute nullity that might affect the deeds concluded and the formalities taken in the absence of a valid authorization or license, as well as a potential liability of the legal representatives for the losses caused by such failure.

What recommendations do you have, in general, for companies when talking about the choice of the NACE codes required for conducting business?

NACE codes must be carefully chosen while taking into consideration the activities required to be actually conducted, their share in the mix of all activities conducted, as well as the value that they add to the company by their mere performance.

Also, the location where such activities will be conducted needs to be also taken into consideration, since the authorization is also made depending on the specific of the respective premises (which may be the registered office, secondary offices or third party locations).

Moreover, in many cases, identifying the correct NACE codes corresponding to the activities conducted by the company will trigger also the tax regime applicable to the company, which adds more value to a correct mapping of the company’s activity.

Shaping the business scope must be done while also bearing in mind the potential authorizations, permits, approvals and/or licenses that could be required, which is why the selection of such codes is a multilateral process, although in many cases it is lightly treated by the key stakeholders, which may cause significant losses at a later point in time.

When selecting the NACE codes to be authorized and included in the articles of association, both the shareholders and the legal representatives of companies must be involved. This decision is in most cases a prerogative of the company’s shareholders, but the liability (which may also be of a criminal nature) for the statements submitted with the Romanian Trade Registry Office or to other authorities for the purpose of authorizing the business conducted rests with the legal representatives.

Hence, a diligent and proactive attitude of the management, supported by specialists, will bring benefits to the company and will decrease the risk of hurdles when conducting the business or even incurring losses.

This material was prepared for and was first published by highly reputable legal and fiscal news platform avocatnet.ro.

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