Government Emergency Ordinance no. 13/2021 for amending and completing the Fiscal Code and Accounting Law

In brief

A series of amendments have been adopted through Government Emergency Ordinance no. 13/2021 (GEO 13/2020). We present below the main changes and additions.

In detail

Amendments to the Fiscal Code

Profit tax

The provision on non-deductible expenses in relation to non-cooperative jurisdictions has been amended by deleting Annex II and limiting the applicability to situations where expenses are incurred as a result of non-economic transactions. As a result, as of 1 January 2021, expenses are not deductible when related to transactions performed with entities located in a jurisdiction that, at the date of registration of said expenses, is included in Annex I of the EU list of non-cooperative jurisdictions for tax purposes, as published in the Official Journal of the European Union.

Expenses incurred as a result of transactions with entities located in a jurisdiction included in Annex II of the European Union list of non-cooperative jurisdictions for tax purposes, as published in the Official Journal of the European Union, are considered deductible when calculating the tax result for the first quarter of 2021.

Income tax and social security contributions

The value of tourist and treatment services, including transport, during the holiday (eliminating the phrase ‘rest’) periods granted by employers to their own employees and their family members of their family is deemed non-taxable income and is not included in the calculation base of social contributions. Employers can also grant benefits on the basis of internal regulations (they could previously only be granted on the basis of employment contracts).

Compulsory social security contributions have to be calculated, withheld and paid for cash and in-kind benefits received from third parties as a result of an individual employment contract, employment relationship, secondment or contractual relationship between the parties by: 

1. Romanian fiscal resident employers, when the benefits in cash or in kind are granted by other entities but payment is made through the employer;
2. Romanian resident income tax payers, when the benefits in cash or in kind are granted and paid directly to them by entities other than the employer, except for situations where individuals realise salary income or other income treated as such in Romania under contracts concluded with employers which are not Romanian tax residents and owe obligatory social contributions for their employees, according to the provisions of the applicable European legislation in the field of social security and any agreements regarding social security systems to which Romania is a party;
3. individuals, when the benefits in cash or in kind are granted and paid directly to them by non-Romanian fiscal residents, other than the employer.

This year’s deadline for submitting the annual income tax return for associations without legal personality and entities subject to the tax transparency regime is 15 April 2021. 

Prior to that deadline, the appointed associate has to transmit to each associate member the information regarding the taxable income, net income and losses due based on the contractually-agreed association level distribution quota or the participation quota. 

Value Added Tax

VAT cash accounting scheme

The turnover ceiling for applying the VAT cash accounting scheme has been increased from RON 2,250,000 to RON 4,500,000 in all Fiscal Code articles. 

Taxable entities can now opt in to the scheme after their VAT registration, effective as of the first day of the following tax period. Such entities must notify the competent tax authorities that the turnover for the previous calendar and current year does not exceed RON 4,500,000 as at the twentieth day of the month prior to the start of the tax period in which the scheme is to be applied. 

Taxable entities with annual turnovers exceeding RON 2,250,000, but not exceeding RON 4,500,000, as at January 2021 will not be removed from the VAT cash accounting scheme register.

Reduced VAT rate for supplies of residential property

A reduced VAT rate of 5% applies as of 1 January 2022 for supplies of residential property with value not exceeding RON 450,000, excluding VAT. That clarification is relevant in the context that, by Law no. 296/2020, the maximum amount was changed to the lei-equivalent of EUR 140,000, excluding VAT. 

Amendments to Accounting Law

The scope of legal persons obliged to organise and manage their own accounts is expanding to include foreign legal entities with permanent establishment or place of effective management in Romania. They will have to conduct inventory of assets and liabilities held. 

Operations regarding the transformation or liquidation of a legal person will have to be recorded in accounting based on the corresponding documents drawn up in such situations.

Annual financial statements have to be submitted with a directors’ report, an audit report or that of the audit committee, according to GEO 13/2021, a report on payments to governments, if applicable, and a proposal for profit distribution or for covering accounting losses. 

Consolidated annual financial statements have to be submitted with a consolidated directors’ report, an audit report and a consolidated report on payments to governments, if applicable.

The list of legal persons regarded as of public interest has been extended to include:

• Companies whose securities are admitted to trading on a regulated market;

• Payment institutions and electronic money institutions, defined according to the law;

• Bank deposit guarantee fund;

• Deposit guarantee schemes supervised by the National Bank of Romania;

• Privately managed pension funds, voluntary pension funds and their directors.

