VAT registration, one of the main VAT challenges in Romania
Like all EU countries, Romania has implemented all of the EU’s VAT directives, such as VAT Directive 2006/112/EC or the VAT Refund Directive 2008/9/EC for entities from other EU Member States. EU VAT Regulations are also applicable in Romania.
However, Romania has some of the most burdensome (even arbitrary) procedures for registering for VAT purposes, as the Romanian tax authorities want to fight against VAT fraud with a rigid VAT registration procedure applicable to Romanian companies.
Fortunately, Romanian branches of foreign companies / EU companies registering directly for VAT purposes in Romania are not subject to the VAT risk analysis below. Compared to local companies, the VAT registration procedure is simplified for nonresident companies which intend to register for VAT purposes in Romania, however, both procedures mean documents justifying the intention to perform an economic activity in Romania must be provided to the tax authorities.
The tax authorities analyse various topics, allocate negative points for each topic (the exact scoring is not public) and compute the overall score by adding 100 points to the sum of the allocated points. If the overall score is below 51 points (i.e. negative aspects dominate), the fiscal risk is high and the VAT registration is rejected.
Aspects considered during VAT registration
Having considered the above, below we present some aspects which should be avoided by Romanian companies registering for VAT purposes (the examples are not exhaustive).
A Romanian company may not have its headquarters within a lawyer’s office and the period of use for the headquarters should be more than one year. The company should perform its activity in its headquarters and or working units.
The administrators / shareholders (with more than 25% of the shares) must not have committed any fiscal offences / crimes, and they
may not have been administrators / shareholders in other Romanian companies in the following cases: insolvency / bankruptcy /
fiscally inactive / trade registry inactive / VAT registration annulled / overdue taxes.
The company should have an employee with a university degree in economics as the chief accountant, or it should conclude an agreement
with an authorised bookkeeping provider. The company should also have other employees.
Furthermore, the company should have bank accounts and every person authorised to use the bank accounts should be an administrator /
shareholder / employee of the company.
What is also interesting is that the Romanian tax authorities consider it negative if at least one of the administrators is a non-Romanian
tax resident individual, and the company applying for VAT registration has share capital below RON 45,000 (roughly EUR 9,600).
In light of the above, VAT registration can take more than a month. The most important aspect of the current procedure (such rules are not new in Romania) is that the Romanian tax authorities are compelled to have discussions with the company applying for VAT registration (in the past, the tax authorities could simply reject the VAT application without allowing the companies to provide explanations).
Foreign entities wanting to establish a Romanian subsidiary should consider the above recommendations as part of their entry strategy in Romania, and for tax planning, especially from an operational / timing point of view.
For example, if a Romanian company is not to have employees, its administrator will be a foreign individual, it will have the minimum share capital and its headquarters will be in the premises of a service provider, then its VAT registration process will not be straight-forward, even if the new company has a sustainable business model.
The article is signed by Florin Gherghel, Tax Manager Ensight Finance.