In the first session of the event, Jean-Marc Cambien, tax partner at Ernst&Young, talked about changes that have occurred as of January 1 of this year. More precisely, he referred to changes to value added tax (VAT), which has a standard value of 19 percent of a company's turnover in Romania. He said new norms introduced in order to comply with EU legislation have made the local laws “more user-friendly for EU operators” and definitely simpler.
At a European level, the 6th Directive covers taxation and VAT issues and must be implemented in each member state's local law: some provisions are mandatory, others are not, said Cambien.
Most of the required changes have been made in Romania, said the E&Y analyst. The legislation is implemented – and at an earlier stage than in member states that entered the European Union in 2004 – and secondary legislation is also in place.
However, with controversial issues that arise when the local law and European regulations are contradictory, businesspeople should also pay attention to how the European Court of Justice rules in specific cases. “There are about 40 to 50 cases related to VAT every year,” said Cambien.
In conclusion, current Romanian legislation makes it more attractive for foreign investors to start business here, said the partner.
A few of the specific changes the E&Y analyst touched upon were modifications in import taxes, where the reverse charge mechanism is applied as of January 1, 2007. Cambien said Romania was well ahead of neighboring countries in this respect: Hungary applied the reverse charge mechanism in 2004, but later changed it due to losses following its implementation. Bulgaria has not implemented the mechanism yet, which gives Romania a competitive edge over nearby countries in the region.
The law brought about new regulations covering the supply of goods and services too. For exports, foreign clients should provide their VAT number to Romanian partner businesses, which would enable the latter to be tax exempt in Romania.
Another simplifying rule is that European Union businesses are not obliged to appoint VAT representatives in Romania, as they were prior to the accession.
The companies can choose to have direct registration, while VAT representatives are only mandatory for non-EU states, said the Ernst & Young partner. The same rule goes for Romanian businesses in European Union states, which do not have to have a VAT representative in the respective state either.
Cambien also spoke about changes to VAT formalities. Following European integration, commercial invoices are sufficient to conduct businesses, while fiscal invoices are no longer necessary. The latter can still be used, but only if they contain all the specifications listed in the law, otherwise clients cannot deduct VAT. Moreover, paper documents are no longer necessary and can be replaced with electronic documents.
One of the first sectors to adopt the new electronic invoices will probably be telecom, said Cambien, adding that the measure will definitely result in a reduction in costs.
Changes have also occurred in the customs regime. INTRASTAT will take over the statistical finality of most customs documents, said Cambien. For those companies that do not comply with INTRASTAT norms, penalties can go up to EUR 5,000 in Romania. The measure is relatively lax, said Cambien, as other European states went beyond this and stipulated that any contravention of INTRASTAT was a criminal offense.
Cambien's conclusions about the current Romanian VAT system were in general positive. Local tax legislation is 95 percent in line with EU regulations, while the remaining 5 percent is unclear or even contrary to European laws. One example he provided was the state's requirement that all invoices be translated into Romanian, which is something that is not required in the Union.
“A firm administrative position is needed to avoid incorrect interpretations of the law,” said Cambien.
As for VAT inspectors, they still have a long way to go, said the Ernst&Young partner, adding that intensive training needs to be provided by the state.
Dan Schwartz, representing the American Chamber of Commerce, was less confident than his fellow speaker. He said that major changes had been made to the Romanian VAT and excise regulations, which might have some negative effects.
“There will probably be multiple errors in their implementation, and authorities will have a less than friendly attitude following repeated execution mistakes,” said Schwartz.
The AmCham representative added that the Romanian Fiscal Code is a mix of European laws and obsolete local regulations. For example, Schwartz spoke about the equity principle supporting progressive taxation, which contradicts the flat-tax system. Another provision that is not respected is that tax-payers who are incapable of paying contributions should not be required to do so.
Like Cambien, Schwartz also doubted Romanian specialists' readiness to efficiently solve taxation issues, saying that they often cannot find the best solutions to arising fiscal problems. Overall, the size of local taxes shows that, “Romania is the last European country that does not have a motivation system for businesspeople,” said Schwartz.
In the same panel as Schwartz, Carmen Fratita, representing the Exterior Commerce Department from the Economy and Commerce Ministry (MEC), spoke about changes to importing and exporting activities after the European accession.
First, she noted that, “Protectionist ideas during the past years have demonstrated that they only lead to stagnation.” Therefore they have no place in a modern economy.
Fratita quoted a few statistical data about Romania's imports and exports in 2006. More than 87 percent of exports went to European states, she said, which is also where 84 percent of imports came from. “About 67 percent of exports went to European Union states, and 64 percent of imports came from them,” added Fratita.
The Czech Republic and Hungary saw an increase in the price of consumer goods, but such effects were short-lived. “We are convinced that we will not experience such effects on the Romanian market,” said the MEC representative. “We are not certain as to how the value of imports from Asia will evolve.”
In the second session, Alex Milcev, tax partner at Ernst&Young, first spoke about deductible costs, which include fees for transport, accommodation and daily allowances, among others. Sponsorships for non-governmental organizations are also deductible up to a higher amount than before, namely EUR 4,000, said Milcev.
Overall, the two conferences and two workshops helped local entrepreneurs get a better grasp of the changes they need to make in their fiscal documents and the taxes that they need to pay under EU legislation.
The event was organized by Business Media Group and its partner Ernst&Young. Bostina&Associates law firm was the sponsor of the event.