20 Nov 2024

Romania and Great Britain have updated their convention for the elimination of double taxation, the changes being necessary for Romania’s candidacy to join the OECD, as well as following the entry into force of some provisions of the Trade and Cooperation Agreement between the European Union and the United Kingdom.

Some of the most relevant provisions of the new Convention:

• The new convention provided for distinct regulations regarding the income obtained in whole or in part by fiscally transparent entities, in accordance with the provisions of the 2nd action of the BEPS plan regarding the neutralization of the effects of hybrid arrangements;
• In the article referring to the permanent establishment, as a result of the provisions contained in the 7th BEPS action to combat the phenomenon of fragmentation of the activity of an enterprise or a group of enterprises closely related by carrying out activities that do not generate permanent establishments, introduced two new paragraphs describing the circumstances in which one enterprise is closely related to another and a provision to prevent the fragmentation of a single economic operation into several small operations, in order to then claim that each of these constitutes a activity of a preparatory or auxiliary nature, which would not generate a permanent establishment;
• Profits from a construction site or a construction or installation project will be taxed in the state where the activity is carried out only if that activity is carried on for a period of more than 12 months;
• The introduction of article 7 “Profits from business activity” of the OECD Convention model, as a result of the changes introduced in the domestic legislation in 2023, regarding the method of establishing the profits obtained by the permanent establishments of non-resident persons, in accordance with the provisions of the 2010 Report on the allocation of profits to permanent establishments, issued by the OECD;
• In order to promote and stimulate investment and financing between the two states, the tax rates for withholding income regulated by the new convention, respectively for income in the form of dividends, interest and royalties, are lower than those in the 1975 convention , following the trend of decreasing tax rates provided by the national legislation of both states. Thus, in the case of dividends, the tax rate provided for by the new convention decreased to 5% compared to 10%, in the case of interest, the tax rate decreased to 3% compared to 10%, and in the case of royalties, the tax rate decreased to 3% compared to 10% and 15%, respectively, as provided for in the 1975 convention. In the case of dividends, both parties will apply provisions similar to those contained in the Directive 2011/96/EU of the Council of November 30, 2011 on the common tax regime, which applies to parent companies and their subsidiaries from different member states, with the subsequent amendments, as they are transposed into the internal legislation of the two states, in the sense that the state from which the dividends are paid will exempt these dividends from tax, when they are received by legal entities resident in the other state and the beneficiaries of these dividends directly or indirectly own at least 10% of the share capital of the company paying dividends, for an uninterrupted period of at least one year. The exemption from tax in the source state of dividends also applies to dividends received by a recognized pension fund that meets the condition of holding the capital of the company paying the dividends for an uninterrupted period of at least one year.

19/10/2023

As of January 01, 2024, the following modifications in Romanian Tax Code will be effective:

1. Big companies will be taxed at 1% on turnover if profits are “too low”

Large companies (with a turnover of over 50 million euros) will pay a tax of 1% on the turnover if the annual profit tax (of 16%) is lower than the minimal 1% on turnover. Exempted are companies that exclusively carry out activities of distribution/supply/transport of electricity and natural gas and which are regulated/licensed by the National Energy Regulatory Authority.

2. Additional 2% turnover tax for banks

In the case of banks, an additional tax is introduced (in addition to the profit tax) of:

• 2%, for the period January 1, 2024 – December 31, 2025 inclusive;
• 1%, starting from January 1, 2026

Also, an additional tax of 0.5% is introduced for oil and gas companies with a turnover of over 50 million euros. Thus, in addition to the profit tax, this new tax will also have to be applied.

3.  Taxation of micro-enterprises

Micro-enterprises (with a turnover below 500,000 euros) will be charged as follows:

• 1%, on turnover for micro-enterprises that achieve revenues that do not exceed 60,000 euros
• 3% on turnover for micro-enterprises which earns more than 60,000 euros, or carry out main or secondary activities in various CAEN codes

25.06.2021

On 1 July 2021, EU member states must introduce important changes to their legislation in the taxation of the supplies of goods and services that are generally contracted online by end consumers (B2C) and sent or rendered by businesses from another member state or third countries.

Every operator involved in the e-commerce supply chain is affected, from online sellers and platforms established both in or outside the EU, to couriers, customs brokers and administrations, with consumers and the consumer experience also being impacted.

