Romania: Split payment of VAT 01.09.2017 Government ordinance no. 23/2017 regarding the split payment of VAT was published in the Official Gazette no. 706/31 August 2017. Please find below the most important measures which are applicable starting 1 January 2018 for the invoices issued/advances payments cashed starting 1 January 2018. According to the VAT split payment mechanism, a Romanian VAT payer ("the Entity") should open at least one VAT bank account with one or more commercial banks (in case of payments in local or foreign currencies). Alternatively, it could open a VAT account with the state treasury only for payments in local currency, in which case it will not pay any commissions and will not receive any interest. The VAT account number should be communicated by the Entity to its clients. The clients of the Entity will perform two payments: one payment amounting to the value of the aquired goods/received services (i.e. the net amount without VAT) into the usual bank account and one payment amounting to the VAT into the VAT account. In turn, the Entity will make two payments to its suppliers that are registered for VAT purposes in Romania: one payment amounting to the value of the acquired goods/services (i.e. the net amount without VAT) into the usual bank account of the supplier and one payment amounting to the VAT into the VAT account of the supplier. The rule is not applicable in case of cash/card payments (e.g. taxi). The payment of the VAT amounts should be made from the separate VAT account. The VAT split mechanism applies to all supplies of goods/services subject to Romanian VAT. Generally, the amounts collected in the VAT account can be used only to pay the VAT due to the suppliers and the VAT due to the state budget. No cash is permitted to be withdrawn from the VAT account. The VAT related to amounts paid using cards/to the VAT not paid in the separate VAT account/to the payment instruments used after 1 January 2018 must be deposited in the VAT account within seven working days from the moment when the value of the deliveries was collected. The VAT related to the difference between the collected cash deliveries and cash payables must be also deposited in the VAT account within seven working days. The VAT account could be executed for the VAT amounts due to the state budget as well as for the payment of other outstanding taxes. Not complying with these rules triggers the applicability of penalties/fines as follows: a) VAT amounts not transferred by the Entity into the dedicated VAT account of the supplier, although the supplier has provided the Entity with the respective VAT account, in case the erroneous payment is not amended within a term of seven working days from the erroneous VAT payment date – penalties of 0,06%/day in the first 30 days; a fine equal to 50% of the VAT amount erroneously transferred after 30 days; b) Payment of VAT amounts from other account than the Entity’s VAT account in case the erroneous payment is not amended within a term of seven working days from the erroneous VAT payment date – penalties of 0,06%/day in the first 30 days; a fine equal to 10% from the VAT amount erroneously transferred after 30 days; c) Not providing the clients/suppliers with details regarding VAT account number – fines between RON 2.000 and RON 4.000; d) In specific cases, not depositing VAT amounts related to performed deliveries (cashed in other bank accounts or cashed by cash or by card) into the dedicated VAT account within a term of 7 working days – penalties of 0,06%/day in the first 30 days; a fine equal with 10% from the VAT amount not transferred after 30 days. The administrative burden of the above measures must be taken into consideration as non-observance of the obligations mentioned in this ordinance presumes significant sanctions, as detailed above. All the applied fines could be reduced by 50% if the payment is made within 48 hours from the date on which they are established/communicated. The above obligations are optional starting 1 January 2017 and become mandatory starting 1 January 2018 for invoices issued/advance payments cashed after 1 January 2018. Specific incentives are applicable for entities that opt for the split payment of VAT starting 1 October 2017: (i) 5% deduction of profit tax/microenterprise tax due for 4th quarter of 2017; (ii) cancelation of VAT late payment penalties related to VAT outstanding on 30 September 2017.