New fiscal changes brought by the “Train Ordinance”: GEO no. 115/2023

The takeaway 

The Government of Romania has adopted Emergency Ordinance no. 115/2023 (GEO no. 115/2023, known as the "Train Ordinance"), which introduces new measures for fiscal consolidation and combating tax evasion.

We present below the most important changes and additions to the Fiscal Code, Law no. 296/2023 and GEO no. 120/2021 regarding the administration, operation and implementation of the national RO e-Invoice and RO e-Transport systems for monitoring transportation.

In detail

We present the most important changes and additions introduced by GEO no. 115/2023 "Train Ordinance" which will enter into force on 1 January 2024, with some exceptions:

I. Title II - Profit tax

I.1. Expenses with limited deductibility

The following are included within the scope of expenses with limited deductibility when calculating the fiscal result:

• The expenses for the proper functioning of nurseries and kindergartens under the administration of taxpayers.

• The amounts paid by the taxpayer for the placement of the employees' children in the early education units managed by taxpayers, up to RON 1,500/month for each child.

• 50% of the value of operating, maintenance and repairs expenses related to a social headquarters, purchased by the taxpayer in residential buildings or in individual residential buildings within residential complexes, which is not used exclusively for the purpose of economic activity. If the registered office is used for personal purposes by the shareholders/associates, the related expenses are not deductible when calculating the tax result.

• For taxpayer-incurred expenses related to private scholarships up to the limit of RON 1,500 per scholarship granted, with other social expenses, the resulting amount can be deducted up to the limit of 5% of the staff salary expenses. It will no longer be possible to take a tax credit for expenses related to private scholarships.

I.2. Sponsorships - profit tax redirection

The redirection of profit tax as sponsorship, patronage and/or to UNICEF or to other international organisations may be done within the limits and conditions provided by the Fiscal Code by the deadlines for submitting the annual profit tax return. This is a significant change from the current deadline of within six months of the date of filing of the annual income tax return.

I.3. Provisions/adjustments for impairment

For receivables registered as of 1 January 2024, the deductibility of adjustments for the depreciation of receivables representing amounts owed by internal and external customers for products, semi-finished products, materials, goods sold, works performed and services rendered is limited to 30%.

I.4. Tax losses

As of the year 2024 or the modified fiscal year starting in 2024, the annual tax losses established by the profit tax return are recovered from the taxable profits made, up to the limit of 70%, in the next five consecutive years.

The annual tax losses related to the years preceding the year 2024 or the year starting in 2024 remaining to be recovered as at 31 December 2023 are recovered from the taxable profits made as of the year 2024, up to the limit of 70% of the respective taxable profits, for the remaining period of recovery from the seven consecutive years following the year of recording those losses.

I.5. Permanent headquarters

It has been clarified that when establishing the market value of a transfer between a foreign legal entity and its permanent headquarters, the provisions of the 2010 report on the allocation of profits to permanent headquarters issued by the Organisation for Economic Co-operation and Development are taken into account.

I.6. Deductibility of interest and other equivalent costs

The deductibility of the excess costs of indebtedness resulting from transactions/operations with affiliated entities, which do not finance the acquisition/production of fixed assets under construction/assets to be established by order of the Minister of Finance, will be limited to EUR 500,000. This limit does not apply to credit institutions, Romanian branches of credit institutions, non-banking financial institutions, Romanian branches of non-banking financial institutions and investment companies.

The limit of EUR 1 million to which deductions can be made is maintained, in a fiscal period, at the total excess costs of indebtedness resulting from transactions/operations carried out both with the respective affiliated entities and with non-affiliated entities.

I.7. Tax on microenterprise income

One of the conditions for classifying a Romanian legal entity as a microenterprise has been changed. The respective Romanian legal entity must now have associates/shareholders who hold, directly or indirectly, more than 25% of the value/number of participation titles or rights vote and be the only microenterprise established by the associates/shareholders. The previous condition stipulated that the Romanian legal entity must have associates/shareholders who hold more than 25% of the value/number of participation titles or voting rights in no more than three microenterprises.

A new condition has been introduced for classification as a microenterprise: the respective legal entity must have submitted the annual financial statements on time.

Another new provision specifies that the limit of EUR 500,000 is calculated by adding up the income of the legal entity and of its related enterprises, as defined by Law no. 346/2004 on stimulating the establishment and development of small and medium-sized enterprises.

Fiscal year 2023 is the last in which the amounts representing sponsorship/scholarships and the purchase of fiscal electronic cash registers remaining to be carried forward are deductible from the microenterprise income tax.

I.8. Minimum tax

The method of confirming the turnover limit of EUR 50 million for a tax group has been changed. It is now calculated by the responsible legal entity by summing all the group members’ turnovers.

II. Title IV Income Tax and Title V Mandatory Social Contributions of the Fiscal Code

• As of income for January 2024, the exemption from income tax and social contributions for the amounts granted to employees who carry out teleworking activities to support utility expenses at the place of work has been eliminated.

