TAXATION OF REPRESENTATIVE OFFICES: NEW PROVISIONS

New legal provisions regarding the taxation of representative offices of foreign companies in Romania ("ROs") will enter into force on 1 January 2018. These new provisions are set forth by Government Ordinance no. 25 as of 30 August 2017, amending and supplementing Law no. 227/2015 on the Tax Code. The said Ordinance was published in Official Journal no. 706 as of 31 August 2017.

Representative offices: the first choice of cautions investors

The representative office (RO) of a foreign company is an unincorporated entity, which acts in Romania as an intermediary between the parent foreign company and its Romanian contractual partners. The representative office carries out, on behalf of the foreign company, only legal operations and activities in support of the activity of the foreign company in Romania (promotion and advertising, representation, marketing, contract conclusion and monitoring etc.).
On the other hand, the RO does not have the right to perform commercial activities (production, trade or provision of services) on its own behalf.
In this context, ROs are very often the initial choice of cautious investors, who first wish to "feel the pulse" of the Romanian market before creating a subsidiary or a branch.

Changes brought to the taxation of representative offices

Ordinance no. 25/2017 makes several changes concerning the taxation of ROs, the most important of which are the following:

From 1 January 2018, the obligation to pay the tax shall be borne by the RO itself and no longer by the foreign legal entity that created it, as stipulated by the law currently in force. At the same time, the RO will also be required to declare its creation or closure to the Tax Authority within 30 days of its opening/closing. It should be noted that this obligation is now incumbent to the "parent company”.

The deadline for filing and paying the RO tax will be the last day of February and for ROs created during the fiscal year - 30 days from their creation. The tax will be declared annually to the relevant tax authority no later than the last day of February (included) and paid in two equal installments, not later than 25 June, respectively 25 December.

The annual RO tax, which is of a fixed amount, will pass from the Lei equivalent of 4,000 Euros to 18,000 Lei (namely around 3,900 Euros), calculated at the exchange rate of the National Bank of Romania valid on the day of payment.