In light of the global pandemic and the widespread adoption of remote work, nonresident companies have increasingly turned their attention to the Romanian workforce, particularly in sectors that can easily accommodate remote work arrangements. As part of their strategies to attract and retain employees, these companies are considering entering into individual labor agreements with Romanian tax residents who will work from their home offices in Romania.

Permanent establishment in Romania for tax liabilities

However, before proceeding with such agreements, it is essential for these companies to conduct a thorough analysis of the risk of generating a permanent establishment (PE) in Romania.

The concept of a permanent establishment holds significant importance as it determines the potential corporate income tax liabilities that nonresident companies may face in Romania. Recent declarations made by the Romanian tax authorities have emphasized the necessity for nonresident companies to carefully evaluate whether their activities conducted through their employees in Romania satisfy the criteria for establishing a permanent establishment.

Determining the existence of a permanent establishment involves considering various factors, such as the nature and duration of the activities conducted, the presence of employees or agents in Romania, the utilization of facilities, and the level of authority exercised within the country. It is advisable for nonresident companies to engage professional guidance and conduct a comprehensive examination of the available information to accurately assess the potential PE risk.

Social contributions in Romania for non-resident companies

In Romania, there are several social contributions that are in the charge of the employee on a monthly basis: health insurance contribution and social (Pension) insurance contribution, while the work insurance contribution is in the employer’s charge.

The currently available alternatives for nonresident companies to declare and pay social contributions in Romania are the following:

• Registration of the nonresident employer for social contribution purposes in Romania. Thus, the employer will file monthly tax returns by way of which social contributions will be declared and paid to the State Budget. Regarding personal income tax, it will remain in the charge of the employee who is also be required to file the personal income tax return on a monthly basis. In conclusion, two separate returns will be submitted on a monthly basis.
• Shifting the responsibility in terms of social contributions to the employee by way of concluding a separate agreement with the employee who will take over the obligations thus arising. Hence, the employee will file one single tax return comprising also the personal income tax and social contributions on behalf of the employer and will pay all tax liabilities arising as a result of the employment agreement.

Each alternative entails pros and cons which shall be discussed on a case-by-case basis.

Rely on experienced Romanian advisors for a peace of mind

Our team of experts not only provides valuable insights and guidance but also offers a range of additional benefits to streamline your business operations. By entrusting Accace with your agenda, you can save precious time as our dedicated advisors communicate with authorities and handle all necessary documentation. We ensure that every form is meticulously filled, sparing you the hassle of paperwork.

Moreover, our expertise allows us to identify the proper registrations required for your specific needs, eliminating unnecessary costs.

The tax and corporate advisory team of Accace Romania is able to assist you in the entire process starting from the analysis of the permanent establishment risk, preparation of the employment agreement, tax registration and monthly tax and payroll assistance in any of the above mentioned alternatives.

With Accace, you can rest assured that you’re on the right track, making informed decisions and optimizing your resources.

Elena Sighinaș

Tax Director | Accace Romania

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+40 314 050 440

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