Tax audit of foreign companies with local presence 2026

Introduction

Why a separate guide

The local presence of a foreign company raises distinct legal and tax characterisation issues

A foreign company may be economically present in Romania in several ways, with fundamentally different legal and tax consequences. The same activity — for example, sales, provision of services or a construction project — may generate, depending on the case, a subsidiary (a separate Romanian company), a branch (a secondary establishment without legal personality), a fixed VAT establishment, or a permanent establishment taxable on profits. These classifications are not mutually exclusive: the same presence may simultaneously be a fixed VAT establishment and a permanent establishment for corporate income tax.

For the tax authority, the correct classification determines which taxes are due in Romania, to whom the filing obligations fall and how broad the audit will be. For the company, a mis-classification (for instance, ignoring a "de facto" permanent establishment) is one of the most costly exposures in an inspection — because it triggers retroactive corporate income tax, ancillary charges and, sometimes, criminal liability.

The two key questions

Any analysis starts from two questions: (1) does the foreign company have its own legal personality in Romania (subsidiary vs. branch vs. mere registration)? and (2) does the activity generate a permanent establishment taxable on profits and/or a fixed establishment for VAT? The answers determine the entire tax and audit regime.

Chapter 1

The four forms of presence — a comparative view

Subsidiary · branch · fixed VAT establishment · permanent establishment — the essential differences

The table below summarises the differences. The following chapters detail each form individually.

Criterion	Subsidiary	Branch	Fixed VAT est.	Permanent est.
Legal personality	Yes — separate Romanian legal entity	No — secondary establishment of the parent	No — VAT concept	No — corporate income tax concept
Main legal basis	art. 42 L. 31/1990	art. 43 L. 31/1990	art. 266 para. (2) FC	art. 8 FC
Relevant tax	Corporate / micro-enterprise tax, as any Romanian company	Corporate income tax on Romanian activity	VAT	Corporate income tax on attributable profit
Liability	Own, limited	Of the foreign parent	Of the foreign taxable person	Of the foreign legal entity
Registration	Trade Register + tax	Trade Register + tax	VAT registration	Tax registration of the PE

Watch out for overlaps

A registered branch almost always also generates a permanent establishment (for profits) and, as a rule, a fixed establishment (for VAT). Conversely, a permanent establishment or a fixed establishment can exist without any registration at the Trade Register — based merely on the reality of the activity (a construction site, a warehouse with personnel, a dependent agent). It is precisely these "de facto" situations that are most targeted by audits.

Chapter 2

Subsidiary

Art. 42 Law 31/1990 · a separate Romanian company, controlled by the foreign parent

A subsidiary is a company with its own legal personality, incorporated in Romania by the foreign parent (typically an SRL or SA), distinct from it legally and patrimonially. The subsidiary is incorporated "in one of the forms of company" provided by Law 31/1990 and has the legal regime of the form of company in which it was incorporated (art. 42).

Tax and audit consequences

The subsidiary is a Romanian tax resident and is taxed like any other Romanian company — corporate income tax (16%) or micro-enterprise income tax (1%, subject to the EUR 100,000 turnover threshold and the statutory conditions), VAT, payroll contributions, etc.
The tax audit follows in full the rules applicable to Romanian legal entities (see the main guide): tax inspection, unannounced control, anti-fraud, documentary verification.
Relations with the parent and with other group entities are transactions between related parties, subject to the arm's length principle and to documentation through the transfer pricing file.

To remember

The subsidiary's advantage is clarity: limited liability, Romanian-company tax regime, perception of stability. The "cost" is that the subsidiary is a full taxpayer, with all the filing obligations and audit exposure of a domestic company — plus the transfer pricing dimension, inherent in belonging to an international group.

Chapter 3

Branch

Art. 43 Law 31/1990 · a secondary establishment of the parent, without legal personality

A branch is a secondary establishment without legal personality of the foreign company (art. 43 L. 31/1990). Unlike a subsidiary, the branch is not a distinct legal entity: it represents an extension of the parent into Romania, and liability for its obligations rests with the foreign company. The branch is registered with the Trade Register of the county where it will operate, before the start of activity.

