Split VAT – to be or not to be, CEE Legal Matters Magazine, November 2017
Romanian Government Ordinance no. 23/2017 regarding split VAT payment entered into force on October 1, with its provisions being optional until the end of 2017. On January 1, 2018, the Ordinance becomes mandatory.
According to the Ordinance, VAT payments to suppliers must be made directly to a special VAT account which each company is required to open. Similarly, VAT must be collected only in the special VAT account if the payer is a taxable entity. If the payer is not a taxable entity (e.g., if the payer is a natural person), the VAT collected by the company must be redirected to the special VAT account within seven business days.
Public institutions and all taxable entities are required to apply the split VAT scheme, including any entities carrying out an economic activity, whether or not registered for VAT purposes, and selfemployed persons, if they are registered for VAT purposes.
The amounts in the special VAT account can be used to pay VAT to suppliers and the State budget VAT obligations. It can also be used to nance other taxpayer needs, but only after the tax administration’s express authorization is obtained. The special VAT account can be foreclosed exclusively for the payment of VAT due to the State budget, as well as for the payment of other outstanding budgetary obligations.
As expected, severe punishments are provided for a number of infringements, such as nes of 50% of the amount paid to the wrong account of the supplier (i.e., an account other than the VAT account), if the error is not corrected within 30 days, as well as a ne of over 50% of the amount within the VAT account if it is used in a manner other than that provided for by the Ordinance.
To date very few companies have opted for the split VAT system. In addition, the Government has indicated that it may amend the Ordinance by making splitting mandatory only for public institutions, insolvent companies, and companies with a record of bad VAT behavior (e.g., making late or no payments).