VAT (Value Added Tax) in Romania

Value Added Tax or VAT is a type of sale tax that is imposed for some Romanian companies. It is implemented by the European Union and exists in all member states. A business must apply the VAT rules whenever it has substantial revenues or when it is mandatory for that company, by law, for certain type of activities (selling or purchasing goods from the EU).

However, the company can register voluntarily as a VAT payer sooner if they believe it will make substantial investments and wants to deduct the VAT after receiving income from their economic activities. Simply put, the company will act on behalf of the Romanian government and collect VAT tax from the population for its use of commercial goods.

What types of VAT are there?

 Depending on the economic partners of the company, we have two types of VAT:

special VAT registration (VAT VIES) – this registration is mandatory for businesses that have economic transactions with companies from other EU states. The company will not collect or deduct regular VAT, but will pay a 19% VAT tax for every acquisition from companies that are EU or non-EU.

normal VAT registration – involves collecting and paying VAT for any purchases made within Romania.

The difference between normal VAT registration and special VAT registration is that when you buy goods or services from companies outside Romania, you won’t pay the 19% VAT tax due to the reverse charge mechanism. Also, the company won’t collect VAT if the EU customer has a valid VIES VAT code.

 

Depending on the obligation to register as a normal VAT paying company, we can talk about:

optional registration– the company chooses to register from the beginning as a VAT payer, although it does not have the obligation to register as one;

mandatory registration– after exceeding a certain income threshold, the company is obliged to register for ordinary VAT. Do note that mandatory registration applies to VAT VIES, as well.

 

In Romania, at present there are different VAT rates that a company has to either collect or can deduct, depending on their commercial activity:

– the standard VAT rate is 19%;

– for certain food items and beverages, the rate is 9%;

– for certain activities (sale of books), the rate is 5%.

What are the conditions for VAT registration?

 As mentioned above, there are two possibilities for VAT registration, mandatory registration (after passing a certain income level) and optional registration (for companies that do not meet the conditions).

The main registration for VAT is mandatory registration, respectively when any Romanian business receives income of over 300,000 lei per year (approximately 60,000 euros per year).

The second option is voluntary VAT registration, this if you intend from the beginning to have a substantial investment in the business, such as buying properties or materials, so that later you compensate the VAT paid with the registered income.

How does VAT work?

The main categories you have to look out for are collected VAT, deductible VAT and non-deductible VAT.

Collected VAT is when you are selling a service or good to a customer and from the final price that the client paid to you, a fraction of the received income will be considered VAT collected from your client.

Deductible VAT is when you buy a service or good for your business, the purchase must be made from another VAT registered entity and the amount of VAT paid will be reflected in the tax receipt or invoice.

Non-deductible VAT is when your purchase is not related to your business and it has no link to the economic activity that your company does.

At the end of each trimester or month, your accountant will do the calculation and will inform you if you have reclaimable VAT, that means that you paid more VAT to your suppliers than the collected VAT or if you need have to pay VAT to the Romanian state if you collected more VAT than you deducted.

You need to take into consideration that VAT is actually collected from the final consumer, he is the one who pays VAT to the state. Therefore, if you sell a service in Romania, you will collect VAT and if you buy services from other VAT paying companies, you will deduct it.

Of course, there are certain situations that require further analysis. One of these situations is when you sell to a company in the EU or if you sell your service to a non-EU company. These are special cases, which need to be discussed with your accountant and you should know beforehand the right way to apply VAT regulations.

How can you deduct VAT?

According to the Romanian law, if you want to deduct an expense you need to show a tax receipt. At present, the following thresholds apply:

  • Expenses up to 100 euro – can be deducted with a tax receipt (bon fiscal), what has your company’s VAT code on it
  • Expenses over 100 euro – can be deducted with a fiscal invoice (factura), issued by the seller to your company.

 

 

If you would like to address more questions or if you need a legal consultation, you can contact us at office@rrpb.ro or by accessing our site www.rrpb.ro for more information.

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