• For the value of subscriptions borne by employers for their own employees for the use of sports facilities exempt from income tax and social contributions, the deductibility is limited to the RON-equivalent of EUR 100 Euro per year per person, up to the monthly limit of 33% of the salary basic corresponding to the job held. The limit of EUR 100 per year also applies for the deduction from the gross income to determine the taxable income of the counter value of the subscriptions borne by the employees for services provided to the employee and/or any of their dependants.

• The sums borne by employers for placing their employees’ children in early education units, according to the law, will not be included in the calculation base for income tax and social contributions up to the limit of RON 1,500/month for each child, provided the sums are within the monthly limit of no more than 33% of the basic monthly salary corresponding to the job held. The amount is granted to a single parent and single employer by presenting a self-declaration of responsibility. If the employee/parent works for several employers, the employee has the obligation to declare that they do not benefit from such payments from any other employers.

• The month in which income is considered for the purpose of determining income tax and social contributions is regulated a series of salary benefits, such as the value of tourist and/or treatment services, contributions to optional pension funds, voluntary health insurance premiums, medical services provided in the form of subscriptions, subscriptions for the use of sports facilities, amounts borne/granted by employers for the placement of their employees’ children in early education units, the amounts representing the favourable difference between the preferential interest rate established through negotiation and the interest rate applied on the market for loans and deposits.

• Included calculation base for social health insurance contributions are the social health insurance allowances granted based on GEO no. 158/2005 regarding holidays and social health insurance allowances.

• The annual net income from the transfer of the use of goods, other than when paid by legal entities or other entities that have the obligation to keep accounting records, and from the rental for tourism purposes of rooms located in personally owned homes is determined by deducting from the gross income the expenses determined by applying the 20% quota to the gross income.

• The net rental income is determined at each payment by deducting from the gross income the expenses determined by applying the 20% rate to the gross income.

• For income from the transfer of the use of goods, paid by legal entities or other entities that have the obligation to keep accounting records, the income payers have the obligation to calculate, withhold, declare and pay the tax corresponding to the amounts paid by applying the 10% rate to the net income determined by deducting from the gross income the expenses determined by applying the 20% rate to it. The tax thus calculated and withheld represents the final tax, and it is to be paid to the state budget by the 25th day of the month following that in which it was withheld.

• As an exception to the application of the progressive rates for pension income, for amounts received by participants in privately managed pension funds and by participants in optional pension funds and/or occupational pension funds, as well as by their legal heirs, the rate of tax is 10% on the amounts exceeding the net contributions of participants for which the non-taxable income ceiling applies.

• The registered annual fiscal losses are carried forward and compensated by taxpayers up to the limit of 70% of the annual net income obtained from the same source of income in the following five consecutive fiscal years. The annual tax losses recorded in the years prior to 2024 and remaining uncompensated as at 31 December 2023, are compensated from the annual net revenues or, as appropriate, the annual net gains realised as of 2024, for the remaining period of the seven years, up to the limit of 70% of the annual net income or, as appropriate, the respective net annual earnings. For the application of the 70% limit, the annual tax losses recorded in the years preceding 2024 and still outstanding as at 31 December 2023, are accumulated with the annual tax losses recorded as of 2024.

  III. Title VII – Value Added Tax

The reduced VAT rate of 9% will apply to milk powder for newborns, infants and young children.

The right to deduct the tax related to the purchase, rental or leasing of buildings/living spaces, regardless of their destination, located in residential areas or in housing blocks, and the tax related to the expenses related to these buildings/spaces has been limited to 50% for the living area if they are not used exclusively for the purpose of economic activity. The limitation applies as of the first day of the month following the date from which Romania receives a derogation decision regarding the provisions of Directive 2006/112/EC on the common value added tax system for this measure.

The facility of deferring the payment of VAT to customs will be removed for taxable persons registered for VAT purposes who hold an authorised economic operator (AEO) certificate. The possibility of deferring import VAT in the case of submitting a customs declaration through the use of centralised customs clearance has been introduced.

To obtain the certificate of postponement of the payment of VAT in customs, the applicants will be required make available to the customs authority a declaration on their own responsibility according to which they do not have any outstanding budgetary obligations.

IV. RO e-Invoice

Changes have been introduced regarding the deadline, and the applicable sanctions for taxable persons established in Romania, for sending electronic invoices for which there is an obligation to send them through the national RO e-Invoice system, as follows:

• Between 15 December 2023 and 30 June 2024, for situations where both the supplier and the beneficiary are registered in the RO e-Invoice national system, the issued invoices must be sent within five calendar days as of the date of issue / issue deadline according to the Fiscal Code. As of 1 July 2024, for non-compliance with the five-calendar-day transmission deadline, fines will be applied at the level previously established by Law no. 296/2023, depending on the type of taxpayer.

• From the period 1 April 2024 to 30 June 2024, suppliers obliged to issue electronic invoices and transmit them through the national RO e-Invoice system will face sanctions for not respecting the deadline of five working days from the date of issue / the deadline for issuing invoices according to the Fiscal Code, with the level of fines applied as previously established by Law no. 296/2023, depending on the type of taxpayer.

