From 1 January 2021, the United Kingdom will be considered, from a VAT perspective, a third country. However, we must keep in mind that there is an exception for Northern Ireland. The United Kingdom includes England, Wales, Scotland and Northern Ireland.
If suppliers or customers come from England, Wales and Scotland, they will be considered to be from a third country. If customers or suppliers are from Northern Ireland, Community rules, including Directive no. 112/2006 on the common VAT system continue to be applicable. We note this exception applicable to business partners in Northern Ireland from a VAT perspective.
Fundamentals of trade in goods
a) Purchases of goods from the United Kingdom
If the goods come from England, Scotland, Wales, they have the character of imports of goods for which a customs import declaration must be lodged. As a consequence, VAT paid to customs in Romania will be due. Purchases of goods from Northern Ireland are assimilated to intra-community purchases of goods and respect, in principle, the reverse charge mechanism when the beneficiaries in Romania are registered for VAT purposes in Romania.
An intra-community acquisition of goods will also be considered as an acquisition of goods from Northern Ireland by persons not registered for VAT purposes, of course following their specific procedure.
b) Shipments of goods to the United Kingdom
If the goods are transported to England, Scotland or Wales, they will be considered exports of goods, upon submission of the export customs declaration. These exports are exempt from VAT with the right of deduction. See OMFP no. 103/2016 amended by OMFP no. 2148/2020 on the justification of the VAT exemption on exports.
The transport of goods from Romania to Northern Ireland is, in principle, assimilated to an intra-community supply of goods. If the beneficiary communicates a valid VAT code, this delivery is exempt from VAT in Romania. See OMFP no. 103/2016 amended by OMFP no. 2148/2020 on the justification of the VAT exemption for intra-community deliveries.
If the beneficiary in Northern Ireland does not communicate a valid VAT code, either the transaction is taxable in Romania or we need to check a possible distance selling procedure.
Additional source of information:
The European Commission has published proposals for Council decisions to postpone deadlines imposed by the EU Directive on Administrative Cooperation by 3 months, as well as the entry into force of the VAT E-commerce package by 6 months.
This follows on from public requests made by financial and professional association organisations, seeking leniency in the enforcement of penalties and deadlines contained within the Directive due to the extraordinary consequences of the COVID-19 outbreak which have resulted in severe disruption across the European economy.
As concerns the Directive on Administrative Cooperation, the proposal would:
- Defer the time limit for exchanges of information on Reportable Financial Accounts by 3 months, i.e. until 31 December 2020;
- Change the date for the first exchange of information on reportable cross-border arrangements that feature in Annex IV to Council Directive 2011/16/EU from 31 October 2020 to 31 January 2021;
- Change the date for the beginning of the period of 30 days for reporting cross-border arrangements which are included in Hallmarks listed in Annex IV to Council Directive 2018/822/EU from 1 July 2020 to 1 October 2020;
- Change the date for the reporting of the ‘historical’ cross-border arrangements (i.e. arrangements that became reportable from 25 June 2018 to 30 June 2020) from 31 August 2020 to 30 November 2020.
The Commission has also included in the proposal concerning the Directive on Administrative Cooperation the possibility of extending the reporting deadlines for a further 3 months, depending on the continued evolution of the coronavirus impact on the EU.
As concerns the VAT e-commerce package, the proposals would “only concern the date of application of the already adopted legal framework of the VAT e-commerce package set out in the VAT Directive. The date of application shall be postponed by six months. This means that the rules shall be applied as of 1 July 2021 instead of 1 January 2021. Consequently, Member States shall adopt and publish their transposition measures by 30 June 2021 instead of 31 December 2020.”
The proposals will be considered by the Council as a matter of priority.
While it is business as usual here at Bader Consulting, given the unprecedented events developing in the world related to the Coronavirus we wanted to provide you with an update on how we are responding to the situation. Having as a top priority the health and safety of our clients and team, as well out of respect to our community, we have decided that as from today all our team will be working from home.
