A company is considered tax resident in Romania if:
- it was set-up under Romanian law
- it has its head office situated in Romania and it was set-up under EU law, or
- it has its ‘place of effective management’ (POEM) in Romania.
POEM represents the place where a foreign legal entity carries out operations corresponding to economic, real, and substantial purposes and where at least one of the following conditions is met:
- The economic-strategic decisions necessary for the management of the activity of the foreign legal entity as a whole are taken in Romania by the executive directors/members of the board of directors.
- At least 50% of the executive directors/members of the board of directors of the foreign legal entity are resident.
Permanent establishment (PE)
A PE is generally defined as being the place through which the activity of a non-resident company is conducted, fully or partially, directly or through a dependent agent.
Once a PE is created, Romania has the right to tax the profits of the non-resident parent company derived from the activities performed through the PE.
In defining the PE concept, reference can be made to Article 5 - ‘Permanent establishment’ of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, which has been transferred from the Methodological Norms to the Fiscal Code.
The Romanian legislation explicitly states the conditions that trigger a PE:
- Fixed base PE is created through a place of business with a certain degree of permanency through which business is conducted in Romania (with some exceptions).
- Agency PE is created through agents with a dependent status that operate in Romania on behalf of the foreign company.
The registration, reporting, and tax payment requirements for a PE are similar to those for a Romanian company.
Consolidation of PE revenues and expenses belonging to the same foreign legal entity is possible. For further information, please see the Group taxation section.