VAT Split Payments mechanism

optional from 1st October, mandatory from 1st January 2018

On 31 August 2017, the Romanian government adopted Ordinance no. 23/2017 introducing the VAT split
payment mechanism which will be mandatory as of 1 January 2018, for all persons registered for VAT
purposes in Romania, including non-resident companies registered for VAT purposes.

The VAT split payment mechanism comes with the following obligations for the non-residents registered
for VAT purposes in Romania (herein after non-residents):

Non-residents are obliged 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 (i.e. VAT special account, distinct from
the one to be used for paying the taxable base) by the non-residents who purchase goods from
providers applying VAT;
The non-residents are obliged to open and use at least one special account for VAT collection
and payment;
The VAT special accounts are automatically opened at the State Treasury units of the non-
residents tax authority 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);
The VAT special accounts opened at the State Treasury can only be used for operations in RON,
both with state budget and with economic agents;
The VAT special accounts can also be opened at banks, these being usable for both RON and
foreign currency operations;
If no funds are available in the VAT account (e.g. due to late collection of output VAT from
clients), the non-resident taxpayer will need to transfer funds from its own accounts in order to
pay its suppliers VAT. Please note that transfer of own fund to the VAT account can be done
only from an own account open at the same institution, be it State Treasury or bank;
The payment of the VAT value related to the purchases of goods and services shall be made from
the VAT account (except for cash payments, the ones made via credit / debit cards or cash
substitutes);
 The non-residents are liable to communicate the VAT special account to suppliers / providers
and beneficiaries;
The VAT accounts will be debited, respectively credited, only in the conditions expressly
stipulated by the Ordinance. Out of these, we mention that cash withdrawal from the specific
VAT accounts will not be allowed and payments for purposes other than to another VAT
special 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;

Further, sanctions are stipulated for not applying the VAT split payment and also for applying it in an
incorrect manner. The sanctions consist, in principle, of late payment penalties of 0.06% of the amount
per day for erroneous payments that are not voluntarily corrected after 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.

Also, fines are provided for not communicating the VAT special account to clients (between RON 2,000
and 4,000).

Kindly note that among the facilities provided by the law for taxpayers which opt to apply the VAT split
payment before 1st January 2018, there is one facility also applicable to non-residents. This facility is
represented by the cancellation of late payment penalties (not applicable for late payment interest)
related to outstanding VAT on 30th September 2017.
 Practical examples for non-residents registered for VAT purposes in Romania

1) The non-resident Company A, registered for VAT purposes in Romania, is providing goods, on Romanian
territory, to Company B, registered for VAT purposes in Romania. Company A issues an invoice for the
provision of goods of RON 100 (taxable base) + RON 19 (VAT)= RON 119.
Company A has the obligation to communicate its VAT special account to Company B. Thus, Company B
will pay RON 100 to Company As current bank account and RON 19 in Company As VAT special account.
In case the invoice is partially paid, the Company B is obliged to compute proportionally, from the taxable
base paid, the amount of VAT to be paid accordingly. If, for example, only the amount of RON 70 is paid
to Company A, then the related VAT will be computed as 70 x 19/ 119 = RON 11. Thus, RON 11 will be
transferred to Company As VAT special account and the difference of RON 59 to its current bank account.

Company A Invoice (selling goods) RON 100 + 19 Company B

Payment of taxable base RON 100

Current bank account Current bank account

Payment of VAT RON 19

VAT special account VAT special account

State Budget

2) The non-resident Company A, registered for VAT purposes in Romania, is buying goods from the
Romanian Company B, registered for VAT purposes in Romania. Company B issues an invoice for the
provision of goods to Company A registered for VAT purposes in Romania, of RON 100 (Taxable base)
+ RON 19 (VAT) = RON 119. Same rule as above will apply regarding the communication of the VAT
bank account and also those related to the invoice partially paid.

Company A Invoice (selling goods) RON 100 + 19 Company B

Current bank account Payment of taxable base RON 100 Current bank account

Payment of VAT RON 19

VAT special account VAT special account

State Budget