Tax and audit consequences

From a tax standpoint, the branch of a foreign company typically constitutes a permanent establishment within the meaning of art. 8 FC and owes corporate income tax on the profit attributable to the Romanian activity (see Chapters 6 and 8).
The branch is registered for tax and, if it exceeds the threshold or so opts, also for VAT purposes, with the related filing obligations (including SAF-T, e-Invoice, e-Transport, as applicable).
Not being a micro-enterprise (the micro regime is reserved for Romanian legal entities meeting the statutory conditions), the branch normally applies the corporate income tax regime.

The practical difference: subsidiary vs branch

The choice between subsidiary and branch is not merely formal. The branch exposes the foreign parent directly to liability and to audit (including the 180-day inspection duration applicable to non-residents), but it avoids the incorporation of a new company. The subsidiary insulates liability, but is an autonomous taxpayer. Mis-classifying a "representative office" that in fact carries on commercial activity may lead to the recognition of an undeclared branch / permanent establishment.

Chapter 4

Fixed establishment (for VAT purposes)

Art. 266 para. (2) Fiscal Code · sufficient technical and human resources · being established in Romania

The fixed establishment is an exclusively VAT concept, distinct from the permanent establishment (which concerns corporate income tax). Under art. 266 para. (2) FC, a taxable person who has the seat of their economic activity outside Romania is considered established in Romania if they have here a fixed establishment, namely if they dispose of sufficient technical and human resources to make regularly taxable supplies of goods and/or services.

Why it matters

The existence of a fixed establishment that participates in an operation determines who is the person liable for VAT (the supplier established through the fixed establishment or the beneficiary, by reverse charge) and the place of supply of services.
A foreign person with a fixed establishment that does not participate in a supply/service is considered, for that operation, not established in Romania (art. 266 para. (2) lit. c)).
Errors in determining the place of the operation and the person liable for VAT are a frequent source of adjustments in VAT inspections.

Fixed establishment ≠ permanent establishment (but they can overlap)

The fixed establishment is analysed under VAT criteria (technical and human resources), while the permanent establishment is analysed under corporate income tax criteria (art. 8). In practice, the same structure can be both. The Fiscal Code expressly provides that, when the fixed establishment that meets the VAT obligations also constitutes a permanent establishment within the meaning of art. 8, it is also the designated permanent establishment for corporate income tax obligations (art. 37 para. (5)).

Chapter 5

Permanent establishment

Art. 8 Fiscal Code · a place through which a non-resident carries on activity · OECD model

A permanent establishment is a place through which the activity of a non-resident is carried on in whole or in part, either directly or through a dependent agent (art. 8 para. (1) FC). Its definition is informed by the commentary on art. 5 of the OECD model double tax convention. The existence of a permanent establishment triggers the foreign company's obligation to pay corporate income tax in Romania on the profit attributable to it (art. 36).

What constitutes a permanent establishment (art. 8 para. (2)–(3))

A permanent establishment includes, among other things: a place of management, a branch, an office, a factory, a shop, a workshop, a mine or other place of extraction of natural resources. It also includes a construction site, a construction project, an assembly/installation project or supervisory activities related thereto — but only if they last more than 6 months.

> 6 months Construction-sites thresholdA construction site, construction project, assembly or installation project generates a permanent establishment only if it lasts more than 6 months (or the period provided by the applicable treaty). Related contracts directly linked to the first contract are aggregated for the calculation of the period (art. 8 para. (8)).

Exceptions — preparatory or auxiliary activities (art. 8 para. (4))

The following do not generate a permanent establishment: the mere use of an installation solely for the storage, display or processing of the non-resident's goods, the maintenance of a stock solely for these purposes, the maintenance of a fixed place solely for purchasing or for collecting information, or for carrying on activities of a preparatory or auxiliary character.

Dependent agent (art. 8 para. (5))

A non-resident is deemed to have a permanent establishment in Romania in respect of the activities that a person — other than an agent of independent status — undertakes on its behalf, if that person habitually concludes contracts in the name of the non-resident (other than for preparatory/auxiliary activities) or maintains a stock from which they deliver goods on behalf of the non-resident. A truly independent agent, acting in the ordinary course of their business, does not generate a permanent establishment (art. 8 para. (6)).

The risk of a "de facto" permanent establishment

The most difficult situations arise when a foreign company operates in Romania through employees or contractors who, although formally without a registered structure, negotiate and conclude contracts, manage a warehouse or coordinate a project longer than 6 months. The tax authority may find the existence of an undeclared permanent establishment, with retroactive corporate income tax, ancillary charges and, potentially, criminal referral. The analysis must be done before activity begins, not during the audit.