Our firm will remain fully operative. We are more than sure that we will continue to offer the same level of service to all our clients.
We are here to help you with any business related matter and we will endeavor to keep all operations running exactly as we have done until the crisis passes.
We thank you all for your continued support.
The European Commission has published draft Explanatory Notes on EU VAT changes in respect of call-off stock arrangements, chain transactions and the exemption for Intra-Community supplies of goods (“2020 Quick Fixes”), which the Commission prepared for input and discussion at the upcoming VAT Expert Group meeting.
The explanatory notes set out guidance on Commission’s view as to interpretation of Council Directive (EU) No 2018/1910 amending Council Directive 2006/112/EC and Council Implementing Regulation (EU) No 2018/1912 amending Implementing Regulation (EU) No 282/2011 concerning the VAT Quick Fixes. The explanatory notes will not be legally binding on the Member States or the European Commission. Contact us for details!
The European Council formally approved proposals for four “quick fixes” concerning value added tax (VAT) to simplify international trade. The “VAT quick fixes” will be effective beginning 1 January 2020, and will be expected to have considerable implications for businesses trading in international goods.
The VAT quick fixes concern the following four changes:
- Simplified treatment for call-off stock
- Uniform rules to simplify chain transactions
- Mandatory VAT identification number to apply the zero VAT rate
- Simplified proof of intra-Community supplies
These changes will affect different facets within a business (such as changes to the ERP systems and the tax control framework), and could require businesses to update their administrative processes, VAT compliance procedures, billing processes, and other matters such as contracts and order processes with customers and suppliers.
Simplified treatment for call-off stock
To shorten delivery times, it is becoming increasingly common for suppliers to transfer stock to a warehouse or other location (for example, a store or showroom) of a regular customer in another EU Member State. The goods remain the property of the supplier until they are picked up by the customer (this process is also referred to as “call-off stock”). Under the current VAT rules, when a supplier transfers the goods to the call-off stock, it performs a deemed intra-Community supply in its own EU Member State and a deemed intra-Community acquisition in the EU Member State of arrival. As soon as the customer takes the goods out of the call-off stock, the supplier performs a domestic supply. Generally, the supplier will have to register for VAT purposes in the EU Member State where the warehouse is located. At present, most EU Member States have VAT simplification arrangements for call-off stock, but these differ per country.
Under the new harmonized rules, the transfer of goods to a warehouse in another EU Member State will no longer qualify as a deemed intra-Community supply and a deemed acquisition (for a maximum period of one year). As soon as the customer takes the goods out of the stock, the supplier performs a direct intra-Community supply to the customer. The supplier will not be required to register for VAT purposes in the EU Member State of arrival of the goods. The supplier and customer that use this simplification, however, must keep a register that complies with specific conditions. In addition, the supplier must report on the EC sales list that it transported goods to foreign stock. If a supplier does not comply with all the conditions for call-off stock, it must in principle still register for VAT purposes.
Uniform rules to simplify chain transactions
In the case of a chain transaction with consecutive supplies of goods among three or more taxable persons in different EU Member States, the intra-Community goods transport can only be attributed to one link in the chain. This means that the zero VAT rate for intra-Community supplies only applies to one supply. The other supplies are local (domestic) supplies of goods. In practice, there is often discussion about which link must be attributed to the intra-Community goods transport.
Under the new rules, the starting point is that the intra-Community supply takes place in the link in which the goods are supplied to the taxable person that arranges the intra-Community transport or has this arranged. This is usually the first supply in the “link A-B.” Exceptions to this fiction are possible, for example, if intermediary B, which arranges the transport or has this arranged, provides the supplier with a VAT identification number of the EU Member State of dispatch of the goods. In that case, the intra-Community goods transport is attributed to the link between the taxable person arranging the transport or that has this arranged and its customer (in this example the “link B-C”).
