VAT payer - essential information for small and medium-sized entrepreneurs

One of these difficulties is related to value added tax (VAT), a form of indirect taxation which requires special attention to avoid unpleasant situations. In this regard, the legislation of the Romanian state allows entrepreneurs to choose, under certain conditions, whether they opt for registration as a VAT payer or as a non-payer of VAT. Both postures offer advantages and disadvantages, each businessman having to weigh carefully to be able to make the right choice.

In the article below, you will find out what obligations are imposed on entrepreneurs with regard to value added tax, what is the procedure for switching from non-paying companies to paying VAT, as well as what are the advantages and disadvantages of the two positions. You will also be able to discover some useful information regarding the payment of VAT on receipt.

Contents:

1. VAT payer - general information

1.1. What is VAT? 

1.2. When is the transition made from non-paying companies to those paying VAT?

1.3. Procedure of transitioning from non-paying to paying VAT

2. Advantages and disadvantages for VAT paying and non-paying companies

2.1. Advantages and disadvantages for VAT paying companies 

2.2. Advantages and disadvantages for VAT non-paying companies

3. What is VAT paid on receipt?

1. VAT payer - general information

Any economic activity carried out in Romania is subject to payment of fees and taxes to the Romanian state, money that will be used for various services that the state makes available to citizens. The legislative framework must be understood by all participants in economic life in order to be able to make the right decisions and pay taxes on time. An important impact is related to value added tax, which represents a significant percentage of any company's revenue.

1.1. What is VAT? 

Value added tax, known as VAT, is a type of taxation that the final consumer of a good or service pays to the state. In Romania, this type of tax was introduced in 1992, when it was established that a tax calculated as 18% of its total value should be added to the price of the good or service.

Over time, the percentage has seen changes, both increasing, reaching an impressive 24% in 2015, and decreasing. Currently, in Romania, 3 different VAT rates are applied depending on the good and the service that is taxed.

• The 19% rate is the standard rate applied to ordinary goods and services;
• The 9% rate is reserved for the taxation of goods and services in the hotel and restaurant and catering sectors (this rate does not apply to the sale of alcoholic beverages, apart from draft beer). Supplies of medicines for human and veterinary use, prostheses and orthopedic products, drinking and irrigation water and food intended for human or animal consumption are also taxed at 9%;
• The 5% rate is applicable for the sale of books, newspapers, magazines and school textbooks, social housing, housing with a maximum usable area of 120 square meters and for access to museums, cinemas and other tourist and cultural destinations.

VAT, being a tax that only the end user pays, is calculated in such a way that the businesses involved in the chain do not pay it again. For this reason, the principle of VAT deduction was introduced. This procedure was used to avoid paying VAT twice for the same good or service.

If a company in this chain pays VAT, it has the possibility to recover the money by deducting the VAT. The legislation in this regard is quite complex, the Romanian state trying to avoid tax evasion. Entrepreneurs, especially small and medium ones, at the beginning of the journey, encounter the difficulty of correctly calculating payments and deducting VAT. Specialists recommend that in their case they turn to specialized companies, which calculate this type of indirect taxes so that illegal situations do not arise or that lead to the loss of profit unnecessarily.

There are some circumstances where not only companies but also individuals and PFAs have to pay VAT. The most common situation is when such a person makes more than two sales of immovable property within a year and their price exceeds the threshold of 300,000 lei.

1.2. When is the transition made from non-paying companies to those paying VAT?

When setting up a small or medium-sized company, entrepreneurs have the option, from the point of view of VAT, to place their business either in the exemption regime as a non-VAT-paying company or as a VAT-paying company. The limit between the two categories was established by article 310, paragraph 1, of the Fiscal Code at 300,000 lei. More precisely, companies that in a fiscal year have a revenue ceiling below this mentioned amount can opt for one of the two situations, depending on their own interests, and if this amount is exceeded, then they are obliged to register as a payer of VAT

A company can switch from VAT non-payer to VAT payer in three situations:

• When setting up the company, you can choose to go directly to paying VAT without counting the turnover (it is an option preferred by many, because it is a simple and fast procedure);
• After the establishment of the company, during the usual activity it is possible to opt for the transition to the VAT payer, even if the ceiling of 300,000 lei as turnover in a fiscal year is not reached;
• When the turnover exceeds the ceiling of 300,000 lei or 88,500 euros, it is mandatory to switch to the category of VAT payers.

1.3. Procedure of transitioning from non-paying to paying VAT

The legal provisions clearly specify the procedure that must be followed for the transition from non-paying to VAT-paying companies. This procedure differs depending on when the transition is chosen, being simpler at the time of company registration and more complex afterwards. If one opts to become a VAT payer when setting up the company, the operation is carried out easily, by submitting some documents to the county offices of ANAF.

