Romanian fiscal changes– key considerations for compliance

Fiscal changes introduced in Romania this year include a reduced VAT rate, the elimination of R&D tax and the health contribution threshold.

VAT

Romania has reduced its VAT rate three times in two years. Standard value added tax in Romania is currently 19%, following a January 2017 cut. The reductions have impacted both consumers and traders, as each one required them to update their cash register software and all invoicing documentation to remain compliant. Where traders are not compliance they risk fines of €500 - €1000, litigation with their business partners and inability to deduct their VAT.

Although VAT cuts aim to stimulate economic growth through increasing domestic consumerism, there is no provision in the Romanian legislation that forces traders to automatically lower the price on their products or services. VAT cuts might also affect the country’s budget, since it is an important income source for Romania (1/4 of the total budget).

Among the standard VAT rate exceptions:

  • lease, rental, life interest rights on buildings for which the service applies with each payment stipulated in the contract
  • services that require expense account, or multiple payments, such as: research, consultancy, expertise, constructions/fitting, that are completed once the beneficiary receives a report / situation
  • products offered for testing or conformity checking, when those are delivered to their beneficiaries
  • services and products delivered with recurrence, such as: natural gas, water, energy and electricity, telecommunication (phone).

A special 9% VAT rate is applicable in 2017 for:

  • supply of medical prosthesis
  • supply of orthopedic products
  • human and veterinary medicines
  • hotel accommodation, camping areas
  • food, beverages (except for alcoholic beverages), seeds, plants
  • restaurant and catering services
  • water for agricultural land irrigation and fertilizers or pesticides.

5% VAT rate applies to:

  • school books, newspapers and magazines
  • access to public institutions (museums, castles, historic monuments)
  • supply of buildings and houses, that fit under social incidence
  • sport events.

Health contribution insurance threshold eliminated

On 1 January 2017 the health contribution threshold was set to five medium salaries for employees (5.5% rate). One month later an emergency ordinance (OUG3/2017) eliminated the threshold and decided to increase the health contributions from the entire achieved income.

This affects mainly employees with large salary income, and companies (employers) have to decide if they will participate to this contribution entirely or partially.

Non-compliance brings real risk to local traders and international companies that are unaware of tax and legislative changes introduced by the Romanian Government.

 

New tax incentives introduced in 2017

In the first half of 2017 Romania introduced a number incentives to increase its attractiveness as a business destination for international investors, such as:

  • eliminating the ‘pole tax’ (a special construction tax of 1%)
  • the corporate tax for R&D companies during their first 10 years of activity in the local market, provided they meet the projects’ objectives.

The withholding tax for dividends paid to residents of the states with which Romania has concluded a DTT (Double Taxation Treaty) was reduced to 5% at 1 January 2017, and the informative statement is to be submitted electronically every year.

Both withholding tax payers and exempted non-resident companies must obtain a fiscal registration number (NIF), in order to be included in the 207 statement.

The tax rate for dividend revenues derived by non-residents in Romania has been reduced from 16% to 5%. Similarly to the amendment brought in the case of distribution of dividends to Romanian legal entities. The scope of withholding income tax due by non-residents from the rendering of services is restricted only to management and consulting services in any field of activity.

Find out where Romania ranks in our Financial Complexity Index 2017.

Romania eases taxpayer bureaucracy

According to the World Bank’s ‘ease of doing business’ indicator, Romania ranked 36 at the end of 2016, where 1 is the most business-friendly regulation position. Considering the bureaucracy and tax measures effective in 2017, the country’s position is expected to drop.

Employing companies are exempted from submitting the fiscal statement *205 starting with 2017 (which will become effective from 2018). Also the submission of statements *392A and 392B has been suspended until 2019. Statements are still mandatory for tax payers with a turnover under €49,000 (220,000 Romanian LEU).

Statement 088, which had to be submitted to the fiscal body *ANAF, was eliminated at 1 February 2017. This form was a burden for tax payer companies, in case of: changing or extending of registered office address, changing company administrators/shareholders or in case of applying to register for VAT purposes.

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