Romania: Does it have CFC rules? What's the current Tax situation?

[HeinzKetchup69]

Does Romania Tax offshore Companies if the sole shareholder is a full time resident of Romania?
Or do they tax only the personal income received from that company ?
Are there ways to go around CFC rules and not pay corporate Tax in Romania, with let's say a company in the US LLC, one in Dubai and one in Hong Kong all 3 run by a Director resident in Romania full time?

Is income tax still a flat 10% ? Is there a way to reduce it further?

 

[Marzio]

According to PwC

A company is considered a CFC if the following conditions are both met:

1. The taxpayer by itself, or together with its associated enterprises, holds a direct or indirect participation of more than 50% of the voting rights, or owns directly or indirectly more than 50% of the capital or is entitled to receive more than 50% of the profits of that company.

2. The actual CIT paid on its profits by the company or PE is lower than the difference between the CIT that would have been charged for the company or PE under the applicable Romanian CIT provisions and the actual CIT paid on its profits by the company or PE.

This means generally that if you manage an offshore company that is taxed less than 8%, you trigger Romanian CFC rules.

A US LLC managed from Romania is tax resident in Romania so it has to pay Romanian CIT

A UAE company managed from Romania it's not a CFC but is tax resident in Romania because it's managed from there so it will have to pay Romanian CIT

A HK company from Romania it's not a CFC but is tax resident in Romania because it's managed from there so it will have to pay Romanian CIT.

Solution: hire at least a director for both UAE and HK company. As for US LLC you can't hire a US director because that would make the company subject to US taxation so either you continue to run it hoping that you will not get caught or close the thing.

 

[lavel]

Very informative post @Marzio that should be clear. I was searching for an more clear answer to the CFC rules with foreign companies.

A US LLC managed from Romania is tax resident in Romania so it has to pay Romanian CIT

we must assume it applies regardless where in the EU you live ?

 

[bizman]

A US LLC managed from Romania is tax resident in Romania so it has to pay Romanian CIT

without exception

 

[Marzio]

we must assume it applies regardless where in the EU you live ?

This is more about PE rules than CFC rules and apparently some EU countries are more relaxed than others when enforcing PE rules (like Estonia for example)

 

[HeinzKetchup69]

According to PwC

A company is considered a CFC if the following conditions are both met:

1. The taxpayer by itself, or together with its associated enterprises, holds a direct or indirect participation of more than 50% of the voting rights, or owns directly or indirectly more than 50% of the capital or is entitled to receive more than 50% of the profits of that company.

2. The actual CIT paid on its profits by the company or PE is lower than the difference between the CIT that would have been charged for the company or PE under the applicable Romanian CIT provisions and the actual CIT paid on its profits by the company or PE.

This means generally that if you manage an offshore company that is taxed less than 8%, you trigger Romanian CFC rules.

A US LLC managed from Romania is tax resident in Romania so it has to pay Romanian CIT

A UAE company managed from Romania it's not a CFC but is tax resident in Romania because it's managed from there so it will have to pay Romanian CIT

A HK company from Romania it's not a CFC but is tax resident in Romania because it's managed from there so it will have to pay Romanian CIT.

Solution: hire at least a director for both UAE and HK company. As for US LLC you can't hire a US director because that would make the company subject to US taxation so either you continue to run it hoping that you will not get caught or close the thing.

The offshore company already has a nominee director. He's not a shareholder though. Does it work the same? I need a realistic answer, not a pessimistic one