Value Added Tax is generally in line with the principles of the EC VAT Directive 2006/112. Romanian VAT legislation uses three different VAT rates:
- Standard VAT rate: 19%.
- Reduced VAT rate: 9% for certain goods and services: accommodation, foodstuffs, restaurant and catering services, prostheses and the related accessories (except for dental prostheses), orthopaedic products, medicine suitable for human and animal use, water (for human consumption and for irrigation in agriculture), supply of fertilizers and pesticides used in agriculture, seeds and other agricultural products intended for sowing or planting, and also for supplies of services specific to agriculture.
- Reduced VAT rate: 5% for books, magazines, newspapers (with the exception of those destined exclusively or mainly for commercial purposes), admission to castles, museums, monuments, theatres, fairs, zoos, cinemas, exhibitions, cultural events, sporting events, as well as sale of real estate as part of social policy, under certain conditions.
VAT registration requirements – Romanian entities
Before October 2017, a requirement to prove willingness and capacity to conduct economic activities, for the purposes of VAT registration of companies was applicable. Since October 2017, this requirement has been removed and replaced with VAT risk analysis criteria. Taxable persons with a high fiscal risk profile will be denied registration for VAT purposes. The assessment criteria are subject to a scoring system: The applicant is classified as having a high tax risk profile if its score is below 51 points. The fiscal risk assessment criteria comprise various issues related to the headquarters, insolvency / bankruptcy, fiscal inactivity, temporary inactivity with the Trade Registry, rejection / cancellation of VAT registration, outstanding tax liabilities, minor offences, crimes, income, bank accounts, business activity, third parties, accounting services and employees.
The risk analysis is also carried out by the tax authorities on taxable persons already registered for VAT purposes, based on criteria for assessing the fiscal risk, potentially leading to a default cancellation of the registration for VAT purposes of taxpayers with a high fiscal risk profile. Based on this analysis, re-registration for VAT purposes is possible for taxpayers that no longer have a high fiscal risk profile. The criteria cover various conditions with respect to headquarters, employees, accounting services, reporting discrepancies and tax residence. Romanian entities carrying out economic activities including taxable operations, VAT exempt operations with credit, VAT exempt operations without credit or operations for which the place of supply is outside Romania in excess of the EUR 65,000 threshold are required to register and account for Romanian VAT.
If the annual turnover is below EUR 65,000, the entity is not required to register for VAT purposes. However, the taxable person may opt for the application of the general VAT regime. As from 1 April 2018, the VAT registration threshold for residents has been increased from EUR 65,000 to EUR 88,500. The measure is applicable until 31 December 2020. Transitional measures have been put in place for the period 1 January 2018 to 31 March 2018. If a Romanian entity carries out exclusively operations which are VAT exempt without credit, it is not allowed to/not required to register for VAT purposes.
A taxable person which is not established in Romania, nor registered for VAT purposes in Romania is required to register for VAT purposes in Romania prior to carrying out operations giving rise to a VAT deduction right, except for operations for which the customer is liable to account for VAT. Non-resident taxable persons are entitled to opt for VAT registration if they carry out one of the following operations in Romania:
- Imports of goods.
- Rental and leasing of immovable property, with certain exceptions, if the taxpayer has chosen to tax these operations.
- Supplies of buildings/parts of buildings and the land they are built on, if these transactions are taxable in accordance with the law or the taxpayer has chosen to tax these operations.
International supplies of goods and services
In general, if goods are sold to a customer which is registered for VAT purposes in another EU Member State (i.e. intra-Community supplies of goods) and the sale involves the dispatch of those goods from Romania (either by the supplier or the customer or by a third party on their behalf) to that other Member State, providing that the customer makes available its VAT registration number to the supplier, then the supply should be VAT exempt with credit in Romania.
The acquisition of goods, dispatched to Romania from another EU Member State qualifies as an intra-Community acquisition of goods in Romania, subject to VAT in Romania under the reverse charge mechanism. Under the reverse charge mechanism, the taxpayer is required to account for the relevant VAT both as input and as output VAT (cash flow neutral).
If a non-Romanian entity is not registered for VAT in Romania, but sells and delivers goods from another EU Member State to customers in Romania which are not registered for VAT purposes (distance sales), where the value of those sales exceeds the threshold of EUR 35,000 per year, the nonRomanian entity is required to register and account for VAT in Romania.
If goods are exported to a customer (business or private) outside the EU then no VAT is charged. Goods exported from Romania are VAT exempt with credit, but the seller should make sure that in all cases proof of actual dispatch/delivery (i.e. the fact that the goods actually left EU territory, and were transported either by the supplier or the customer, or by a third party on their behalf) is available to support the exemption.
When goods are imported into Romania (dispatched from outside the EU), payment of import VAT is actually made to the customs authorities, except for those taxpayers which have applied for and obtained an import VAT deferment payment certificate.