VAT identification number for application of zero VAT rate
A customer’s valid VAT identification number is currently a formal requirement for applying the zero VAT rate to intra-Community supplies of goods. However, it has been settled by the Court of Justice of the European Union (CJEU) that, in principle, a taxable person only has to comply with the material conditions in order to apply the zero VAT rate. Therefore, the zero VAT rate cannot formally be refused due to the mere fact that a taxable person did not receive a valid VAT identification number from its customer.
Under the new rules, the use of a valid VAT identification number that the customer communicated to the supplier will be regarded as a material requirement for applying the zero VAT rate. If a supplier fails to state the customer’s valid VAT identification number on the invoice, it will no longer be possible to apply the zero VAT rate as of 1 January 2020. Furthermore, as a condition for applying the zero VAT rate, the taxable person must file an EC sales list.
Simplified proof of intra-Community supplies
The fourth quick fix provides for the harmonization and simplification of the rules on proof of transport for the purposes of applying the zero VAT rate to intra-Community supplies. To be eligible for the zero VAT rate, taxable persons must, for example, prove that the goods were dispatched from one EU Member State to another EU Member State. EU Member States currently maintain different rules to prove this transport, and this leads to uncertainty and significant administrative expense for businesses with cross-border trade. According to the new rules, there is a rebuttable presumption of transport to another EU Member State if the supplier can provide at least two non-contradictory evidential documents that were prepared independently from one another. This may include signed CMR documents, together with a copy of payment for transport issued by the bank. Logistics service providers are expected to play an even more important role under the new rules in respect of the provision of proof for the purposes of applying the zero VAT rate.
Businesses involved with cross-border goods transport need to consider how the new VAT rules could affect their transactions in 2020. Prompt action may be essential, given that organizing the administrative and order processes as well as the ERP systems will require time and resources—and not forgetting the fact that tax authorities worldwide are tending more toward digitalisation. The requirements for the collection, analysis, and actual retention of data are rapidly increasing. This means that tax authorities expect taxpayers to implement changes to regulations promptly and correctly within their business.
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Statistics have been made available by the European Commission concerning the VAT Mini One-Stop-Shop (“MOSS”) for the period from 2015 – 2018. The MOSS was introduced in 2015 as a means to collect VAT on telecommunications, broadcasting and electronic services.
The statistics show a significant increase in VAT collected, from 2.7 billion Euro in 2015 to 4.1 billion Euro in 2018 within the EU. Collection increased by over 20% between 2017 and 2018 alone. The statistics also show that the total number of traders registered on MOSS also increased steadily each year.
From 2021 onwards, the MOSS will also be used to collect VAT on distance sale of goods, and concerning services supplied to consumers in the EU.
Corporate income tax
- The current provisions regarding the limited deductibility of interest and net foreign exchange losses are replaced by the provisions of EU Directive 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, which will be applicable to companies that are part of a group.
- The excess indebtedness costs, computed as the difference between the interest revenues and other economically equivalent revenues and indebtedness costs and other economically equivalent costs, including foreign exchange losses, which exceed the EUR 200,000 annual threshold, are deductible for corporate income tax purposes up to 10% of the gross accounting profit, minus non-taxable revenues, plus excess indebtedness and tax depreciation; if this computation base is less than or equal to 0, the non-deductible costs can be indefinitely carried forward and can be deducted when this base becomes positive.
- Companies that are not part of a group and which have interest expenses and net foreign exchange losses available to be carried forward as at 31 December 2017 can fully deduct said amounts in 2018.
- An exit tax is introduced to regulate the tax regime for transfers of assets, of tax residence or of the businesses from Romania to other countries.
- Additionally, a general anti-abuse rule is introduced, according to which tax authorities can ignore a series of arrangements which have been put into place with the sole aim of obtaining a tax advantage.