Chapter 6

Place of effective management in Romania

Art. 8¹ Fiscal Code · when a foreign legal entity becomes a Romanian tax resident

Beyond the permanent establishment, a foreign company may become a Romanian tax resident if it has its place of effective management here. In that case, it owes corporate income tax on worldwide profit, not only on the profit attributable to a local structure — a considerably larger stake.

If a foreign legal entity is deemed resident in both Romania and another state that has signed a double tax treaty, residency is determined under the treaty (art. 8¹ para. (1)). Residency in Romania is established by the central tax authority on the basis of a questionnaire (art. 230 para. (8)) and supporting documents — the decision of the management bodies on establishing the place of effective management in Romania, the up-to-date constitutional act, the trade-register extract of the foreign state — any subsequent change being communicated within 45 days.

Indicators of effective management

The place of effective management is, in essence, the place where the strategic management decisions necessary to the activity are taken. Relevant indicators: where the board meetings are held, where the directors who take the key decisions reside, from where operations are managed, where the accounting and archives are. A "paper" company in a low-tax jurisdiction but actually managed from Romania risks being reclassified as a Romanian tax resident.

Chapter 7

Profit attribution to the permanent establishment

Art. 36–37 Fiscal Code · separate-entity principle · transfer pricing · designated PE

Foreign legal entities carrying on activity through a permanent establishment in Romania are required to pay corporate income tax (16%) on the taxable profit attributable to that establishment (art. 36 para. (1)). Determining that profit is one of the most technical and most disputed areas of the audit.

Separate-entity principle (art. 36 para. (2)–(3))

Only the revenues attributable to the permanent establishment and only the expenses incurred in obtaining that revenue are taken into account.
The permanent establishment is treated as a separate and independent person, and transfers between the foreign company and its establishment are evaluated under the transfer pricing rules, in line with the 2010 OECD Report on the Attribution of Profits to Permanent Establishments.

Designated permanent establishment (art. 37)

If a foreign company has multiple permanent establishments in Romania, it must designate one of them as the designated permanent establishment, which aggregates the revenues and expenses of all of them and fulfils the corporate income tax obligations (filing, payment). Where there is a single permanent establishment, that one is also the designated one (art. 36 para. (5)). And if the fixed establishment that meets the VAT obligations is also a permanent establishment, it is also the designated permanent establishment (art. 37 para. (5)).

The stake of the audit: what profit "remains" in Romania

Profit attribution is the favoured terrain of disputes with the tax authority. Under-dimensioning the functions, assets and risks of the permanent establishment (to leave as little taxable profit as possible in Romania) or overloading it with parent-company expenses are verified through the lens of the transfer pricing rules. A solid functional analysis and documentation of the allocation are essential to defend the position in the inspection.

Chapter 8

Registration and filing obligations

Tax registration · VAT · SAF-T, e-Invoice, e-Transport · registration of contracts

Whatever the form, local presence triggers a set of registration and reporting obligations, the non-fulfilment of which is itself a risk factor and a source of sanctions.

Tax registration. The branch and the permanent establishment register for tax and obtain a tax identification code. The designated permanent establishment takes over the corporate income tax obligations of the foreign company in Romania.The subsidiary is registered as a Romanian company with the Trade Register.
VAT registration. Depending on operations, threshold and option, the entity registers for VAT (fixed establishment). Non-residents registered for VAT in Romania also have the SAF-T (D406) obligation since 2025.The potential obligation to register through a tax representative is also analysed.
Digital obligations. To the extent they issue / receive invoices in B2B, B2C, B2G and carry out transports, RO e-Invoice and RO e-Transport (see the main guide, Chapter 7) apply, with the same sanctions.Consistency between digital reports and tax returns is checked automatically.
Registration of contracts (art. 8 para. (8) FC). Beneficiaries of construction, installation, supervision, consultancy, technical assistance services etc. performed by non-residents on Romanian territory have the obligation to register the contracts with the tax authority, in accordance with the ANAF procedure.Relevant for the calculation of the 6-month threshold on construction sites.

Chapter 9

Taxation in brief

Corporate income tax · withholding tax for non-residents · role of double tax treaties

Corporate income tax of the permanent establishment / branch

The attributable profit is taxed at the standard rate of 16%, with the deductibility rules of Title II of the Fiscal Code. The permanent establishment does not benefit from the micro-enterprise regime.

