Romanian Firms Flee to Bulgaria for Lower Taxes. What Entrepreneurs Risk by Moving Only Their Paperwork

Romanian entrepreneurs are increasingly seeking to relocate their businesses to Bulgaria, attracted by significantly lower tax rates. The primary draw is Bulgaria's 10% profit tax, a stark contrast to Romania's 16% rate. Furthermore, Romania's dividend tax doubled to 16% at the start of 2026, pushing the total tax burden for entrepreneurs distributing profits close to 30%.

This fiscal disparity has fueled a surge in Romanian businesses exploring options in Bulgaria, with many tax consultants recommending the move. Services offering company formation and administration in Bulgaria are proliferating, highlighting the advantages of this jurisdiction. However, tax advisors like Gabriel Biriș, a former state secretary at the Ministry of Finance, caution that these arrangements can become legal pitfalls for entrepreneurs who only formally shift their business registration while continuing their actual economic activities in Romania.

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There are quite a few in the market who tell their clients: 'God, in Bulgaria, come on, move your company to Bulgaria, because look, the profit tax there is 10%, and the payroll tax and contributions are better.' Only that our legislation, including that aligned with OECD standards, contains the concept of a permanent establishment.

Biriș explains that Romanian tax law, aligned with OECD standards, recognizes the concept of a "permanent establishment." This means that simply registering a company in another country does not exempt it from Romanian tax obligations if the core business operations remain within Romania. Whether it's an office, shop, or factory, if the activity occurs in Romania, it constitutes a permanent establishment there, regardless of the company's official registration location.

Moreover, tax authorities engage in automatic information exchange. This means Romania's National Agency for Fiscal Administration (ANAF) can receive data about companies and bank accounts held abroad, even in low-tax jurisdictions. Consequently, entrepreneurs attempting to formally relocate their businesses or fiscal residency might find themselves liable for taxes in both countries, negating the intended tax benefits and potentially leading to more complex financial and legal entanglements.

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It's useless to have a company in Bulgaria or anywhere else if you conduct your activity here. If you have an office, a store, or a factory in Romania, you have a permanent establishment in Romania. It's useless to have a headquarters in Bulgaria or Panama if the place of effective management, i.e., the place where decisions are made, is in Romania.