This import VAT deferment payment certificate can be obtained by companies that are VAT registered in Romania and that in the previous calendar year / last 12 months carried out imports of goods (except for excisable goods) with a value exceeding RON 100,000,000 (i.e. about EUR 23,000,000), or that hold an AEO (“Authorised Economic Operator”) certificate or a customs authorization to apply the on-site simplified customs clearance procedure.
The general rule is that the place of supply of services is the place where the beneficiary has established its business. However, there are some exceptions to this rule (e.g. services connected with immovable property, restaurants and catering, as well as passenger transport). Moreover, generally, the place of supply of services to a non-taxable person is where the supplier has established its business, although there are several exceptions. Generally, if a taxable person purchases certain services from outside Romania and the services are deemed to be supplied in Romania according to the general rule, the taxpayer will be required to apply the reverse charge mechanism in Romania.
A VAT return must be filed with the tax authorities as follows:
- On a monthly basis for businesses whose annual income giving rise to a VAT deduction right exceeds EUR 100,000, by the 25th of the month following that when the VAT became chargeable.
- Quarterly, for businesses under this threshold, by the 25th of the first month following each quarter.
- Bi-annually/annually, under certain conditions (approval of the relevant tax authorities is required).
Taxpayers which carry out intra-Community acquisitions of goods in Romania must file monthly VAT returns, regardless of their turnover. EC Sales and Purchases Lists (so called “Recapitulative Statements”). EC Sales and Purchases Lists must be filed on a monthly basis, no later than the 25th of the month following that when the VAT became chargeable and should include all intra-Community acquisitions / supplies of goods, as well as all acquisitions / supplies of intra-Community services. Local Sales and Purchases Lists (so called “Informative Statements”) Local Sales and Purchases Lists must be filed on a monthly/quarterly basis (as per the fiscal period), by 30th of the month / quarter following the period to which they refer and should include extensive information about all transactions carried out on Romanian territory. The statement must be submitted, even if the amount is nil.
ntrastat returns must be filed on a monthly basis, no later than the 15th of the month in which goods are dispatched from one EU Member State to another and must include all intra-Community dispatches / arrivals of goods from/to Romania. For 2017, the threshold is RON 900,000 for both intraCommunity arrivals of goods and intra-Community dispatches of goods.
VAT was designed as a tax on consumer expenditure, rather than on businesses. Registered VAT taxpayers are entitled to deduct the input VAT incurred on purchases (“input VAT”) from the VAT which they charged with respect to their customers (”output VAT”). The taxpayer must provide the following documentation in order to deduct the input VAT:
- An invoice drawn up in accordance with art. 319 par. (20) of the Fiscal Code or
- An import customs declaration (for imports).
Nevertheless, the taxpayer should be able to demonstrate with appropriate justifying documents the substance of the transactions carried out. Whenever business outputs do not give rise to a VAT deduction right (e.g. VAT exempt without credit), input VAT due or paid cannot be deducted. The tax authorities may deny the VAT deduction right to taxpayers only if, after checking all available evidence under the law, they can prove beyond any doubt that the taxable person knew or should have known that a transaction involved VAT fraud which occurred upstream or downstream in the supply chain.
VAT cash accounting system
Romanian businesses that obtained a turnover lower than RON 2,250,000, during the previous calendar year, are eligible to opt to apply the VAT cash accounting system (i.e. deduction/collection of input/output VAT at the time of payment/cashing of consideration to/from suppliers/customers and not at the date of receipt/issuance of an invoice).
VAT split payment system
As from 1 January 2018, the application of the VAT split payment system became mandatory for VAT payers in insolvency and / or with outstanding VAT obligations, but optional for other eligible taxpayers. Taxpayers registered for VAT purposes not applying the system, making purchases from those which apply the system, will be required to make split payments. However, taxable persons not registered for VAT purposes, taxable persons not established in Romania from a VAT perspective and not registered for VAT purposes, as well as public institutions, which do not apply the system, will not be required to apply the VAT split payment when making purchases from taxpayers which do.
Under the VAT split payment system, suppliers are required to communicate to their beneficiaries details of a dedicated VAT account, opened at State Treasury offices or credit institutions, where the beneficiaries will pay the VAT equivalent for each acquisition of goods / services. Amounts credited to the VAT account can be used by taxpayers only to pay in turn the VAT due to the suppliers, or the VAT to the state budget within the deadlines set by law. For cash, card or cash substitutes, taxpayers are required to pay the corresponding tax amounts into their own VAT account. The amounts in the VAT account may be transferred by the holders to their current account only with the tax authorities’ prior approval.
Entities that opt to apply the VAT split payment system may benefit from a 5% reduction on the corporate tax /microenterprise tax due for the period that they apply the system optionally.