These developments mean that B2C e-commerce transactions will be subject to VAT at the destination, that is, in the member state of the arrival of the goods or the member state in which the consumer is resident. The rules are aimed at overcoming the administrative barriers resulting from multiple registrations and the effects of market distortion, by doing the following:

• increasing tax revenues for member states, reducing collection losses and tackling cross-border trade fraud
• guaranteeing the impartiality of consumer purchasing decisions, thereby protecting competition between EU and non-EU suppliers
• simplifying the existing rules by reducing administrative burdens and VAT management costs for operators

The VAT management related to e-commerce transactions will be based on the expansion of the One-Stop Shop (OSS), which is to become the general procedure for managing and collecting VAT on e-commerce transactions at an EU level. Likewise, electronic interfaces that facilitate e-commerce (i.e., platforms/marketplaces) will be required to assist in the collection, management and control of VAT.

Overview of changes

The key changes can be summarized as follows:

• The existing thresholds for distance sales of goods within the EU will be replaced by a new EU threshold of EUR 10,000. Below this threshold, distance sales of goods within the EU may remain subject to VAT in the member state where the taxable person is established.
• A new category of supply of goods is created: distance sales of imported goods in consignments not exceeding EUR 150.
• Imports of small consignments of up to EUR 22 will no longer be VAT-exempt. This means that all goods imported into the EU will be subject to the EU VAT regime.

New VAT compliance measures are being implemented to facilitate reporting for operators: online sellers can register in one EU member state to declare and pay VAT on all distance sales of goods and cross-border supplies of services to customers within the EU through the new OSS. In addition, a new special scheme covering the import of goods subject to a distance sales transaction and in consignments not exceeding EUR 150 has been created to simplify declaring and paying VAT, namely the Import One-Stop Shop (IOSS).

• For postal and courier companies that facilitate the payment of import VAT when the goods are supplied from outside the EU, new simplification measures will be introduced for distance sales of imported goods in consignments not exceeding EUR 150 where the IOSS is not used (special arrangements).
• Under certain circumstances, online platforms that facilitate the e-commerce transaction are deemed to have received and supplied the goods themselves for VAT purposes (“deemed supplier”). This is regardless of whether they have any legal title over the goods. New record-keeping requirements are introduced for such operators.
• Certain invoice obligations have been amended as a result of the above-mentioned changes.

Distance sales

Currently, cross-border distance selling of goods to consumers within the EU is taxable in the destination country only if a certain threshold[¹] is exceeded and the seller is responsible for, or otherwise facilitates, the transport. This may also be the case where the supplier opts for VAT taxation in the destination country. Otherwise, said supply is taxable at origin.

As of 1 July 2021, the referred thresholds will not be applicable. A uniform threshold of EUR 10,000 will enter into force. Therefore, the supplier will charge VAT where the goods are located if the total turnover of the intra-community amount of the distance sales and certain services provided to individuals does not exceed EUR 10,000 in a fiscal year. The new distance sales regime still allows taxpayer to opt to charge VAT at the destination member state.

The transport of the goods and the involvement of the supplier (direct or indirect) are key for distance selling rules. The supplier would be considered as being involved in the transport:
(a) if the dispatch or transport of the goods is subcontracted by the supplier to a third party who delivers the goods to the customer
(b) if the dispatch or transport of the goods is provided by a third party but the supplier bears responsibility for the delivery
(c) where the supplier invoices and collects the transport fees from the customer and remits them to a third party that will arrange the dispatch or transport of the goods
(d) where the supplier promotes by any means the delivery services of a third party to the customer, puts the customer and a third party in contact or otherwise provides to a third party the information needed for the delivery of the goods to the customer

These changes ensure that VAT remains payable in the destination member state even where a separate entity provides shipment to the customer.

