Expanding your business into a new country is exciting, but it also comes with a long list of financial and legal considerations—especially when it comes to taxes. One of the key concerns for foreign investors operating in Romania is how to manage income that might be taxed in both their home country and Romania. This is where the concept of avoidance of double taxation becomes not only important but essential.
In this article, we break down what double taxation means, how Romania approaches it, and what steps you can take—as an international investor—to stay compliant, protect your profits, and grow with confidence.
What Is Double Taxation?
Double taxation occurs when the same income is taxed by two different jurisdictions. For example, if a company based in Germany earns profits from its operations in Romania, and both countries claim taxing rights over that income, the company could end up paying tax twice on the same revenue.
This creates an obvious disadvantage and discourages cross-border trade and investment. That’s why many countries—including Romania—have entered into double tax treaties to resolve this issue and support international business.
How Does Romania Handle Double Taxation?
Romania has signed over 80 double taxation treaties (DTTs) with countries around the world. These treaties outline clear rules for determining where income is taxed, who has the right to tax it, and how to avoid or eliminate double taxation through tax credits, exemptions, or deductions.
The key principle is: you shouldn’t pay tax twice on the same income, and if taxes are paid abroad, they can often be credited or offset in your home country (or vice versa).
Some key mechanisms used in Romanian tax law to support the avoidance of double taxation include:
Tax Credits: If income earned in Romania is also taxed in the investor’s home country, Romania may allow the foreign tax paid to be deducted from Romanian tax liability.
Exemptions: In some cases, certain types of foreign income may be entirely exempt from taxation in Romania.
Reduced Withholding Tax Rates: Double tax treaties often provide for lower rates of withholding taxes on dividends, interest, and royalties paid between treaty countries.
Common Scenarios That May Lead to Double Taxation
Foreign investors in Romania can face double taxation in a number of common business scenarios:
Receiving dividends from a Romanian subsidiary
Paying or receiving royalties or interest across borders
Operating a permanent establishment (PE) in Romania
Selling Romanian real estate or assets
Contracting local Romanian employees or freelancers from abroad
Each of these situations comes with different tax implications depending on the structure of the business and the tax laws of both countries involved.
How to Avoid Double Taxation as a Foreign Investor in Romania
Successfully avoiding double taxation requires planning, legal insight, and an understanding of both Romanian tax law and international tax treaties. Here’s how to manage the process:
1. Check for a Double Tax Treaty
The first step is to verify whether your country of residence has a valid tax treaty with Romania. These treaties define which income is taxed in which country and often provide for relief mechanisms.
2. Understand Permanent Establishment Rules
Operating a fixed place of business in Romania may create a permanent establishment, making your company liable for local corporate tax. Determining whether a PE exists is critical for compliance and planning.
3. Structure Payments Correctly
Dividends, interest, and royalties between Romanian entities and foreign affiliates must be structured to comply with treaty rules and Romanian tax law. A tax consultant can help you apply the correct withholding tax rates and file the required documents.
4. Keep Proper Documentation
To benefit from tax treaty relief, investors must submit appropriate forms and supporting documents (e.g., residency certificates) to Romanian tax authorities. Failure to do so may result in the application of standard tax rates.
5. Seek Legal and Tax Advisory
Local expertise matters. A Romanian lawyer or tax consultant with experience in cross-border taxation can help structure your investment properly and ensure treaty benefits are applied efficiently.
Mistakes to Avoid in Double Taxation Matters
While the principles may seem straightforward, many businesses make mistakes that cost them time and money. Here are some pitfalls to watch out for:
Ignoring treaty benefits – Not applying for reduced withholding tax rates or exemptions that you are entitled to
Missing filing deadlines – Tax forms related to treaty benefits must be submitted within specific timeframes
Poor record-keeping – Incomplete or missing documents can lead to denied treaty claims
Improper structuring – Creating a business presence in Romania without proper legal planning can result in unintended tax liabilities
Assuming uniformity – Not all treaties are the same. What works for a UK investor may not apply to one from the U.S.
Why Legal Support Is Critical
Avoiding double taxation isn’t just about filling in forms—it’s about understanding the interaction between domestic and international tax systems. The wrong step could mean double payment, legal exposure, or audits.
That’s why many international investors choose to work with legal professionals familiar with Romanian tax laws and international treaties. A knowledgeable legal team can:
Interpret and apply the correct tax treaty provisions
Assist in preparing and submitting documentation to tax authorities
Provide strategic advice on business structure and compliance
Represent your interests in discussions with Romanian institutions
How Buju, Stanciu & Asociatii Can Help
At Buju, Stanciu & Asociatii, we assist foreign investors, multinational companies, and entrepreneurs who want to do business in Romania confidently and compliantly. Our legal team understands the complexities of international taxation and is well-versed in the mechanisms for the avoidance of double taxation.
Whether you are setting up a Romanian subsidiary, receiving dividends, paying royalties, or managing cross-border contracts, we offer tailored advice and support to reduce tax risks and maximize legal certainty.
From initial company formation and tax registrations to advanced structuring and dispute resolution, our team provides the tools you need to grow in a stable legal environment.
