Romania - Approval with amendments of Government Ordinance no. 23/2017 regarding VAT split

31.01.2018

The VAT payers finding themselves in at least one of the following situations are held liable for opening a VAT account with a view to cashing and paying VAT:

a)       the VAT payers that, at 31 December 2017, registered overdue VAT liabilities higher than  RON 15,000 - in case of large taxpayers, RON 10,000 - in case of medium-sized taxpayers and RON 5,000 - for all other taxpayers, which are not paid until 31 January 2018. These VAT payers will be registered by the tax authorities in the Register of persons that apply VAT split ("the Register") starting with 1 March 2018 (no prior notification will be issued by the tax authorities)

b)       the VAT payers that, starting with 1 January 2018, will register overdue VAT liabilities that are not paid within a term of 60 working days and that are higher than the thresholds mentioned at letter a) above. These VAT payers will be registered by the tax authorities in the Register starting with the first day of the second month following the month when the 60-day term has expired (no prior notification will be issued by the tax authorities)

c)       the VAT payers that are in insolvency procedures

The VAT payers from letters a) and b) above could exit the VAT split mechanism after a period of minimum 6 months from the date when the VAT liabilities are paid, by submitting a notification to the tax authorities. The tax authorities will cancel the registration from the Register within maximum 5 working days from the notification date.

The VAT split payment is applicable in case of all deliveries of goods/rendering of services that are taxable from a VAT point of view and whose place of delivery is Romania, excepting VAT taxable operations for which the beneficiary is the person held liable for VAT payment (e.g. intra-community acquisitions of goods/services, operations that are subject to simplification measures or special VAT regimes, etc.).

All VAT payers, irrespective if they apply VAT split mechanism or not, or if they are registered for VAT purposes or not, must pay the VAT related to the acquisitions of goods/services in the VAT account of their suppliers that apply VAT split mechanism. The only persons that are not obliged to perform these VAT split payments are the VAT taxable individuals and the persons that are not established in Romania from a VAT point of view and that are not registered / not obliged to register for VAT purposes in Romania.

VAT split entities must pay the VAT related to the acquisitions of goods/services from their VAT account.

The banking institutions and State Treasury can automatically open VAT accounts for their clients that are registered for VAT purposes, but they must notify the clients as regards the conditions for use of the respective bank account and the related costs. The banks' clients are entitled to maintain the VAT accounts or to unilaterally renounce them within a term of 90 working days from the date when they have received the notification from the bank. The banks will close the non-used VAT accounts of their clients that do not opt for maintaining them within the term of 90 days.

Law no. 275/27 December 2017 stipulates that the VAT payers registered within the VAT split system are obliged to communicate to the beneficiaries their VAT account, but it does not mention a term or the modality of such communication. In case they do not communicate this VAT account, their beneficiaries must pay the VAT related to the acquisitions from this VAT payer in the VAT account of the supplier opened at the State Treasury (the list of bank accounts opened by the State Treasury is published on the website of the Ministry of Finance or of the national tax authorities).

Within a term of 30 working days from the date when they have cashed the value of the deliveries of goods/rendering of services, the VAT payers registered within the VAT split system are obliged to transfer from their bank accounts into the VAT account the VAT amounts related to (i) amounts cashed by credit/debit cards, (ii) amounts paid by VAT payers in other accounts than the VAT account, (iii) the difference between the VAT related to the cash payments and the VAT related to cash collection, etc.

The VAT account could be executed only for VAT amounts due to the state budget and for VAT related to acquisitions of goods/services, based on specific enforceable titles.

As regards the applicable penalties/fines, Law no. 275/27.12.2017 eliminated the fine amounting to 50% in case of VAT amounts not transferred by VAT payers into the dedicated VAT account of the supplier, if the erroneous payment has not been rectified within a term of 30 working days from the erroneous VAT payment date. For entities not obliged to observe the split VAT mechanism themselves, it remained in force the penalty of 0,06%/day applied to the VAT not paid in the dedicated VAT account of their supplier/s observing the VAT split regime, if the erroneous payment is not amended within a term of 7 working days from the erroneous VAT payment date. All applied fines could be reduced by 50% if the payment is made within 48 hours from the date on which they are established/communicated.

Law no. 275/27.12.2017 introduced a supplementary incentive for VAT payers that opt for VAT split mechanism after 1 January 2018 amounting to a reduction of 5% of the profit tax/microenterprise tax for the period when the VAT split mechanism is applied.

Our recommendations:

1.   In January 2018: checking of the Tax Payer Sheet (Ro: Fisa pe platitor) in order to identify any possible errors regarding declaration and payment of VAT with a view to identifying any possible overdue VAT liabilities and to reconciling them. Also in January 2018: payment of all overdue VAT liabilities as of 31 December 2017 that exceed the thresholds mentioned above.

2.   Periodically: checking of the Tax Payer Sheet in order to identify any possible discrepancies regarding declaration and payment of VAT with a view to identifying any possible overdue VAT liabilities and to reconciling them.

3.   A rigorous checking of each supplier to be performed before the payment of each invoice, with a view to identifying if such supplier is registered in the Register and to accurately performing the payments in the VAT account.