However, goods will not be considered to have been dispatched or transported by or on behalf of the supplier where:
(a) the customer transports the goods themselves
(b) the customer arranges the delivery of the goods with a third person and the supplier does not intervene directly or indirectly to provide or help organize the dispatch or transport of those goods

New OSS and IOSS

The existing Mini One-Stop Shop (MOSS) [²] regime is being extended as of 1 July 2021 for all services provided to customers and distance sales of goods. The new OSS regime will allow businesses to use a single point of contact for their VAT compliance obligations, enabling them to do the following:

• register for VAT online in one member state for all intra-EU distance sales of goods and for B2C supplies of services and thus avoid VAT registration in multiple member states
• declare and pay VAT due on all these supplies of goods and services in a single online quarterly return
• work with the tax administration of their own member state and in their own language, even for cross-border transactions

In addition, the IOSS facilitates the collection, declaration and payment of VAT for suppliers and electronic interfaces carrying out distance sales of imported goods to buyers in the EU. If the IOSS is used, the goods are exempt from import VAT, with the supplier being required to pay local VAT on the sale to the customer.

Non-EU sellers or non-EU electronic interfaces facilitating e-commerce supplies that want to use the IOSS scheme must appoint an intermediary established in the EU.[³] This new regime can only be used when the value of the imported goods does not exceed EUR 150 and cannot be applied to excise goods of any value. In order to grant the import VAT exemption, the corresponding IOSS number must be communicated to customs authorities.

Distance sales of imported goods

The new e-commerce rules provide for a new definition of imported goods transported from non-EU territories to EU customers. This new type of supply will apply if both the following conditions are met:

• the transaction is considered a B2C supply
• the goods supplied are neither a new means of transport nor goods supplied after assembly or installation, with or without a trial run, by, or on behalf of, the supplier

The place of taxation depends on whether the supply takes place within the same member state of importation and whether the new IOSS regime is applicable to the transaction.

If the member state of importation is the same as the member state of the arrival of the goods, the following scenarios are possible:

• IOSS regime applies: Distance sales of imported goods are VAT-taxable in the member state where the transport of goods to the customer ends (i.e., member state of importation). The import is VAT-exempt.
• IOSS regime does not apply: The place of supply should be determined according to the regular non-distance sales rules, i.e., the supplier will only be required to charge VAT in the member state of destination if it acts as the importer of record. The import is subject to import VAT. Note that the IOSS regime is not obligatory, and if the supplier does not apply it then the special arrangements for the collection of import VAT referred to below will apply.

If the member state of importation is different from the member state of destination of the goods, the following scenarios are possible:

• The supply of goods is considered distance sales of imported goods of low-value[⁴] and the supplier has opted for IOSS. Distance sales of imported goods are VAT taxable in the member state where the transport of goods to the customer ends. The preceding import is VAT-exempt.
• The supply of goods is not considered distance sales of imported goods of low value. The supply will be subject to import VAT in the member state of importation. This import will be followed by a deemed supply of goods from the former member state and taxable in the member state where the transport of goods to the customer ultimately ends. Under existing import VAT recovery restrictions, where the supplier is not listed as an importer it may be unable to recover the import VAT paid, leading to double taxation.

New EU VAT rules for imported e-commerce purchases of less than EUR 150 with IOSS

New EU VAT rules for imported e-commerce purchases of less than EUR 150 without IOSS

Elimination of exemption related to imports of small consignments 

The current VAT exemption of low-value consignments imports (i.e., the value of which is up to EUR 22) will be removed. Therefore, all goods imported into the EU will now be subject to import VAT.

Special arrangement on import VAT

A new special arrangement has been introduced for the declaration and payment of import VAT for low-value goods supplied to a customer in the member state of importation, where neither the IOSS scheme nor the standard VAT collection mechanism on imports are used. This regime applies for goods not exceeding EUR 150 in value and only applies to goods that are not subject to excise duties. The simplification measure will allow customs declarants (e.g., postal operators and couriers) to remit VAT collected on a monthly basis.

 Electronic interfaces that facilitate e-commerce

An electronic interface (EI) may be a website, portal, gateway, marketplace, platform, application program interface, etc. It should be understood as a broad concept.

The term “facilitates” means the use of an electronic interface to allow a customer and a supplier offering services or goods for sale through the electronic interface to enter into a contact that results in a supply of goods or services through that electronic interface.

EIs will have the following new roles for VAT purposes in the EU:

• They may be “deemed suppliers” for the underlying goods, meaning that they are treated as though they purchase the goods from the legal supplier and supplied the goods in their own name to the customer.
• They will have certain record-keeping obligations.

