Plans to change the Romanian VAT system

The expected changes regarding the VAT system in Romania received concrete parameters. The proposed mechanism by the Romanian government is unique for Europe and will affect all taxpayers, which are registered for VAT purposes in Romania.

According to the new mechanism, VAT will be collected in a bank account, distinct from the current bank account, specifically where only the VAT-free amounts will continue to be cashed. Also, VAT for the purchase of goods or services will also need to be paid from said VAT account.

The new VAT split payment mechanism:

– will be optional starting from 1 October 2017 and mandatory as of 1 January 2018 for Romanian and non-resident taxpayers registered for VAT purposes in Romania;

– will cover all business-to-business cash transfers, made via a bank;

– expressly sets out the situations where the VAT accounts can be credited or debited;

– in certain situations, calls for prior approval from the Romanian tax authorities for transferring amounts from the VAT account into the main account of the taxpayers;

– allows for certain incentives for taxpayers, which choose to apply the VAT split payment mechanism during the trial period 1 October – 31 December 2017 (ie a 5 % reduction of their corporate income tax or micro-company tax, the cancellation of penalties for outstanding VAT liabilities as at 30 September 2017, under certain conditions).

This mechanism was introduced with the aim to improve VAT collection for the Romanian state, currently the lowest in the EU. The business has expressed its concern over this measure, given the anticipated impact on compliant taxpayers. Also, companies will need to adapt their IT systems to the new mechanism within a relatively short timeframe, with significant costs in certain cases. It is expected that as of 1 January 2018, this mechanism will significantly disrupt operational flows throughout the entire Romanian economy. It must be also noted that this will not help reduce tax evasion, as the proposed mechanism covers only the VAT which was declared, but not paid. It is also not certain if the European Commission will approve these new rules. However, although strongly disputed, the Romanian Government did not reconsider this measure.

It is expected that this plan will remain only on paper and will be withdrawn before it becomes effective on 01.01.2018. BRCCI will follow this case closely and will inform you of any development.

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