Split VAT system to become optional following European Commission’s demands

The split VAT mechanism may continue, but become entirely optional in the near future, said Daniel Anghel, vice president of the Foreign Investors Council, for profit.ro.

In November, The European Commission had rejected Romania’s request for an exemption from the VAT directive for the split system. Romania had a January 9 deadline to inform the EC about its plans. If the country didn’t cancel its split VAT mechanism, an infringement procedure would have started. The deadline was later extended to March 9.

According to information obtained by profit.ro, the Romanian authorities responded to the EC’s demands within the deadline, and the Commission is now analysing their proposals.

Romania introduced the split payment of VAT in January 2018 without having prior discussions with the EU. Split VAT is currently mandatory for insolvent and VAT-indebted companies, but can also be applied optionally by firms for a 5 percent reduction in profit tax.

In order for the system to become optional, changes in the fiscal law could be made in the following weeks. Authorities will have to prepare rules for companies that were forced to use the mechanism so that they can return to a regular VAT payment system.

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At the end of last year, 18,700 companies were using the split VAT system, of which 8,333 had outstanding VAT payments since December 31, 2017, 3,274 had outstanding VAT payments starting January 1, 2018, 6,783 were in insolvency, while only 329 (less than 2 percent) opted to apply split VAT.

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