As of 1 July 2024, the fine for communicating by other methods of an invoice for which transmission via RO e-Invoice is mandatory will be 15% of the invoice value (base and VAT) - both to the supplier and to the beneficiary. The fine applies to taxable entities established in Romania with the capacity of supplier or beneficiary.

It has also been clarified that the following will not be transmitted in the RO e-Invoice national system: simplified invoices, invoices issued for operations to entities not established and not registered for VAT purposes in Romania, and for the provision of services for which the issuance of the invoice is not subject to invoicing rules in Romania.

V. Title VIII – Excise and other special taxes

The delivery of alcohol and alcoholic beverages (with the exception of products for which zero excise duty is applied) is carried out only when the supplier holds the payment document certifying the transfer to the state budget of the value of the excise duties related to the quantity to be invoiced, as in the case of energy products. New measures cover the introduction of the firm order and certain clear request information is provided between the supplier and the buyer when removing the products from the fiscal warehouses / location where they were received by the registered consignee in the case of the delivery of these products.

Specific invoicing conditions now apply if the excise duty is paid by the buyer on behalf of the supplier.

The certificate of certified consignee/consignor will be valid from the date of issue.

New markers have been introduced for diesel fuel, fuel oil and products treated as the latter.

Fuel (petrol and diesel) excise duty increases can into force on 1 January 2024.

For economic operators which produce and sell in Romania products subject to non-harmonised excise duties, the obligation to clearly highlight the excise duties on the invoice appears only in the situation where there is an obligation to issue the invoice.

Minor changes have been made to the definition of added sugar.

Specific rules have been introduced regarding the generating fact and the chargeability of excise duties for stocks of non-alcoholic beverages subject to non-harmonised excise duties and constituted in 2023 but marketed as of 1 January 2024.

VI. Cash registers

The application of the sanction provided for not equipping commercial vending machines with electronic fiscal marking devices has been postponed until 1 October 2024.

VII. Limits on cash payments

It will be possible to make payments from advances for settlement within the limit of a daily limit of RON 5,000 per person.

Receipts or repayments of loans or other financing made by legal entities, authorised individuals, sole proprietors, family enterprises, freelancers, individuals carrying out independent activities, associations and other entities with or without legal personality will be carried out, regardless of their nature and destination, exclusively through non-cash payment instruments, under the penalty of applying a contravention fine in an amount of 25% of the amount received/paid but no less than RON 500.

The cash amounts in the cash register cannot exceed, at the end of each day, RON 50,000. The limit is RON 500,000 for cash and carry stores, superstores and hyperstores. Any cash amounts exceeding the applicable limit have to be deposited in bank accounts within two business days.

Branches and other secondary offices of legal entities that have their own cash register and/or account opened at a credit institution apply the provisions of Law no. 70/2015 for each individual cashier.

VIII. RO e-Transport

GEO no. 115/2023 amends and supplements GEO no. 41/2022 for the establishment of the national system for monitoring the road transport of goods with high fiscal risk, RO e-Transport.

In the RO e-Transport system, the obligation to monitor international road transport of goods on the national territory has been introduced.

Thus, the identification of transports and the generation of unique UIT codes in the RO e-Transport system is carried out both for road transports on the national territory of goods with high fiscal risk and for international road transports of goods.

The obligation to declare in the RO e-Transport system the data related to the international transport of goods to obtain UIT codes rests with:

a) the recipient listed in the import customs declaration or the sender listed in the export customs declaration for goods that are the subject of import operations or export, as appropriate;

b) the beneficiary from Romania for intra-community purchases of goods;

c) the supplier from Romania for intra-community deliveries of goods;

d) the depositary for that are the subject of intra-community transactions in transit, both for goods unloaded on Romanian territory for storage or for the formation of a new shipment from one or more consignments of goods, as well as for goods loaded after storage or after formation of a new transport on the national territory from one or more consignments of goods.

The road transport operator is obliged to equip the transport vehicle with telecommunication terminal devices. The driver of the means of transport is obliged to switch on the positioning device before starting a transport on the national territory and to keep it in operation until at the declared place of delivery on the national territory or after leaving the national territory.

Thus, the following have been introduced within the components of the RO e-Transport system:

• Computer modules made available free of charge to the transport organiser by the National Centre for Financial Information in the Ministry of Finance to provide information on the positioning of the means of transport through the use of telecommunications terminal devices.

• Devices that transmit geolocation data of the means of transport and use satellite positioning and data transmission technologies, on which the software provided by the National Centre for Financial Information is installed, are used to monitor the transport route of goods.

Sanctions for non-compliance with the new measures introduced by GEO no. 115/2023 will apply as of 1 July 2024.

Source: [Government emergency ordinance no. 115/2023 regarding some fiscal-budgetary measures in the field of public expenditures, for fiscal consolidation, combating fiscal evasion, for the modification and completion of some normative acts, as well as for the extension of some terms, published in the Official Gazette no. 1139 of 15 December 2023]