- The concept of controlled foreign companies is introduced, according to which certain non-distributed revenues of said entities located in jurisdictions having low tax rates are included in the taxable base of the parent company in Romania.
Tax on micro-company income
- The income threshold under which companies are required to apply the micro-company regime is increased from EUR 500,000 to EUR 1,000,000.
- Companies carrying out banking, insurance and reinsurance, capital markets, gambling or upstream oil and gas activities and companies rendering management and consultancy services, regardless of the revenue share derived from said services, are no longer excluded from the application of the micro-company tax.
- Newly set-up companies having a share capital of at least lei 45,000 or micro-companies which perform a share capital increase to this minimum will no longer have the option to apply the corporate income tax regime.
- The standard income tax rate is reduced from 16% to 10%.
- It is expressly provided that contributions paid to special social security systems by individuals carrying out independent activities are deductible for income tax purposes.
- Income tax rates applied to income from intellectual property rights decrease from 10% to 7% for determining the advance payments and from 16% to 10% for determining the final income tax due.
- The monthly gross salary based on which the personal deduction is granted increases from lei 1,500 per month to lei 1,950 per month; the personal deductions are increased as well; also, regressive personal deductions are provided within the Fiscal Code for gross salary income between lei 1,951 and lei 3,600.
Mandatory social contributions
The social contributions system is changed as follows:
- The social security contribution is due only by the employee at a rate of 25% from the calculation base (except for cases involving particular or special work conditions, for which the employers also owe social security of 4% or 8% of the calculation base, as the case may be).
- The health insurance contribution is due only by the employee and has a rate of 10% of the calculation base.
- A separate contribution of 2.25% is also due by the employer and replaces the unemployment insurance contribution, the contribution for accidents at work and professional diseases, the contribution for medical leave and indemnities and the contribution to the salary guarantee fund.
- The liability to compute, withhold and pay the social charges remains with the employer.
- Individuals carrying out independent activities can choose to pay the social security contribution by reference to the minimum monthly gross salary. The health insurance contribution is due also by reference to the minimum monthly gross salary.
Value added tax – VAT
- A new rule is introduced according to which the right to deduct VAT is refused to a taxable person if it can be proven that said person knew or should have known that the respective transactions were part of a fraudulent chain of transactions.
- In January 2018, a system of separate Value Added Tax accounts (so called “Split VAT”) will come into force in Romania. The Split VAT system requires the use of separate VAT accounts for all payments and revenues associated with Value Added Tax (input and output VAT). This means, among other things, that invoices for goods and services have to be paid to two separate accounts: the net amount to the business bank account, the VAT element to a separate VAT account. The split-VAT scheme is mandatory for:
- Companies in insolvency procedure;
- Companies with delay in payment of due VAT to state budget, if the delay is higher than 60 days and the amount is at least 15000 ron (large taxpayers) / 10000 ron (medium taxpayers) / 5000 ron (small taxpayers).
o Taxpayers can adopt the system on a voluntary basis, and will receive a tax incentives of 5% reduction of the corporate tax (or corporate tax for micro-business)
During annual meeting of AITC members, held in Bucharest on September 1-2, our company was awarded with title 2017 Best Business Achiever. It is a honor for us, and we would like to thank to all our clients and collaborators for making this award realizable!
Law no. 120/2015 regarding fiscal facilities granted to individual investors – “business angels” – has been published. It introduces several fiscal facilities for individuals investing in micro-enterprises and small-sized enterprises, and presents the requirements that need to be fulfilled in order for the facilities to apply.
Individual investors – “business angels” can benefit from the following fiscal facilities upon investing in micro-enterprises and small-sized enterprises:
- Exemption from tax on dividends for the first three years from the purchase of the shares. The exemption is granted up to the equivalent of the invested amount.
- Exemption from tax on capital gains from sale of shares, if the sale takes place at least three years after the purchase of the shares.
On September 5-6, we participated at annual AITC Conference, held in Valencia Spain.