The company is in Nicosia, the director is Cypriot, the residence certificate is issued there. Yet every decision is taken in an office in Romania. If the place of effective management (locul conducerii efective) is in Romania, the Cypriot company is a Romanian taxpayer on its worldwide income — whatever the certificate says.
The starting point is the definition in art. 7 pt. 37 of the Romanian Tax Code (Codul fiscal). A resident is, among others, any foreign legal person having its place of effective management in Romania. And the consequence is stated in the same text, unequivocally: a resident has a full tax liability in Romania, being subject to tax on worldwide income from any source, both from Romania and from outside Romania.
Note the construction. It is not required that the company have its registered office in Romania. It is not required that it be incorporated here. It is not required that it have any permanent establishment. It is enough that the place of effective management be in Romania, and the foreign company — Cypriot, Maltese, Bulgarian, American, Emirati — becomes a Romanian taxpayer on everything it earns, anywhere.
This is, in my view, the most underestimated risk in international taxation for anyone operating a foreign company from Romania. Not because the rule is obscure — it has been in the Tax Code since 2021 — but because the industry that sells offshore structures talks about incorporation and stays silent about administration. The rule is distinct from the tax residence of an individual, though the reasoning is the same: facts matter, not forms.
The definition is in art. 7 pt. 18 of the Tax Code, in the form introduced by Law no. 296/2020 and applicable from 1 January 2021. Its structure explains the mechanism.
"place of effective management — the place where, unless shown otherwise, the foreign legal person carries out operations that correspond to real economic purposes of substance, and where at least one of the following conditions is met: (a) the economic-strategic decisions necessary for conducting the activity of the foreign legal person as a whole are taken in Romania by the executive directors / members of the board of directors; or (b) at least 50% of the executive directors / members of the board of directors of the foreign legal person are residents."
The text says "at least one". It is enough that the economic-strategic decisions be taken in Romania. It is, separately, enough that half the management body be Romanian residents — even if meetings are held elsewhere.
Easy to verify and hard to contest. Anyone who appoints two Romanian directors out of four in a foreign company has met it. Very few of those who structure this way are aware of it.
The wording places on the taxpayer the burden of overturning the conclusion. It is not an absolute presumption, but it is an unfavourable starting position.
What are the "economic-strategic decisions necessary for conducting the activity as a whole"? Not the day-to-day operations — not issuing an invoice or paying a supplier. They are the decisions that set the direction: entering a market, approving a significant investment, taking on a loan, hiring key personnel, pricing policy, profit distribution. The test is one of substance, not form: not where the registered office is stated, but where the company's will is actually formed.
Art. 8^1 of the Tax Code — also introduced by Law no. 296/2020, applicable from 1 January 2021 — governs the procedure. The Romanian residence of a foreign legal person is established by the competent central tax authority on the basis of the questionnaire provided for in art. 230(8) of the Tax Code, accompanied by an exhaustively enumerated list of documents.
A legalised copy, with authorised translation, of the decision / resolution of the shareholders, members, founders, board members or executive directors on establishing the place of effective management in Romania.
Legalised copy, with authorised translation.
A legalised copy of the extract from the trade register or similar body of the foreign state, showing the shareholding and capital contribution. Subsequent changes are communicated to the tax authority within 45 calendar days of their occurrence.
A copy of the document on the use of the premises in Romania where management will actually be exercised.
A legalised copy, with authorised translation, of the contracts concluded with the executive directors or the members of the board.
The application forms were approved by Order of the Minister of Finance no. 577/2021, which expressly targets art. 7 pt. 18 and 37, art. 8^1 and art. 230 of the Tax Code. ANAF has also published a dedicated guide on establishing the Romanian tax residence of foreign legal persons — useful because it shows how the administration understands the texts.
The tax authority analyses the documentation, determines whether the place of effective management is in Romania and notifies the foreign legal person whether it retains the residence of the foreign state or becomes resident in Romania.
Up to here the procedure looks declarative — a company that wants to move its management to Romania files the questionnaire. Paragraph (6) of art. 8^1 reverses the perspective.
"For the purpose of administering tax claims, the central tax authority establishes and registers, of its own motion or at the request of another authority administering tax claims, a place of effective management in Romania of a foreign legal person that has not fulfilled its tax registration obligation, under Law no. 207/2015 on the Tax Procedure Code."
In other words: the procedure does not depend on your will. If ANAF finds that the foreign company has its place of effective management in Romania and has not registered, it registers the company itself. No questionnaire filed by the taxpayer is needed. This is where the illusion breaks — the illusion that not declaring is the same as no risk existing.
The combination most people do not anticipate. Art. 7 pt. 18(b) plus art. 8^1(6): a foreign company in which half or more of the directors are Romanian residents meets, in itself, one of the alternative conditions of the place of effective management. If the company has not registered for tax in Romania, the tax authority can register it of its own motion, retroactively, within the limitation period — with corporate tax on worldwide income, ancillary charges and unmet filing obligations for all the years concerned. There is no prior notification to "warn" you before the situation becomes costly.
With the competent central tax authority, through form 016 — "Declaration of tax registration / Declaration of amendments / Declaration of de-registration for foreign legal persons having their place of effective management in Romania" — within 30 days of the notification.
Of the board meetings and of the meetings of shareholders or members.
Keeping the accounting records in Romania, with financial statements drawn up under Romanian accounting law.
The provisions of Title II "Corporate tax" also apply to a foreign legal person resident in Romania by virtue of the place of effective management. The general corporate tax rate is 16%.
The residence established in Romania is maintained for a period of at least one fiscal year.
