In Romania, tax inactivity status and the temporary suspension of business activity registered with the Trade Registry are two different legal concepts. They have different legal sources, different purposes and different effects. The suspension of business activity is a corporate law matter, while tax inactivity is mainly a tax law concept.
The temporary suspension of business activity is registered with the Romanian Trade Registry, based on a voluntary decision of the company’s corporate body, such as the shareholders’ meeting or the sole shareholder. It is not linked to the company’s financial position and may be registered for a maximum period of three years. During this period, the company is not allowed to carry out business activity, although it may request the activity restart at any time before the suspension period expires.
By contrast, tax inactivity status is generally a measure applied by the tax authorities when a taxpayer fails to meet certain legal obligations. These may include failure to file tax returns, avoidance of tax inspections, absence from the declared tax domicile, expiry of the registered office, lack of statutory bodies, failure to submit annual financial statements or absence of a Romanian payment account. In these cases, tax inactivity operates as a sanction and does not automatically mean that the company’s business activity is legally suspended.
A company declared fiscally inactive faces important tax consequences. Its VAT registration is cancelled and it loses the right to deduct expenses and VAT related to acquisitions made during the inactivity period, and its clients may also be denied deduction rights for transactions carried out with that company after its registration as an inactive taxpayer. The fiscally inactive company must still declare and pay applicable taxes, duties, social contributions etc.
The key distinction is that tax inactivity imposed as a sanction does not, by itself, prohibit the company from operating. However, when the tax inactivity status results from a temporary suspension of activity already registered with the Trade Registry, the company is also prohibited from carrying out business activity during the suspension period. In practice, registering a suspension of activity with the Trade Registry triggers tax inactivity, but not every case of tax inactivity equivalates to legal suspension of business activity.