Foreign entities in Romania: Unique challenges they face and how to overcome them

Foreign entities in Romania often encounter unfamiliar accounting rules, tax frameworks, and administrative hurdles that differ from those in their home countries. From mandatory use of Romanian Accounting Standards to language, currency, and VAT-specific requirements, compliance takes careful attention, especially for companies also reporting under IFRS. This article explores the main challenges foreign companies face when doing business in Romania and offers expert-backed practices.

Dual reporting standards

Foreign entities in Romania often find themselves caught between two accounting worlds: the need to comply with Romanian statutory rules and the requirements of international group reporting. While Romanian Accounting Standards (RAS) focus on domestic compliance (especially for tax purposes) international companies frequently need to align with IFRS or other global standards. This duality requires clear separation of records, extra resources and smart tools to manage both frameworks efficiently.

Romanian Accounting Standards:

Regardless of parent company standards (IFRS, US GAAP, etc.), Romanian entities must:

• Maintain statutory books in Romanian Accounting Standards
• Use the standard Chart of Accounts per OMFP 1802/2014 or OMFP 2844/2016

Additional reporting for consolidation under IFRS must be handled in parallel. Many foreign companies maintain a dual reporting system: one for statutory compliance and one for group consolidation.

Romanian Accounting Standards emphasize local tax compliance, with rules often tied to the Romanian Fiscal Code.

IFRS reporting

Public Interest Entities (PIEs), such as banks and listed companies, are required to prepare financial statements under IFRS in Romania.

Language and currency requirements

When operating in Romania, foreign entities must align with strict formal requirements regarding language and currency, regardless of their home country’s practices. This can create practical challenges, especially for finance teams and auditors working across borders. Being prepared for this local format from the start helps avoid compliance issues during audits or inspections.

Mandatory use of Romanian:

• All statutory accounting records and financial statements must be prepared in Romanian.
• During inspections or audits, any supporting documents in other languages (contracts, invoices, etc.) must be translated, often requiring certified Romanian translations.

Currency requirement:

• The functional currency for statutory accounting is the Romanian Leu (RON).
• Even if a company operates primarily in euros or USD (for intercompany transactions or group reporting), all local books must be maintained in RON. Managing exchange rate differences between the functional currency and RON can be quite challenging.
• Foreign exchange differences must be properly accounted for in line with local rules, often requiring parallel currency tracking, especially in dual reporting setups.

VAT compliance in Romania

VAT is one of the most challenging areas for foreign entities in Romania due to strict local rules, frequent updates and the need for precise reporting. Non-compliance can lead to audits, penalties and reputational risk. Whether your company has a local branch or just cross-border trade, VAT obligations must be carefully managed from the outset.

Payroll and social contributions in Romania

Foreign companies hiring employees in Romania must follow local payroll rules closely. This includes minimum wage, tax filings and social contributions.

What businesses need to know:

• Minimum gross wage (in 2025): RON 4,050
• Payroll reporting: Monthly Form 112 covers income tax and social contributions
• Employee contributions:
  • Income tax: 10%
  • Pension (CAS): 25%
  • Health insurance (CASS): 10%
• Employer contribution: Work insurance: 2.25%

What foreign employees need to know:

• Work permits and proper registration with tax and labour authorities are required.

Payroll in Romania involves strict deadlines and detailed calculations. Most foreign companies work with local payroll providers to stay compliant and avoid penalties.

High administration and reporting burden

Operating in Romania comes with a dense compliance calendar. Businesses must manage multiple recurring tax and statistical filings, each with its own form, format and deadline. Failure to meet these obligations can result in penalties and interest.

Key recurring reports include:

• VAT: Forms 300, 394 and 390
• SAF-T: Standard audit file (Form 406)
• Corporate income tax: Annual Form 101
• Payroll reporting: Monthly Form 112
• Statistical obligations: Submitted to the National Institute of Statistics

Efficient reporting processes, or support from a local accounting partner, are essential to avoid risk and stay compliant.

Rules on permanent establishment in Romania

If a foreign company operates in Romania through a fixed place of business or has ongoing activities that meet certain criteria, it may create a permanent establishment. Once a permanent establishment is triggered, it becomes liable for corporate income tax in Romania and must fulfill local reporting obligations.

Permanent establishments in Romania must keep local statutory accounting records under Romanian Accounting Standards (RAS). Even if the parent company uses IFRS or another framework, the Romanian PE must comply with local accounting and tax laws.

Determining permanent establishment status requires careful assessment of the business model and presence in Romania. Getting this wrong can lead to back taxes and penalties.

Withholding tax

Romanian companies making payments to foreign entities, such as dividends, interest, or royalties, must apply withholding tax unless a double tax treaty provides a reduced rate or exemption. The standard rate applies by default, but treaty benefits can only be used if the foreign company supplies a valid certificate of tax residency.

If the required documentation is missing or incorrect, the full withholding rate will apply. Responsibility for correctly applying the rate and paying the tax lies with the Romanian payer. Failure to comply may result in penalties or interest charges from the tax authorities.

Transfer pricing requirements

Foreign entities must ensure that transactions between their Romanian operations and related parties abroad are conducted at arm’s length. This means prices must reflect market conditions, as if the entities were independent.

Romanian tax authorities require thorough documentation to justify these prices, aligned with OECD guidelines. Failure to comply can result in tax adjustments or penalties, making proper record-keeping essential.

Tax deductibility of expenses

Multinational companies often face stricter scrutiny on certain expenses in Romania. Costs like management fees, royalties, or consulting services may be questioned for deductibility, especially if not properly documented.

Romanian tax law also disallows some expenses altogether, such as fines, penalties and specific provisions not recognized under local standards. Understanding what qualifies as deductible is key to avoiding tax reassessments.

Frequent regulatory changes

Romania frequently updates its tax and accounting rules to align with EU legislation and national policy changes. These shifts can affect reporting obligations, formats, deadlines and tax treatments, making it difficult for foreign entities to stay compliant without local support. Regular monitoring and professional guidance are essential to avoid missed updates and potential penalties.

Best practices for foreign entities

Our expert accountants recommend that foreign companies in Romania follow a few key practices to stay compliant, efficient and audit-ready:

Our expert accountants recommend that foreign companies in Romania follow a few key practices to stay compliant and audit-ready. For a smooth setup and ongoing support, it’s worth relying on a local partner who understands the regulatory landscape. At Accace, we offer full-range outsourcing and advisory services in Romania, including accounting, tax, payroll and legal support, tailored to the specific needs of international businesses.