Withholding tax for non-residents (art. 223–224)

Income earned from Romania by a non-resident who does not have a permanent establishment here (dividends, interest, royalties, commissions, certain services) is, as a rule, subject to withholding tax, withheld and paid by the Romanian payer:

Type of income	Domestic rate	Notes
Dividends (art. 223 para. (1) lit. a))	16%	Possible exemptions under the Parent-Subsidiary Directive / treaties
Any other taxable income (general rule)	16%	art. 224 para. (4) lit. d)
Individuals resident in EU / treaty state	10%	Reduced rate, art. 224 para. (4) lit. c¹)
Artificial transactions to states without exchange of information	50%	Anti-abuse sanction, art. 224 para. (4) lit. c)

The role of double tax treaties

Domestic rates apply only in the absence of a more favourable treaty. To benefit from the reduced rates or exemptions of a treaty, the non-resident must present the Romanian payer with a valid tax residency certificate. Failing that, the domestic rate applies. This aspect is consistently checked in withholding-tax inspections.

Chapter 10

Tax audit specifics for foreign entities

180-day duration · transfer pricing · international exchange of information · audit targets

The tax audit of foreign entities follows, in principle, the same forms as for any legal entity (inspection, unannounced, anti-fraud, documentary verification — see the main guide), but it presents a few particularities and accents.

Art. 126 para. (1) lit. a) FPC

Inspection duration: 180 days

For non-resident taxpayers and for those with secondary establishments, the maximum duration of the tax inspection is 180 days (compared with 45 / 90 days for the others), reflecting the complexity of cross-border checks.

Art. 11 & 36 FC

Transfer pricing & profit attribution

Transactions with the parent and with the group, as well as the allocation of profit to the permanent establishment, are verified through the lens of the arm's length principle and of the transfer pricing file. Under-dimensioning the local profit is a priority target.

DAC / CRS · treaties

International exchange of information

ANAF obtains data on cross-border flows through the automatic exchange of information (the DAC directives, the CRS standard) and through exchange on request under treaties, which it confronts with the returns filed in Romania.

Art. 8 & 8¹ FC

Existence and residency

A recurring theme is whether there is an undeclared permanent establishment / fixed establishment and whether the place of effective management is in Romania. Such findings trigger retroactive tax on attributable profit or on worldwide profit.

Administrative cooperation in audit

Within the inspection of a foreign entity, the tax authority may suspend the procedure to obtain information from the tax authorities of another state (art. 127 FPC). Documents in a foreign language may be requested with certified translation, and proof of taxes paid abroad (for foreign tax credit or exemption) must be presented in the form required by the law and the applicable treaty.

Chapter 11

Specific risks and checklist

What needs to be clarified before and during an audit

Classify the presence correctly: subsidiary, branch, fixed establishment, permanent establishment — and check potential overlaps (a structure may be simultaneously fixed establishment and permanent establishment).
For projects/sites, track the 6-month threshold and the aggregation of related contracts; register the service contracts performed by non-residents, in accordance with art. 8 para. (8).
Assess the risk of a "de facto" permanent establishment generated by dependent agents, warehouses with personnel, or employees concluding contracts on behalf of the foreign company.
Check whether the place of effective management may be deemed to be in Romania (risk of tax residency on worldwide profit).
Make sure that registrations (tax, VAT, SAF-T for non-residents, e-Invoice, e-Transport) are complete and up to date.
Prepare the transfer pricing documentation and the functional analysis for profit attribution to the permanent establishment, in line with the 2010 OECD Report.
For each payment to non-residents, hold a valid tax residency certificate, to apply the exemptions/reduced rates of the treaties.
Anticipate the extended inspection duration (180 days) and the possible suspension for international exchange of information; plan resources and professional assistance.
Coherently document the evidence of taxes paid abroad (foreign tax credit / exemption), with certified translations where required.
On receipt of a notice, follow the checklist from the main guide and involve legal and tax advisers in good time.

How we can help

Petcu Partners advises foreign companies on structuring their presence in Romania (subsidiary, branch, permanent establishment), on permanent-establishment and residency risk analysis, as well as on representation in the inspection, the administrative appeal and administrative-fiscal court litigation. For an evaluation of your situation, you can contact us using the details in the contact section of the website.