EIs will be considered a “deemed supplier” if they facilitate the following:

• distance sales of goods imported into the EU of a value not exceeding EUR 150
• supplies of goods to customers in the EU irrespective of their value, when the underlying supplier/seller is not established in the EU

However, they will not become a “deemed supplier” in the following transactions:

• goods in consignments of a value exceeding EUR 150 imported into the EU, irrespective of where the actual supplier/seller is established
• goods that are located in the EU at the time of sale, irrespective of their value, if the underlying supplier/seller is established in the EU

In order to declare and pay VAT due in other member states, EIs will be able to register for the OSS and IOSS. Both OSS and IOSS are open for registration from 1 April 2021 and will be ready to use from 1 July 2021.

As a result, for VAT purposes, an EI is treated as if it is the actual supplier of the goods and will be liable to account for VAT on these sales. The EI facilitating the sale is deemed, therefore, to have received and supplied the goods.

In addition, EIs will need to keep records for the transactions they facilitate, irrespective of whether they become “deemed suppliers.” Such records should be kept for 10 years after the end of the fiscal year in which the transaction took place. Records must be made available to member states upon request.

 Invoicing obligations

The rules applicable to date on e-commerce transactions mean that invoices should be issued according to the legislation of the EU member state in which the transaction is deemed to take place.

After 1 July 2021, that rule changes with respect to businesses applying the OSS. These businesses should issue sales invoices according to their country of identification (i.e., the member state in which they are registered for the OSS). The VAT Directive does not impose a mandatory invoicing obligation for such supplies to consumers within the EU. Nonetheless, member states may set forth the requirement to issue an invoice for such supplies in their national legislation.

In connection with sales facilitated via an EI, the invoicing regulations could be more complicated. Below is a table summarizing the different invoicing obligations:[⁵]

_________________

[1] These thresholds are not applicable for excise goods.

[2] MOSS currently applies for ESS, telecoms and broadcasting services: Union and non-Union scheme.

[3] However, that obligation should not apply if the non-EU entity is established in a country with which the EU has concluded an agreement on mutual assistance.

[4] As from 1 July 2021, the VAT threshold of EUR 10 or EUR 22 will be abolished. There will be a threshold of EUR 150. Importation may continue to be exempt from VAT for goods not exceeding EUR 150 subject to the IOSS regime.

[5] Taken from EU Commission Explanatory Notes on VAT e-commerce rules.

07.01.2021

From 1 January 2021, the United Kingdom will be considered, from a VAT perspective, a third country. However, we must keep in mind that there is an exception for Northern Ireland. The United Kingdom includes England, Wales, Scotland and Northern Ireland.
If suppliers or customers come from England, Wales and Scotland, they will be considered to be from a third country. If customers or suppliers are from Northern Ireland, Community rules, including Directive no. 112/2006 on the common VAT system continue to be applicable. We note this exception applicable to business partners in Northern Ireland from a VAT perspective.

Fundamentals of trade in goods

a) Purchases of goods from the United Kingdom

If the goods come from England, Scotland, Wales, they have the character of imports of goods for which a customs import declaration must be lodged. As a consequence, VAT paid to customs in Romania will be due. Purchases of goods from Northern Ireland are assimilated to intra-community purchases of goods and respect, in principle, the reverse charge mechanism when the beneficiaries in Romania are registered for VAT purposes in Romania.
An intra-community acquisition of goods will also be considered as an acquisition of goods from Northern Ireland by persons not registered for VAT purposes, of course following their specific procedure.

b) Shipments of goods to the United Kingdom

If the goods are transported to England, Scotland or Wales, they will be considered exports of goods, upon submission of the export customs declaration. These exports are exempt from VAT with the right of deduction. See OMFP no. 103/2016 amended by OMFP no. 2148/2020 on the justification of the VAT exemption on exports.
The transport of goods from Romania to Northern Ireland is, in principle, assimilated to an intra-community supply of goods. If the beneficiary communicates a valid VAT code, this delivery is exempt from VAT in Romania. See OMFP no. 103/2016 amended by OMFP no. 2148/2020 on the justification of the VAT exemption for intra-community deliveries.
If the beneficiary in Northern Ireland does not communicate a valid VAT code, either the transaction is taxable in Romania or we need to check a possible distance selling procedure.