In practice, company administrators or associations that hold at least 25% of a company's share capital must fill in a special form, called Declaration of Mentions 010, and a self-responsible declaration. After submitting the documents, ANAF issues a registration decision on the same day, and the actual registration is done in 15 days. For safety reasons, there is the possibility of consultation by checking public databases.

Companies that become VAT payers when they reach the mandatory ceiling must go through a more complex procedure. The number of documents requested by ANAf is higher. When exceeding this ceiling, within a maximum of 10 days starting from the following calendar month, company administrators must submit the following documents to ANAF:

• Statement 010;
• The affidavit stating where the company carries out its activities (head office, secondary offices or outside);
• Copy of the administrator's identity card;
• Copy of the ONRC registration certificate;
• Analytical balance from the beginning of the year until the month of exceeding the ceiling.

In the event that the transition to the VAT paying category is made, the administrators must also undertake other activities, for example to notify their business partners that they will issue invoices that include VAT, to make settings at the cash register so that the VAT category should also appear on the receipt and ensure that the accounting service correctly calculates the VAT to be paid or to be recovered. To achieve this goal, companies will submit 3 types of additional tax returns:

• Statement 300 that establishes monthly or quarterly, depending on the option, the VAT statement;
• Statement 390 regarding intra-Community transactions (if any);
• Declaration 394 regarding transactions carried out on the territory of Romania.

2. Advantages and disadvantages for VAT paying and non-paying companies

Regarding the payment or non-payment of VAT, there is the option for companies with a turnover of less than 300,000 lei per year to opt for one of the two situations. Both options have advantages and disadvantages that must be known in order to make the right decision, depending on the business profile and the entrepreneur's intentions. The differences between the two options must be weighed carefully to make the right decision.

2.1. Advantages and disadvantages for VAT paying companies 

VAT-paying companies have the main advantage of recovering part of the expenses by deducting the VAT. The state will return the difference between the amounts paid as value added tax and the amounts deducted. The purchases of intra-community goods, which can be made without the existence of any maximum ceiling, are also important. In particular, companies that do business with partners from other EU countries should move to the category of VAT payers.

The disadvantages of companies in this category are related to the additional bureaucracy (the three declarations that must be submitted to ANAF), more complicated accounting and going through possible controls from ANAF. In addition, the products and services sold will have a higher value due to the addition of the percentage of 5, 9 or 19% that will go to the state accounts.

2.2. Advantages and disadvantages for VAT non-paying companies

Non-VAT paying companies have some visible advantages, useful, in particular, if the entrepreneurs are beginners and do not know all the secrets of taxation in Romania. These include:

• Red tape reduced by the non-existence of the obligation to declare the amounts received as VAT;
• The company's profit can be higher by reducing the costs of accounting services and by not having to pay VAT to the state;
• Business decisions can be made more easily by calculating turnover more easily, no longer needing to subtract the VAT percentage (it is considered an advantage considering that there are three different VAT rates, which complicates possible calculations);
• Not paying VAT is a competitive advantage, the prices requested can be lower than other similar businesses, because they can be reduced by the value of VAT;
• You get rid of the stress of possible ANAF controls regarding VAT.

There are also some downsides to this situation. For example, some business partners will avoid collaborations because they will no longer be able to deduct their VAT. Another shortcoming is related to the purchases of intra-community goods, which cannot exceed the limit of 10,000 euros per purchase, otherwise, an additional bureaucratic step is required, by submitting a form to ANAF.

3. What is VAT paid on receipt?

In certain cases, business administrators can opt for VAT payment upon receipt. This means that the payment and deduction of the percentage of money owed to the state is postponed until the date when the business partners make the payment. The situation is beneficial for companies active in certain fields, where the collection of the counter value of the invoices is done on long terms, of months or even years.

In this situation, the administrators can apply the system only if the turnover from the previous calendar year did not exceed the ceiling limit of 2,250,000 lei. If this ceiling is exceeded, the option of paying VAT on receipt cannot be chosen. There are other categories of legal entities that are not eligible for the application of this system. Here we are talking, first of all, about those legal entities that do not have a permanent domicile in Romania, and, secondly, about those that are not part of a single tax group.

The procedure for choosing this option begins by calculating not to exceed the ceiling of 2,250,000 lei. To determine this turnover, all receipts will be taken into account, regardless of whether they are exempt from VAT or whether they are made through the provision of services and goods abroad. The application of the VAT payment system upon collection is done by submitting a declaration between the 1st and 25th of each month. In order to exit this system, a notification will be submitted to ANAF, the actual exit taking place on the first day of the following month in which the notification was submitted.

In conclusion, entrepreneurs have the legal and moral obligation to know the provisions regarding the payment or non-payment of VAT in order to make the best business decisions, but also to comply with the fiscal obligations towards the institutions of the Romanian state.