Romania relaxes VAT split payments

Fri 13th Oct 2017

Romania is to relax the initial mandatory requirements for VAT payers to implement split payment measures.

Anti-VAT fraud split payments were introduced on a voluntary basis from 1 October 2017. They were to become mandatory for all VAT registered businesses on 1 January 2018. Following heavy lobbying from businesses and employer associations this is to be scaled back.  Initially, on business going into administration or being liquidated will be compelled to implement it.  This may also include businesses with an inconsistent tax reporting and payments history.

Details of the new obligations will be published within the next week.

Split payments divide the amount payable on taxable sales invoices between the net amount and VAT due.  The vendor has to provide a special, secure bank account for receipt of the VAT amount from their customer – the net consideration being paid into the vendor’s regular bank account. The VAT Account is used for offsetting any VAT paid by the vendor on their own VAT purchases, and then used to settle the vendor’s regular VAT due to the state.  The VAT Account can easily be monitored by the tax authorities, and reconciled to VAT transactions.  This helps reduce the opportunity for VAT fraud.

A split payment mechanism is already used partially in Italy with some success.  It has also been proposed for Poland later this year.  They present considerable administrative and accounting system challenges to companies, as well as potential bank charges.

Romania suffers from one of the EU’s largest VAT Gap’s – the estimation of the VAT due versus received and an indicator of VAT fraud. It has been estimated at nearly €9 billion per annum.

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