Additional source of information:
https://ec.europa.eu/taxation_customs/uk-withdrawal-ro_en

02.06.2020

The European Commission has published proposals for Council decisions to postpone deadlines imposed by the EU Directive on Administrative Cooperation by 3 months, as well as the entry into force of the VAT E-commerce package by 6 months.

This follows on from public requests made by financial and professional association organisations, seeking leniency in the enforcement of penalties and deadlines contained within the Directive due to the extraordinary consequences of the COVID-19 outbreak which have resulted in severe disruption across the European economy.

As concerns the Directive on Administrative Cooperation, the proposal would:

• Defer the time limit for exchanges of information on Reportable Financial Accounts by 3 months, i.e. until 31 December 2020;
• Change the date for the first exchange of information on reportable cross-border arrangements that feature in Annex IV to Council Directive 2011/16/EU from 31 October 2020 to 31 January 2021;
• Change the date for the beginning of the period of 30 days for reporting cross-border arrangements which are included in Hallmarks listed in Annex IV to Council Directive 2018/822/EU from 1 July 2020 to 1 October 2020;
• Change the date for the reporting of the ‘historical’ cross-border arrangements (i.e. arrangements that became reportable from 25 June 2018 to 30 June 2020) from 31 August 2020 to 30 November 2020.

The Commission has also included in the proposal concerning the Directive on Administrative Cooperation the possibility of extending the reporting deadlines for a further 3 months, depending on the continued evolution of the coronavirus impact on the EU.

As concerns the VAT e-commerce package, the proposals would “only concern the date of application of the already adopted legal framework of the VAT e-commerce package set out in the VAT Directive. The date of application shall be postponed by six months. This means that the rules shall be applied as of 1 July 2021 instead of 1 January 2021. Consequently, Member States shall adopt and publish their transposition measures by 30 June 2021 instead of 31 December 2020.”

The proposals will be considered by the Council as a matter of priority.

24.03.2020

Dear Client,

While it is business as usual here at Bader Consulting, given the unprecedented events developing in the world related to the Coronavirus we wanted to provide you with an update on how we are responding to the situation. Having as a top priority the health and safety of our clients and team, as well out of respect to our community, we have decided that as from today all our team will be working from home.

Our firm will remain fully operative. We are more than sure that we will continue to offer the same level of service to all our clients.

We are here to help you with any business related matter and we will endeavor to keep all operations running exactly as we have done until the crisis passes.

We thank you all for your continued support.

Kind regards!

26.11.2019

The European Commission has published draft Explanatory Notes on EU VAT changes in respect of call-off stock arrangements, chain transactions and the exemption for Intra-Community supplies of goods (“2020 Quick Fixes”), which the Commission prepared for input and discussion at the upcoming VAT Expert Group meeting.

The explanatory notes set out guidance on Commission’s view as to interpretation of Council Directive (EU) No 2018/1910 amending Council Directive 2006/112/EC and Council Implementing Regulation (EU) No 2018/1912 amending Implementing Regulation (EU) No 282/2011 concerning the VAT Quick Fixes. The explanatory notes will not be legally binding on the Member States or the European Commission. Contact us for details!

18.10.2019

The European Council formally approved proposals for four “quick fixes” concerning value added tax (VAT) to simplify international trade. The “VAT quick fixes” will be effective beginning 1 January 2020, and will be expected to have considerable implications for businesses trading in international goods.

The VAT quick fixes concern the following four changes:

• Simplified treatment for call-off stock
• Uniform rules to simplify chain transactions
• Mandatory VAT identification number to apply the zero VAT rate
• Simplified proof of intra-Community supplies

These changes will affect different facets within a business (such as changes to the ERP systems and the tax control framework), and could require businesses to update their administrative processes, VAT compliance procedures, billing processes, and other matters such as contracts and order processes with customers and suppliers.

Simplified treatment for call-off stock

Statistics have been made available by the European Commission concerning the VAT Mini One-Stop-Shop (“MOSS”) for the period from 2015 – 2018. The MOSS was introduced in 2015 as a means to collect VAT on telecommunications, broadcasting and electronic services.

The statistics show a significant increase in VAT collected, from 2.7 billion Euro in 2015 to 4.1 billion Euro in 2018 within the EU. Collection increased by over 20% between 2017 and 2018 alone. The statistics also show that the total number of traders registered on MOSS also increased steadily each year.

