The Romanian Ministry of Finance published an Ordinance on the implementation of the Value Added Tax (VAT) split payment mechanism in August 2017. Accordingly, taxable persons registered for VAT purposes in Romania according to art. 316 of the Fiscal Code (as well as the public institutions registered according to that article) were required to open separate accounts for the collection and payment of VAT. The VAT split payment applies to all taxable supplies of goods/services, for which the place of supply is in Romania (although some exceptions are provided).

Law 275/2017¹ sets out the rules that now apply. In Romania, VAT-registered persons that meet one of the following criteria are required to open and use at least one VAT account:

• As of 31 December 2017, a taxpayer with outstanding VAT liabilities, exceeding RON15,000 for large taxpayers, RON10,000 for mid-sized taxpayers, and RON5,000 for other taxpayers, if such liabilities are not paid by 31 January 2018 (with an exception for those taxpayers for which the enforcement procedure is suspended according to art. 235 of the Tax Procedure Code). The entry in the registry of persons applying the VAT split payment mechanism will apply with effect from 1 March 2018.
• Starting 1 January 2018, a taxpayer with outstanding VAT liabilities older than 60 working days as of the due date, exceeding RON15,000 for large taxpayers, RON10,000 for mid-sized taxpayers, and RON5,000 for other taxpayers (with an exception for those taxpayers for which the enforcement procedure is suspended according to art. 235 of the Tax Procedure Code). The entry in the registry of persons applying the VAT split payment mechanism will apply from the first day of the second month following the month when the 60 working days deadline occurred.
• For any taxpayer who falls under the provisions of the national legislation regarding the procedure for the prevention of insolvency and for insolvency, the entry in the registry of persons applying the VAT split payment mechanism will come into effect starting 1 March 2018 for persons undergoing insolvency as at 31 December 2017 and starting the first day of the following month for persons undergoing insolvency with effect from 1 January 2018 onwards.

The law also provides rules for leaving the VAT split payment mechanism.

Persons not registered for VAT purposes, individuals or legal persons not established in Romania, are not required to make payments into the VAT account of a supplier who applies the VAT split payment mechanism.

Certain operations have been specifically excluded from the VAT split payment mechanism, examples include:

• Payments performed on behalf of another person
• Financing granted by credit institutions and non-banking financial institutions in the case of assignment of receivables
• Payments in kind
• Compensation payments

Payments made incorrectly

The supplier is allowed to correct a payment that is incorrectly paid by the beneficiary into an account other than the VAT account.

A fine of 50% was originally envisaged under the law for any the amount erroneously paid to an account other than the VAT account. This penalty has been replaced with a fine of 0.06% per day.

Other payments

For amounts secured in a warranty account, escrow account, or any other similar accounts that are under supplier's control, upon their release, the supplier is required to transfer the related VAT into his own VAT account within 30 working days. The 30 working days deadline applies also for the transfer of other VAT amounts by the supplier into its own VAT account (e.g., cash and card payments received).

Liability to pay

Taxpayers that do not apply the VAT split payment mechanism are liable to make split payments from their current accounts to the VAT account of any suppliers that do apply the VAT split payment mechanism.

Tax incentive

A tax incentive of a 5% decrease in the profit tax/income of microenterprises will be granted for the entire period during which the VAT split payment mechanism is optionally applied. In light of the amendments, taxpayers should consider adjusting their IT systems and cashing and payment processes. Taxpayers should also check their files in order to identify potential errors concerning the payment of VAT liabilities.

———————————————
ENDNOTE

¹ Law for the approval of Government Ordinance 23/2017 regarding the VAT split payment mechanism.

———————————————
CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young SRL, Bucharest

• Jean-Marc Cambien
  jean-marc.cambien@ro.ey.com
• Costin Manta
  costin.manta@ro.ey.com

———————————————
ATTACHMENT

PDF version of this Tax Alert