The new VAT split payment system requires all VAT payers (including non-residents registered for VAT purposes in Romania) to use a bank account dedicated to all VAT-related incoming and outgoing amounts (for transactions carried out on the Ro territory) in respect of all their VAT-bearing transactions. According to the recently published information, the VAT split payment will be optional as of 1 October 2017 and mandatory as of 1 January 2018.
Under this new system, suppliers / providers will be required to communicate dedicated VAT account (opened with treasury offices or credit institutions) information to their clients to use when paying the VAT amount related to each supply of goods / services. To this aim, each invoice will have to include two split payments, relating to the value added tax and the taxable amount.
The payments received in the VAT account can only be used by taxpayers to pay the VAT amounts due to suppliers / providers, or the VAT due to the state budget, by the statutory deadlines. For incoming amounts in cash, by card or cash substitutes, taxpayers will be required to transfer into their own dedicated VAT account the tax amounts within a maximum of 7 business days from receipt of payment.
The amounts in the VAT-specific accounts can only be transferred by the account holders to their regular account with the prior approval of the tax administration agency ANAF, with the related procedure and approval requirements to be published.
What steps should you follow?
- Open a dedicated VAT account with the treasury offices or credit institutions; the account IBAN should include the sequence “VAT”;
- Inform your clients regarding the dedicated VAT account to be used for incoming payments for all Romanian VAT-bearing supplies of goods / services;
- Use the VAT dedicated account for VAT incoming (including cash /card /cash substitutes) / outgoing payments.
What are the effects of the VAT split payment mechanism?
The new VAT split payment system could generate major cash-flow difficulties, with additional costs and requirements for taxpayers, pertaining to the adjustment of IT systems and accounting programs, payment management and changes to internal working procedures. Companies will also incur additional costs caused by bank fees related to the significant increase in bank transactions.
Examples of cash flow difficulties:
- for incoming amounts in cash, by card or cash substitutes, taxpayers will be required to transfer into their own dedicated VAT account the tax amounts (for cash – the difference between VAT received in cash and VAT paid in cash) within a maximum of 7 business days from the settlement date. In the past, the Company was able to freely use the respective amounts and only comply with the normal declaration and payment terms (the 25th of the following month).
- for invoices issued by your company Ro VAT ID for local supplies which are not paid by the customers by the 25th of the following month, you will have to transfer the respective VAT amounts (i.e. the actual impact may be of up to approx. 15% of the total value of the invoice) in its VAT account in order to pay the relevant VAT amounts to the state budget.
Failure to comply with the provisions of the VAT split payment mechanism may result, in certain circumstances, in significant sanctions of up to 50% of the VAT amount not paid into the dedicated VAT amounts. Also, the Ordinance mentions certain benefits for the taxpayers that opt to apply the VAT split payment mechanism during the period 1 October – 31 December 2017 (i.e. reduction with 5% of the corporate income tax related to Q4 of 2017, cancellation of the penalties related to VAT liabilities due at 30 September 2017).
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