From 2021 onwards, the MOSS will also be used to collect VAT on distance sale of goods, and concerning services supplied to consumers in the EU.

Corporate income tax

• The current provisions regarding the limited deductibility of interest and net foreign exchange losses are replaced by the provisions of EU Directive 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, which will be applicable to companies that are part of a group.
• The excess indebtedness costs, computed as the difference between the interest revenues and other economically equivalent revenues and indebtedness costs and other economically equivalent costs, including foreign exchange losses, which exceed the EUR 200,000 annual threshold, are deductible for corporate income tax purposes up to 10% of the gross accounting profit, minus non-taxable revenues, plus excess indebtedness and tax depreciation; if this computation base is less than or equal to 0, the non-deductible costs can be indefinitely carried forward and can be deducted when this base becomes positive.
• Companies that are not part of a group and which have interest expenses and net foreign exchange losses available to be carried forward as at 31 December 2017 can fully deduct said amounts in 2018.
• An exit tax is introduced to regulate the tax regime for transfers of assets, of tax residence or of the businesses from Romania to other countries.
• Additionally, a general anti-abuse rule is introduced, according to which tax authorities can ignore a series of arrangements which have been put into place with the sole aim of obtaining a tax advantage.
• The concept of controlled foreign companies is introduced, according to which certain non-distributed revenues of said entities located in jurisdictions having low tax rates are included in the taxable base of the parent company in Romania.

Tax on micro-company income

• The income threshold under which companies are required to apply the micro-company regime is increased from EUR 500,000 to EUR 1,000,000.
• Companies carrying out banking, insurance and reinsurance, capital markets, gambling or upstream oil and gas activities and companies rendering management and consultancy services, regardless of the revenue share derived from said services, are no longer excluded from the application of the micro-company tax.
• Newly set-up companies having a share capital of at least lei 45,000 or micro-companies which perform a share capital increase to this minimum will no longer have the option to apply the corporate income tax regime.

Income tax

• The standard income tax rate is reduced from 16% to 10%.
• It is expressly provided that contributions paid to special social security systems by individuals carrying out independent activities are deductible for income tax purposes.
• Income tax rates applied to income from intellectual property rights decrease from 10% to 7% for determining the advance payments and from 16% to 10% for determining the final income tax due.
• The monthly gross salary based on which the personal deduction is granted increases from lei 1,500 per month to lei 1,950 per month; the personal deductions are increased as well; also, regressive personal deductions are provided within the Fiscal Code for gross salary income between lei 1,951 and lei 3,600.

Mandatory social contributions

The social contributions system is changed as follows:

• The social security contribution is due only by the employee at a rate of 25% from the calculation base (except for cases involving particular or special work conditions, for which the employers also owe social security of 4% or 8% of the calculation base, as the case may be).
• The health insurance contribution is due only by the employee and has a rate of 10% of the calculation base.
• A separate contribution of 2.25% is also due by the employer and replaces the unemployment insurance contribution, the contribution for accidents at work and professional diseases, the contribution for medical leave and indemnities and the contribution to the salary guarantee fund.
• The liability to compute, withhold and pay the social charges remains with the employer.
• Individuals carrying out independent activities can choose to pay the social security contribution by reference to the minimum monthly gross salary. The health insurance contribution is due also by reference to the minimum monthly gross salary.

Value added tax – VAT

• A new rule is introduced according to which the right to deduct VAT is refused to a taxable person if it can be proven that said person knew or should have known that the respective transactions were part of a fraudulent chain of transactions.

• In January 2018, a system of separate Value Added Tax accounts (so called “Split VAT”) will come into force in Romania. The Split VAT system requires the use of separate VAT accounts for all payments and revenues associated with Value Added Tax (input and output VAT). This means, among other things, that invoices for goods and services have to be paid to two separate accounts: the net amount to the business bank account, the VAT element to a separate VAT account. The split-VAT scheme is mandatory for:
  • Companies in insolvency procedure;
  • Companies with delay in payment of due VAT to state budget, if the delay is higher than 60 days and the amount is at least 15000 ron (large taxpayers) / 10000 ron (medium taxpayers) / 5000 ron (small taxpayers).

o   Taxpayers can adopt the system on a voluntary basis, and will receive a tax incentives of 5% reduction of the corporate tax (or corporate tax for micro-business)