If you hold a company in a low-tax jurisdiction, the structure is not illegal in itself — but in 2026 it is, most often, simply ineffective, because it fails to produce the tax effect it was bought for. And between "ineffective" and "tax evasion" the distance is measured in false documents and active concealment — a distance many cross without realising it.
A client arrives with a file that looks flawless at first glance: a company in a zero-tax jurisdiction, a certificate of incorporation, a local director, a management contract, a bank account. Total cost of the setup: a few thousand euros a year. His question: "is it legal?".
An honest answer requires a single check — who actually takes the decisions. When it turns out that all commercial decisions are taken from an office in Brașov, by e-mail and WhatsApp, while the "local director" signs what is sent to them, the discussion about legality is over. The structure is not illegal in itself; it is simply ineffective, because it does not produce the tax effect it was bought for.
This is the first test and, in Romanian practice, the most frequently decisive. Under Art. 7(37) of the Tax Code, a foreign legal entity whose place of effective management is in Romania is a Romanian tax resident — with worldwide profit taxed here. The criterion is not the place of registration, but the place where management and commercial decisions are, in substance, taken. ANAF (the Romanian tax authority) has published a dedicated guide, and the procedure has its own forms: the questionnaire approved by Order of the Minister of Finance no. 577/2021 and the tax registration declaration, Form 016. A "Dubai" company managed from Brașov is, in the reading of Romanian law, a Romanian company that has failed to register.
For passive income — dividends, interest, royalties — treaties and EU directives reserve the tax benefits for the beneficial owner, meaning the one entitled to use and enjoy the income, with no obligation to pass it on. The case law of the Court of Justice of the European Union in the cases known as the "Danish cases" (C-115/16 and others, 26 February 2019) established that a conduit company, receiving income only to relay it onward, is not the beneficial owner, and that abuse of rights bars the benefit of the directive even in the absence of an express national rule.
Introduced through the MLI, the test denies the treaty benefit if, having regard to all relevant facts, it is reasonable to conclude that obtaining that benefit was one of the principal purposes of the arrangement — unless granting it accords with the object and purpose of the provision. It is a subjective test, applied on objective facts: the chronology of the incorporation, internal correspondence, the adviser's presentation materials.
In domestic law, Art. 11 of the Tax Code allows the authorities to disregard a transaction with no economic purpose or to recharacterise the form of a transaction to reflect its economic substance. For corporate tax, Art. 40^4 transposes the ATAD general anti-abuse rule. The effect is the same: form yields to substance.
NOTE: These tests are not mutually exclusive. They apply in cascade and independently. A structure may pass the beneficial-owner test and fall on the place of effective management. It may have sufficient substance in the host jurisdiction and still be denied the treaty benefit on the PPT. And if the foreign company is controlled by a Romanian taxpayer and derives predominantly passive income taxed at less than half the Romanian level, the controlled-foreign-company rules (Art. 40^5 of the Tax Code) may bring its undistributed income to tax directly at the level of the Romanian shareholder — regardless of whether any dividend was distributed. A single failed test is enough to cancel the entire benefit.
A correspondence address, zero employees, zero operating costs. Fails at the first substance test.
A person who appears in the register and signs documents prepared elsewhere. The correspondence — which is obtained — shows who actually decided.
The most frequent Romanian pattern: the founder, resident in Romania, runs the foreign company from their own office. Servers, IP addresses, electronic signatures and document metadata tell the whole story.
"Management consultancy services" invoiced monthly, in a round sum, with no deliverables. The inspector's first question: what exactly was delivered, who worked on it, for how long?
Money leaves Romania as a deductible and returns, in another form, to the same person. This is exactly the pattern targeted by the DAC6 hallmarks.
They are legitimate — and, at times, necessary — in situations that have a business rationale identifiable independently of tax.
A local company because that is where the clients, employees, licences or public contracts are.
Protection and exploitation of IP, where development and management genuinely take place there, with a team and its own decision-making.
Investors require a vehicle in a jurisdiction with predictable company law and a known exit practice.
One that actually exercises shareholder functions: allocating capital, appointing directors, monitoring the holdings. The comparison between a Romanian and a foreign holding is made on the facts, not on fashion.
