Value Added Tax in Romania
This article provides an update and overview of value added tax legislation in Romania, including rules on registration, applicable rates, calculation, invoicing, payment, exemption and refund.
According to the Romanian legislation, before undertaking any economic activities involving VAT taxable and/or exempt transactions, such as supply of goods or services, any taxpayer whose economic activity is based in Romania, or has the center of its activity outside Romania but has a ﬁxed establishment in Romania, must register with the competent tax authorities for VAT purposes. However, the Fiscal Code approved by Law no. 227/2015 (‘‘Fiscal Code’’) provides that companies which estimate that their annual turnover will be lower than the threshold provided by law may opt not to register for VAT purposes.
The annual turnover threshold for VAT registration is 220,000 Romanian lei, i.e. 65,000 euros. The said threshold is derogatory from the provisions of the Council Directive 2006/112/EC of November 28, 2006 on the common system of value added tax, which provides a lower threshold of 35,000 euros. According to the Decision of the Council of the European Union no. 2014/931/EU, such derogatory threshold is currently scheduled to apply until December 31, 2017. However, if within the ﬁscal year the turnover of the taxpayer becomes higher than the said amount, the taxable person will have to register for VAT purposes with the competent tax authorities.
Depending on the resident status, taxpayers may opt for:
- standard VAT registration applicable to companies registered in Romania;
- special VAT registration of Romanian companies for intra-Community (European Union) acquisitions;
- nonresident EU registered entities, or non-EU entities operating in Romania may appoint a ﬁscal representative and register for VAT purposes;
- direct VAT registration in case of EU resident taxpayers.
A Romanian company may be required to register for VAT purposes in other EU Member States where it performs operations such as intra-EU Community acquisition of goods, or holding a stock of goods.
From the VAT perspective, the economic activities of any entity carried out in an independent manner, irrespective of the purpose or result of those activities, are subject to VAT.
A. VAT Establishment
A taxpayer is considered to be a resident of Romania if it registered its main place of business in Romania, or it has a ﬁxed establishment in Romania.
A taxpayer with its main place of business outside Romania has a ﬁxed establishment in Romania if it has sufﬁcient technical and human resources in order to perform taxable deliveries of goods and/or services on a regular basis.
B. Transfer of Business
Any type of partial or total transfer of assets such as the transfer of a going concern is not subject to VAT if the beneﬁciary is a taxpayer. In order for a partial transfer of assets to be exempt from VAT, the transferred assets must constitute an autonomous business unit capable of autonomous economic activity.
C. VAT Territoriality
The rules for establishing the place of supply of goods and services, i.e. the place of VAT levy, are in line with the EU VAT Directives.
The supply of natural gas, electricity, and thermal energy is subject to VAT where the trader has its main place of business or, in the case of supplies to an end customer, the place where they are used and consumed.
D. Services Provided by Nonresident Entities
Services provided by nonresident entities to Romanian companies with the place of supply in Romania are subject to Romanian VAT.
For services provided by taxpayers to other taxpayers, the place of taxation is the place where the beneﬁciary established its place of business, or it has a ﬁxed establishment, domicile or habitual residence.
The Fiscal Code provides various exceptions from the above rules regarding VAT applicability in case of nonresidents regarding certain services such as (i) transport-related auxiliary services, (ii) works involving movable tangible goods, (iii) valuation of movable tangible goods, and (iv) local transport of goods. If such services are rendered to a non-EU resident taxpayer and the effective use of the services takes place in Romania, then the place of taxation is considered to be Romania.
E. The VAT Rate
The standard VAT rate currently applied in Romania is 20% of the taxable base. As of January 1, 2017, the VAT rate will be 19%. The taxable base in respect of VAT is the value of the delivery of a commodity, the value of the services rendered, the value of a taxable import, or the value of an intra-EU Community acquisition, as deﬁned by the Fiscal Code.
A reduced VAT rate of 9% is levied on medicines for human and veterinarian use, books, newspapers and periodicals, accommodation in hotels or in establishments with a similar function, cinema tickets, admission fees at museums, historical monuments, zoos and botanical gardens, fairs and exhibitions, supply of school manuals, supply of prostheses and orthopedic products, restaurant and catering services, excluding alcoholic beverages, most food and beverage products (excluding alcoholic beverages) intended for human and animal consumption, such as live domestic animals and poultry, seeds, plants and ingredients used in preparing food, certain food supplements or substitutes.
As of August 1, 2016, the reduced VAT rate of 9%also applies to:
- the sale of fertilizers and pesticides used in agriculture, seeds and other agricultural products for sowing or planting; and
- the rendering of speciﬁc services performed in agriculture.
The reduced VAT rate of 5% applies to housing delivered as part of an approved welfare scheme, including old people’s homes, retirement homes, orphanages, rehabilitation centers for children with disabilities, including buildings and parts thereof supplied as housing, subject to certain conditions. Houses of no more than 120 square meters and a value of maximum 380,000 Romanian lei also qualify for the reduced 5% VAT rate.
F. Calculation of VAT
Any taxable person has the right to deduct the VAT related to purchases, if these are intended to be used for generating taxable revenues.
The difference between the VAT collected by a Romanian VAT payer, and the deductible VAT paid by the same, results in a VAT balance, which will be reﬂected in the VAT return.
If the VAT balance is positive, i.e. the collected VAT is higher than the deductible paid VAT, the VAT balance will have to be paid to the state budget.
If the VAT balance is negative, and the amount of such balance is higher than 5,000 Romanian lei, the VAT payer may request the reimbursement by the state of the respective VAT balance. The reimbursement of VAT is usually done after the conduct of a tax audit by the relevant tax authorities.