Annual financial statements, consolidated annual financial statements and interim financial statements now have to be kept for ten years. 

Public information for publication on the Ministry of Finance website is established by order of the Minister of Finance and extracted from annual financial statements or annual accounting reports submitted to the Ministry’s territorial units.

The following have been added to the scope of what will be considered contraventions:

• Non-compliance with the regulations issued by the Ministry of Finance regarding:

  • drawing up, signing and submitting within the legal term to the territorial units of the Ministry of Finance the annual financial statements or the consolidated annual financial statements, the interim financial statements and accounting reports.

  • drawing up and submitting within the legal term to the territorial units of the Ministry of Finance the audit report or audit committee report, as appropriate, the report on payments to governments and the proposal for distributing profits or covering accounting losses.

• Non-compliance with the obligation to audit the annual financial statements, the consolidated annual financial statements and the interim financial statements;

• Failure to file annual financial statements, consolidated annual financial statements, interim financial statements and accounting reports.

Such contraventions and related fines are established Ministry of Finance and National Agency for Fiscal Administration fiscal inspection and financial control representatives, as established by orders of the Minister of Finance and the president of the National Agency for Fiscal Administration, respectively. 

 [GEO no. 13/2021 for amending  and completing of the Fiscal Code and the Accounting Law, published in Official Gazette no. 197 dated 26 February 2021]

The takeaway

Amendments to the Fiscal Code

Profit tax

• Expenses incurred as a result of transactions with entities located in jurisdictions included in Annex II of the EU list of non-cooperative jurisdictions for tax purposes are considered deductible from the first quarter of 2021. 

• Expenses incurred as a result of non-economic transactions with entities located in jurisdictions included in Annex I of the EU list of non-cooperating jurisdictions for tax purposes are non-deductible when calculating the tax result.

Income tax

• The word ‘rest’ has been eliminated in the case of benefits granted by employers for employees and their family members for tourist and treatment services, including transportation, during leave periods. Such aid is also granted for medical leave, recovery, etc.

• Benefits granted to employees can also be provided for in companies’ internal regulations, not only in employment contracts, as previously. 

• Individuals with salary income and other income treated as such in Romania under employment contracts concluded with employers who are not Romanian tax residents are exempt from calculating, withholding and paying otherwise mandatory social contributions in Romania. 

• This year’s deadline for submitting the annual income tax return for associations without legal personality and entities subject to the tax transparency regime is 15 April 2021. 

• Employers who are not Romanian tax residents and who owe compulsory social contributions for their employees (individuals who earn income from salaries and other income treated as such in Romania) are exempted from the calculation, withholding and payment of the social insurance contribution and the social health insurance contribution on salaries) according to the provisions of the applicable European legislation in the field of social security and agreements regarding social security systems to which Romania is a party.

 VAT

• The turnover ceiling for applying the VAT cash accounting scheme has been increased from RON 2,250,000 to RON 4,500,000 in all the corresponding articles of the Fiscal Code.

• Taxable entities can now opt in to the scheme after their VAT registration. 

• A reduced VAT rate of 5% applies as of 1 January 2022 for supplies of residential property with value not exceeding RON 450,000, excluding VAT. 

Amendments to the Accounting Law

• The scope of legal entities required to organise and manage their own accounts has been extended to include foreign legal entities that carry out activity through a permanent establishment  in Romania and foreign legal entities with effective place of management in Romania;

• Provisions regarding the entities for which the BNR issues accounting norms and regulations have been clarified.

• Operations regarding the transformation or liquidation of a legal person will have to be recorded in accounting based on the corresponding documents drawn up in such situations. 

• Annual financial statements and accounting reports, consolidated annual financial statements and interim financial statements have to be kept for ten years.

• Annual financial statements have to be submitted with the audit report or that of the audit committee, the report on payments to governments if applicable, and the proposal for distributing profits or covering accounting losses. 

• Consolidated annual financial statements have to be submitted with the consolidated directors' report, the audit report and consolidated report on payments to governments if applicable.

• The list of legal persons considered of public interest has been extended.

• Contraventions and related fines are established by Ministry of Finance and National Agency for Fiscal Administration representatives. 

• Contraventions are added for which fines will be applied for non-compliance with the preparation and legal submission of the annual financial statements and consolidated financial statements.