Amendments and clarifications regarding the VAT split payment system

21/12/17

In brief

Law no. 275/2017 (“the Law”) for the approval of Government Ordinance no. 23/2017 regarding the VAT split payment mechanism, as well as the Decree no. 1309/2017 enacting the Law have been published, bringing amendments and changes regarding the VAT split payment system (“the system”).    

In detail

The main clarifications and changes brought, applicable as of 2018, refer to the following aspects.

1.       Who has to apply the system?

The system is to be applied mandatorily by the following categories of taxpayers:

1.1 Taxpayers that have as at 31 December 2017 outstanding VAT liabilities as per the Fiscal Procedural Code (excluding the suspension of enforcement through the submission of a bank letter of guarantee) and have not paid them by 31 January 2018:

  • for large taxpayers - more than RON 15,000;
  • for medium taxpayers - more than RON 10,000;
  • for other taxpayers - more than RON 5,000.

1.2 Taxpayers that have as at 1 January 2018 outstanding VAT liabilities as per the Fiscal Procedural Code (excluding the suspension of enforcement through the submission of a bank letter of guarantee) and that do not pay them within 60 business days, at the same levels as above;

1.3 Taxpayers in insolvency or insolvency prevention procedures.

The system will continue to be optional for all eligible taxpayers not required to apply the system on a mandatory basis.

2.      Who has to give notification that they are applying the system?

The following taxpayers are required to notify the relevant authority that they are applying the system:

  • Taxpayers subject to insolvency or insolvency prevention, after 31 December 2017, no later than the first day of the month following that in which the insolvency was declared;
  • Taxpayers which opt to apply the system.

3.      When does the system start?

The system applies mandatorily as follows:

  • Category 1.1 above – as of 1 March 2018;
  • Category 1.2 above – as of the first day of the second month following that in which the 60-day period elapsed;
  • Category 1.3 above:
    • For taxpayers in one of those situations as at 31 December 2017 - as of 1 March 2018;
    • For taxpayers in one of those situations after 31 December 2017 that do not submit the notification provided by the law - as of the first day of the month following that in which the tax authority is aware that it has not been notified.

4.      In what situations could the system stop being applied?

The system could stop being applied in the following situations:

  • For taxpayers which opted to apply the system and are not required to apply it - at the end of the fiscal year, but no sooner than one year after they opted to apply the system;
  • For taxpayers which applied the system mandatorily:
    • Those which had outstanding tax obligations - after a minimum period of six months;
    • Those subject to insolvency or insolvency prevention procedure legislation – once no longer subject to it, provided that they are not liable to apply the system due to accruing outstanding liabilities.

5.      How does this affect persons purchasing from those applying the system?

Taxpayers registered for VAT purposes not applying the system, making purchases from those which apply the system will be required to make split payments.

The following categories, which do not apply the system, will not be required to apply the VAT split payment when making purchases from taxpayers which do:

  • Persons not registered for VAT purposes;
  • Persons not established in Romania from a VAT perspective and not registered for VAT purposes;
  • Public institutions.

6.      How will incorrect system application be sanctioned?

If beneficiaries do not pay VAT into the supplier's VAT account, the supplier will be entitled to transfer VAT into its own VAT account.

Beneficiaries will not be sanctioned for not paying VAT into the supplier's VAT account if the supplier proves that it transferred the amount into its own VAT account.

If a beneficiary does not pay VAT into the supplier's VAT account within 30 business days as of the date of the incorrect payment and if the supplier does not transfer that VAT into its own VAT account within the same period, the beneficiary will be subject to a penalty of 0.06% of the tax due, per day of delay.

7.      What specific payments are not subject to the system?

The system does not apply to the following specific payments:

  • Payments not made directly from the beneficiary to the supplier;
  • Payments in kind;
  • Offset payments;
  • VAT payments settled between members of VAT groups;
  • Payments performed into escrow, guarantee or other similar accounts available to suppliers (which do not apply the system);
  • Payments under financing granted by credit institutions and non-bank financial institutions by purchasing receivables.

8.      What is the deadline for VAT transfers into one’s own VAT account?

The deadline for VAT transfers into one’s own VAT account will be of 30 business days for certain types of operations provided by the law (e.g. transactions with credit / debit cards or cash substitutes, cash transactions). Taxpayers with garnishments on their accounts will not be required to transfer VAT into their own VAT accounts.

9.      What conditions will be required for a VAT account to be debited?

ANAF approval will no longer be required for debiting one’s own VAT account (in situations permitted under the law). In addition, debiting of the VAT account will be allowed for the payment of any state budget obligations (not just VAT obligations).

10.  Under what conditions can enforcement orders be executed on VAT accounts?

Enforcement orders on VAT accounts can be executed for the payment of any outstanding budgetary obligations (not just VAT obligations).

[Source: Law no. 275/2017 for the approval of Government Ordinance no. 23/2017 regarding the VAT split payment mechanism and Decree no. 1309/2017 enacting the law for the approval of the Government Ordinance no. 23/2017 regarding the VAT split payment mechanism, published in the Official Gazette, Part I, no. 1036 of 28 December 2017]

The takeaway

As of 1 January 2018:

  • the application of the system will be 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.

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