The paragraph concerning the reverse direction is worth flagging: a foreign legal person establishing its residence in Romania must not do so on the basis of artificial arrangements aimed at reducing the tax due in the foreign state, and must not create opportunities for non-taxation or lower taxation in Romania. The rule works in both directions.
The text speaks of the place of the decisions. Proof is made with facts. What is looked for, concretely:
Where the director or the person taking the decisions actually lives — and whether they are Romanian tax resident.
The metadata of electronic signatures, IP addresses, geolocation, the time at which documents are signed relative to the time zone.
The IP addresses used to access internet banking and management platforms — who authorises payments and from where.
And whether participants were physically there: travel evidence confirms or contradicts the minutes.
And who actually operates it — not who signs it.
On contracts, invoices, the website, correspondence with clients and banks.
Who negotiates, who answers clients, who gives instructions.
And the final destination of the funds — visible, cross-border, through the automatic exchange of account information.
These elements are not obtained by speculation, but from the very documents you present at an audit, from requests addressed to banks and, cross-border, from the exchange of information between administrations.
If the foreign company is treated as Romanian tax resident, it becomes a taxpayer on worldwide income, with 16% corporate tax on the profit determined under Romanian rules, and owes the Romanian filing obligations for the periods concerned. The assessment can be made retroactively, within the limitation period for establishing tax claims, with interest and penalties.
Further consequences may arise regarding VAT, transfer pricing and dividend distribution. To these is added exposure to the controlled foreign company rules, if the structure contains a Romanian parent company paying corporate tax, and, in the event of a subsequent move, exposure to company relocation and exit tax. And if the structure was built precisely to conceal this, the discussion can move from the fiscal to the criminal sphere.
Cyprus will continue to treat the company as Cypriot resident. Romania will treat it as Romanian resident. The Tax Code refers the solution to the treaty: if a foreign legal person is treated as resident both in Romania and in a state that has signed a double taxation treaty to which Romania is party, residence is determined under the treaty and its tie-breaker criteria.
Here comes an essential change that many overlook. Traditionally, the OECD Model contained an automatic tie-breaker: in case of dual residence of a person other than an individual, it was treated as resident of the state in which its place of effective management was situated. The Multilateral Convention (MLI) allows this automatic criterion to be replaced by a mutual agreement procedure: the competent authorities of the two states are to determine, by common agreement, the state of residence, having regard to the place of effective management, the place of incorporation and other relevant factors; failing agreement, the entity is not entitled to the treaty's exemptions or reliefs except to the extent agreed by the two authorities.
Application is not uniform, however: it depends on the reservations and notifications made by each contracting state, so that the rule applicable to a given treaty is checked in the text of that treaty as it stands after the MLI, not by analogy with other states. The practical consequence, where the mutual agreement procedure has replaced the automatic criterion, is brutal: there is no longer a criterion that automatically gives you the right. There is a negotiation between two administrations, which can take years and may end without result.
Not through more ingenious constructions. Through real management where you claim it is.
With relevant experience, remunerated at market level, who actually takes part in forming the decision — not one who countersigns.
As an absolute minimum — and, if the structure allows, none.
Actually held in the relevant state, with minutes drawn up at the time, with supporting materials, corroborated by travel evidence.
The proposal, the analysis, the deliberation, the vote. Not just the result.
And signed there, with accounts operated from there.
With a contract and actual use. What actually proves substance: office, staff, decisions.
It costs. A real, competent director, correctly remunerated, costs a multiple of a nominal one. And if that cost cancels the tax advantage sought, the structure had no economic rationale to begin with. This is the only honest path; anything else defers the problem, it does not solve it.
The opening case. The local director signs, the Romanian member decides. It meets point (a). If the Romanian member is also a director, it meets point (b) as well. The same analysis applies to the structures described in what still works legally in 2026.
A single-member LLC, managed remotely by its only member, resident in Romania, with no employees, office or other management. The place of effective management can only be where the one person who decides is. The fact that the LLC is, in US law, fiscally transparent does not change the Romanian analysis — indeed it can complicate it, the two states characterising the same entity differently.
A provider supplying "directors" for hundreds of companies cannot realistically exercise the effective management of any of them. The same problem arises with a UAE company and corporate tax, where local substance is contractually arranged rather than genuinely exercised.
Through evidence, not presumptions. The metadata of electronic signatures, the IP addresses used to access accounts, the correspondence in which you give the instructions the director executes, the absence of any evidence that real meetings were held, the fact that the director cannot describe the company's activity. In practice, the strongest evidence comes from the very documents the taxpayer presents at the audit.
Yes. Residence on the place-of-effective-management criterion has nothing to do with where the activity is carried out or where the clients are. It relates exclusively to where the economic-strategic decisions are taken. A company selling exclusively in Asia, but managed from Romania, can be Romanian tax resident on its worldwide income.
No. It attests that the Cypriot administration treats you as resident under Cypriot law. It does not prevent Romania from finding that the place of effective management is here. The result is dual residence, resolved by the treaty — and there, after the MLI, increasingly through a mutual agreement procedure between the two administrations, not through an automatic criterion in your favour. The rule applicable to your treaty is checked in its post-MLI text.
Do not ignore the problem and do not build documents retroactively — the second option turns a tax risk into a criminal one. Assess honestly, with an adviser, what actually happened in each year and what the exposure is within the limitation period. Then choose: either move the management genuinely to the relevant state, from a clear date and with contemporaneous evidence, or recognise Romanian residence and regularise the situation, or close the structure. All three are solutions. Continuing is not.
Informational material, updated to 18 July 2026. It does not constitute legal or tax advice; individual situations must be analysed case by case.
Time limits run from the moment of communication. An initial discussion clarifies what is alleged, what you need to justify and how the defence is built — before an estimate becomes a tax assessment.