Between lines of business, with their own capitalisation and governance.
The common element: in each of these cases, the structure would exist even if the tax factor were neutral. This is the internal test worth applying before paying the first fee.
The public discussion about offshore ignores the arithmetic. Real substance means rent, salaries, social contributions, local accounting, audit where required, tax advice in two jurisdictions, transfer-pricing documentation for the intra-group transactions, management time spent physically in the jurisdiction. To these are added the costs nobody budgets for: banking complexity, compliance delays, the risk of reassessment.
I cannot give you a universal figure — it depends on the jurisdiction and the activity. I can give you the decision rule: if the estimated annual tax saving does not comfortably exceed the cost of real substance, the structure makes no economic sense. And if the answer is "we'll do the structure without substance, to make the numbers work", then the numbers do not work — you have bought a risk, not a saving.
There is a further cost almost everyone underestimates: the exit cost. A structure without substance is not dismantled for free. Unwinding it raises retroactive questions — what happened to the accumulated profits, how they are repatriated, what regime applies to prior-year distributions, what returns should have been filed and were not. In practice, the moment the client decides to "close everything" is exactly the moment the tax problem becomes visible, because the liquidation, the transfer of assets or the withdrawal of funds generates reportable flows. The structure that "costs nothing while it sits there" can cost considerably in the year it disappears. That is why the correct analysis is done before incorporation, not after.
Of the foreign company, on the place-of-effective-management criterion: corporate tax in Romania on worldwide profit, for the undeclared periods.
Calculated for the whole period in which the right to establish tax claims has not lapsed.
And application of the domestic withholding rates, with penalties at the Romanian payer's level. Separately, a payment to a non-cooperative jurisdiction has its own consequences.
And the penalties under anti-money-laundering legislation, plus the risk of bank accounts being closed.
Where active concealment is added to the structure: concealing the asset or the taxable source constitutes the offence under Art. 9(1)(a) of Law no. 241/2005. The difference between an ineffective structure and an offence is not the jurisdiction chosen, but the existence of an act of concealment — backdated documents, fictitious contracts, non-compliant declarations, front persons. This is exactly the line between the tax and the criminal spheres.
It is important to be precise here: holding a company in a low-tax jurisdiction is not an offence. Managing a foreign company from Romania and declaring nothing, concealing the taxable source, is another matter.
No, not in itself. What matters is whether the director actually decides: whether they have the competence, information and authority to say "no" to the shareholder. A director who executes instructions received from Romania confirms, rather than disproves, the place of effective management in Romania. Proof is made with real minutes, correspondence, calendars and banking mandates.
Possibly, yes. The controlled-foreign-company rules (Art. 40^5 of the Tax Code) may bring certain undistributed income of the controlled company to tax in Romania, independently of distribution. Separately, if the place of effective management is in Romania, the company itself is a tax resident here, and the profit is taxed in full, regardless of distributions.
No. The tax obligation is yours, and administrative and, where applicable, criminal liability is personal. A structure provider's marketing materials are not a defence; in practice, they sometimes become evidence of the arrangement's purpose. A further point: the arrangement may be DAC6-reportable, and the reporting obligation may fall on you if the intermediary does not fulfil it.
The ATAD 3 ("Unshell") proposal, aimed at shell companies, was abandoned. On 24 June 2026 the Commission presented a tax simplification package of two proposals — a direct-tax "omnibus" and a recast of the Directive on Administrative Cooperation, codifying the nine successive DAC directives into a single instrument. Importantly for the offshore discussion, the Unshell substance indicators were not carried into the recast. The proposed text leaves the development of the substance criteria for hallmark D2 to a Council implementing act, within five years. And the package is, for now, a proposal: adoption requires unanimity in the Council, so the timetable remains open. The core conclusion does not change: substance tests applied, and apply, through domestic law, ATAD and treaties. "Unshell" was only going to systematise an existing practice.
This article is strictly informational and does not constitute legal or tax advice. Individual situations must be analysed case by case. Legislative position reflected: 18 July 2026.
Deadlines run from the moment of communication. An initial discussion clarifies what is being alleged, what you need to justify and how the defence is built — before an estimate becomes a tax assessment.