President Iohannis passes VAT split law

President Klaus Iohannis promulgated the VAT split law today, which had been passed by the government through an emergency ordinance.

The law involves a mechanism that requires any person registered as a VAT payer to open at least one separate VAT account to collect VAT from their issued invoices and to pay VAT for invoices received from other suppliers.

The Fiscal Consultants’ Chamber and other independent fiscal consultants have expressed worry regarding the multiple practical issues this new regulation will entail in the business environment. “As fiscal professionals, we completely understand and support the government’s interests to find efficient solutions for reducing tax evasion, and the business environment has always supported the need for this reduction in order to create a fair economic climate, as law abiding companies have always been at a disadvantage in terms of competitiveness compared to fraudulent firms. However, this new law, as we have warned on several occasions, contains disproportionate measures considering its stated purpose, and will have serious negative consequences on the activity of honest companies”.

The Fiscal Consultants’ Chamber will put pressure on Parliament to make amendments that will allow the adoption of this law to continue to be optional from January 2018 or only be mandatory for a few sectors that are seen as posing a high fiscal risk. The Chamber has published a series of other specific amendments to the law.

The Foreign Investors’ Council also had a negative reaction to the split VAT proposal earlier this year, saying that it will not be a good strategy to combat tax evasion, but instead it will create serious issues for both small and large businesses.

According to the new law, with a few exceptions, any taxable person will be required to pay invoices for purchases in the VAT account that is indicated by the supplier, whether or not the person is registered for VAT purposes.

The system has been optional from October 1, 2017 and will be mandatory from January 1, 2018.

Companies that make errors in their VAT payment accounts will be penalised with 0.06 percent/day of the total amount starting with the first day of erroneous payments, until the date of correction.