On 31 August 2017, the government adopted Ordinance no. 23/2017 introducing the VAT split payment mechanism which will be mandatory as of 1 January 2018.


Between 1 October 2017 and 31 December 2017, the application of this ordinance is optional. The option can be exercised by submitting a notification to the relevant tax authority. The actual application will start with the day following the publication in the Register of the entities applying the VAT split payment, which is administered by the National Agency for Fiscal Administration and published on the www.anaf.ro website. The entities opting to apply the ordinance prior to 1 January 2018 benefit from (i)  a 5% reduction in corporate tax/income tax or tax on the revenue of micro enterprises for the fourth quarter of 2017, (ii) as well as the cancellation of the late payment penalties (but not of the late  payment interests) related to the main VAT liabilities, outstanding as of 30 September 2017, under certain conditions (the publication of a separate legislative act for the establishment of the practical cancellation procedure is expected).

NOTE: It is important to retain that the reduction does not apply in case of entities subject to the HoReCa system (i.e. for hotels, restaurants and accommodation facilities) or to individuals registered for VAT purposes who pay income tax. Moreover, it is not clear how the reduction will be applied in case of  taxpayers paying quarterly corporate tax, given that no separate actual payment is made for the fourth quarter.

Taxable entities and public institutions normally registered for VAT purposes are bound to have and manage an account for VAT collection and payment related to the taxable operations having the place of supply in Romania (i.e. purchases of goods / services, deliveries of goods / service supplies, except for operations subject to reverse charge by the beneficiary and those subject to specific regimes, such as second-hand goods). The VAT payments will be made into special accounts even by taxable entities not registered for VAT purposes, that purchase goods / services from providers applying the VAT split mechanism. However, the obligation does not apply to individuals not registered for VAT purposes and not having this registration obligation.

The application of the VAT split payment system involves several obligations out of which the most important are:

> the opening and use of at least one special account for VAT collection and payment (for the aforementioned economic operations, but also the VAT payments to the State Budget). The VAT accounts are automatically opened at the State Treasury units of the relevant tax authority in the administration thereof and no fees will be charged. However, from the text of the Ordinance it seems that certain administrative steps will still be required for activating the account (we are currently expecting clarifications on the practical procedure). These can only be used for operations in RON, both with public institutions and with economic agents. In addition, accounts can also be opened at credit institutions (banks), these being usable for foreign currency operations as well;
>payment of the VAT equivalent value for the purchases of goods and services from the VAT account, except for cash payments, the ones made via credit / debit cards or cash substitutes;
>liability to communication the VAT account to suppliers / providers and beneficiaries;
>transfer to the own VAT account, within maximum 7 working days as of the collection, of the following amounts:
• VAT related to collections via the use of the credit / debit cards or cash substitutes;

• VAT not paid to the VAT account by other beneficiaries than those applying the VAT split payment system;

• The difference between the VAT related to cash collections and the VAT related to cash payments made in one day;

• VAT related to operations in the transition period (e.g. invoices issued before January 1st, 2018 or, as the case may be, October 1st, 2017, but paid after these dates).
 
The VAT accounts will be debited, respectively credited, only in the conditions expressly stipulated by the Ordinance. Out of these, we mention in particular that cash withdrawal from the specific VAT accounts will not be allowed and payments for purposes other than to another special VAT account or to the State Budget will be made with the approval of the National Agency for Fiscal Administration. The timeframe for such analysis and approval of these payments is 3 days.
The Ordinance also provides for specific treatments applicable to receivables assignment operations or those made within sole VAT groups, as well as for cases where the special VAT accounts may be foreclosed.

In addition, sanctions are also stipulated for not applying or incorrect application of the system. They consist, in principle, of late payment penalties of 0.06% of the amount per day for erroneous payments that are not voluntarily corrected after the grace period of 7 days, but not later than 30 days, and 50% fines (10 % in certain cases) of the amount for failure of correction within more than 30 days.
Other fines are provided for not communicating of the special VAT account to clients (between RON 2,000 and 4,000).

In conclusion, as regards the optional application period, the cost of implementing the changes in the financial administration system and the records to be made by the human factor versus the granted tax facilities and the advantage of testing the system before it becomes mandatory should be analysed. It is, however, expected that the application of the broken-down payment system will raise cash flow challenges (i.e. cash being blocked in the special account and not being available for other economic purposes), but also of a technical nature (e.g. software update).
 



 
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