On 1 January 2018, Romania introduced the VAT Split payment scheme. Thanks to the introduction of the VAT split payment mechanism, the Romanian government hopes to reduce the VAT fraud and thus lessen the VAT gap which is amongst the highest ones in Europe (37.2% in 2015).
THE PRINCIPLE OF VAT SPLIT PAYMENT : AN ANTI-TAX AVOIDANCE MECHANISM
Each company registered and liable for VAT is obliged to hold and use a « VAT account » opened at a banking institution or the Treasury. This mechanism allows the collection as well as the payment of VAT related to taxable transactions.
During a taxable transaction, the seller is obliged to provide the customer with his « VAT account ». The latter will pay according to the split payment method:
- the net amount on the seller’s professional current account;
- the amount corresponding to the VAT due on the seller’s « VAT account » (VAT collected).
Thus, this account allows the seller to pay the total amount of VAT due to the Tax administration. No withdrawals can be made from this account.
ANTI-TAX AVOIDANCE MECHANISM IN ROMANIA
According to the law No. 275/2017, this scheme has become mandatory in Romania since 1 January 2018 for all the private and public companies registered and liable for VAT in the situation of insolvency or having incurred VAT debts.
A company falls within the scope of the mechanism when it incurs debts higher than:
- 15 000 RON for large companies;
- 10 000 RON for medium-sized companies;
- 5 000 RON for small businesses.
The VAT split payment is only optional for all the companies subject to VAT, liable to VAT and registered for VAT. However, the latter can opt for the application of the scheme and benefit from a tax incentive, namely a reduction of about 5% on the income tax. Companies not registered for VAT are exempt.
Finally, a penalty of 0.06% of the amount due per day is applicable for erroneous payments. If the correction is not made within 30 days, a fine of 50% of the amount due is applied.
VAT SPLIT PAYMENT MECHANISM IN OTHER EUROPEAN COUNTRIES
Until now, only Italy applied this system, limited to certain companies (scope extended since 2017). However, the Polish government is also preparing to introduce the VAT split payment scheme. Initially scheduled for the 1 January 2018, the introduction of this system has been postponed to 1 April, 2018.