As of March 1, 2014, VAT returns requesting the reimbursement of an amount less than 45,000 Romanian lei will be granted prior to the conduct of the tax audit. For VAT returns requesting the reimbursement of an amount higher than 45,000 Romanian lei, the tax authority, after a risk analysis, will decide if the tax audit has to be conducted prior, or after, the VAT reimbursement.
Within the investment period of a company which is starting a new business, the VAT may be reimbursed prior to the conduct of a tax audit by the relevant tax authorities. In this case, a bank guarantee is necessary; the cost of such letter may be lower than the cost that may be caused by the late reimbursement of VAT.
G. VAT Chargeability
VAT is usually chargeable on the date of the sale of goods, or of the rendering of services.
The Fiscal Code provides certain exemptions to this rule, i.e. the tax becomes chargeable:
- on the date of the issuance of an invoice, if the invoice is issued before the date when the generating fact occurs;
- on the date of the receipt of the advance payment, for the payments in advance made before the date of the supply of goods/services;
- on the date of cash withdrawal, for the delivery or supply of goods or services performed by automatic sale machines, game machines, or other similar machines.
Moreover, the following categories of taxpayers:
- taxpayers registered for VAT purposes in Romania having their registered place of economic activity located in Romania, which registered an annual turnover in the previous ﬁscal year below 2.25 million Romanian lei; or
- taxpayers having their registered ofﬁces of their economic activity located in Romania, which registered for VAT purposes in Romania during the current calendar year;
may opt to charge VAT on the date of receipt of the full, or partial, price for the goods or services sold.
If during the current calendar year the turnover of the above-mentioned taxpayers exceeds the ceiling of 2.25 million Romanian lei, the option to pay VAT upon receipt of payment for goods or services rendered shall be applicable until the end of the tax period following the period in which the ceiling was exceeded.
The VAT payable upon receipt of the price for the goods or services rendered is mandatory for the above-mentioned taxpayers. However, this procedure is not applicable to taxpayers which are members of a tax group as deﬁned by the Fiscal Code. Furthermore, the VAT payable upon receipt is applicable only for operations for which the location of delivery or performance is considered to be in Romania.
Taxpayers must issue an invoice no later than the 15th day of the month following the one in which the tax became chargeable.
Taxpayers must also issue an invoice for the amount of the advance payments received in connection with the supply of goods/services no later than the 15th day of the month following the one in which the advance payments were received.
I. VAT Payment
If the annual turnover of a taxable person is lower than the equivalent of 100,000 euros, VAT returns must be ﬁled, and the VAT balance must be paid on a quarterly basis.
If the annual turnover of the respective taxpayer is higher than the equivalent of 100,000 euros, VAT returns must be ﬁled on a monthly basis, and the VAT balance must be paid on a monthly basis.
For taxpayers which perform intra-EU Community acquisitions which are subject to taxation for VAT purposes in Romania, the tax period for VAT purposes will be the month, i.e. the VAT returns must be ﬁled, and the VAT balance must be paid on a monthly basis.
J. Tax Exemption for Import of Goods Followed by Intra-EU Community Deliveries of Goods
According to the provisions of the Fiscal Code, if the import into Romania of goods from a third country is followed by intra-Community deliveries of the respective goods, the said import is VAT exempt. This exemption is granted only if the importer provides the customs authorities with the following information:
- code of registration for VAT purposes;
- code of registration for VAT purposes of the counterparty to which the goods are delivered in another EU Member State;
- proof of the fact that the imported goods are to be delivered from Romania to another EU Member State, in the same condition they were at the time of the import.
The customs authorities may request guarantees regarding the VAT related to the import of goods exempted as per the above-mentioned provisions.
In practice, if the import is not immediately followed by an intra-Community delivery, the importer may request approval of temporary storage of the goods until an EU counterparty is found, or until the logistics required for the delivery are ﬁnalized.
This exemption may be also applicable if the imported goods are subject to more or less complex processing in Romania prior to intra-Community delivery.
K. VAT Consolidation
It is possible for certain companies to form a ﬁscal group for VAT purposes. For example, a foreign company which establishes two branches in Romania will appoint only one of the branches to register as a Romanian VAT taxpayer.
L. VAT Simpliﬁcation Measures
For sale–purchase transactions between taxable persons registered for VAT purposes in Romania that involve waste materials, wood or secondary raw materials and certain grains, VAT is not actually paid, but only evidenced by the purchaser in the VAT return as both output and input tax.
Simpliﬁcation measures also apply for the transfer of greenhouse gas emission certiﬁcates. Consequently, for transactions with such certiﬁcates between taxable persons registered for VAT in Romania, the beneﬁciaries will have the obligation to pay VAT by applying the reverse-charge mechanism.
M. VAT Refund to Taxable Persons Established in the EU or Outside the EU
Taxable persons not registered for VAT purposes and which do not have the obligation to register for VAT purposes in Romania may request a VAT refund from Romania based on the refund request transmitted electronically to the authorities from the Member State where they are registered.
Such requests have to be transmitted to the Member State in which the applicant is registered, until September 30 of the year following the reimbursement period.
The competent authorities from the Member State where the taxable persons are established will forward the request to the competent authority in Romania which will inform the applicant with regard to the request’s arrival date.
The settlement period is four months starting from the date when the application is received by the Romanian authorities. The said period will be extended up to eight months if the tax authorities request further information.
Taxable persons established outside the EU also have the right to claim a VAT refund from Romania, based on the reciprocity agreements signed by Romania.
Adrian Tomescu is Partner, Buzescu Ca, Romania
He may be contacted at: firstname.lastname@example.org