On 26 February 2021, Romania published Emergency Ordinance no. 13/2021 for the amendment and completion of the Tax Code and of the Accounting Law (GEO 13/2021) in the Official Gazette.
The main amendments brought about by GEO 13/2021 are presented below:
I. Tax Code
II. Amendment on the newly introduced category of non-deductible expenses
As explained in a previous article, the Romanian legislator has introduced a new category of non-deductible expenses, which are incurred from transactions performed in relation to entities or individuals established in countries listed in Annex I and Annex II of the of the EU List of non-cooperative jurisdictions for tax purposes, as published in the Official Journal of the EU.
Further to the above modifications, the Ministry of Finance noticed that Annex II does not include non-cooperative jurisdictions and issued a press release on 4 February 2021 stating that Annex II will be removed from the provision in order to ensure the uniform implementation of the defensive measures, in line with other EU member states.
As per GEO 13/2021, only expenses incurred from transactions performed in relation to entities or individuals established in countries listed in Annex I of the EU List of non-cooperative jurisdictions for tax purposes will be treated as non-deductible. In addition, taxpayers incurring expenses from transactions with entities established in countries presented in Annex II are able to deduct such expenses, whether or not the legal provision was applicable on the date of recording the expenses, when computing their 2021 first quarter tax or the annual tax respectively.
III. Benefits in cash or in kind received from third parties
GEO 13/2021 unifies the provisions regarding the declaration and payment obligations for the benefits in cash or in kind received by employees from third parties, which were introduced in December 2020. As with personal income tax, if the benefits are paid or granted to the employee through his Romanian employer, the latter must calculate, withhold, declare, and pay the related income tax. If the benefits are granted to the individual by a third-party Romanian tax resident, the third party must calculate, withhold, declare, and pay the related income tax.
Similarly, the obligation to calculate, withhold, declare and pay the social contribution falls on the Romanian employer if the benefits are granted through him. Also, if a third-party Romanian tax resident grants and pays such benefits, the third-party must calculate, withhold, declare and pay the related social contributions. The obligation to calculate, declare and pay social contributions may fall also on the employee, if benefits are granted and paid directly by a third-party, which is not a tax resident in Romania.
The provisions above will become applicable starting with benefits in cash or in kind pertaining to periods starting 1 March 2021 when this provision went into force.
IV. VAT cash accounting system
The new provisions unify the rules for the application of the VAT cash accounting system, after the threshold increase (e.g. currently the threshold is RON 4.5 million or EUR 920,000), which was introduced at the end of last year. Those taxpayers, which exceeded the previous threshold of RON 2.25 million during January 2021 but did not exceed the RON 4.5 million threshold, will not be removed from the Register of taxable persons applying the VAT cash accounting system.
In addition, the new provisions introduce the possibility for taxable persons to opt for application of the VAT cash accounting system during the same year they registered for VAT purposes. In such a case, the taxable person will apply the VAT cash accounting system starting with the first day of the fiscal period following the day they opted for application of the system.
The amendments on VAT cash accounting system entered into force on 1 March 2021.
V. Modification on the threshold for VAT rate for housing deliveries
The value of dwellings qualifying for the reduced VAT rate of 5% has undergone modifications. This value has been increased from RON 450,000 (EUR 92,000, excluding VAT) to EUR 140,000 through Law no. 248/2020 and Law no. 296/2020 as envisaged in the amendment applied starting 1 January 2021. Furthermore, Government Emergency Ordinance no. 226/2020 postponed the application of the EUR 140,000 threshold, as introduced in Law no. 296/2020 until 1 January 2022. Therefore, as the value was increased also through Law no. 248/2020, the amendment entered into force on 1 January 2021, as initially planned, and remained applicable from 1 January – 28 February 2021.
GEO 13/2020 corrects this error by implementing the initial threshold of RON 450,000 for the value of dwellings qualifying for the reduced VAT rate of 5%, during the period 1 March – 31 December 2021.
VI. Accounting Law
a) Extension of Accounting Law’s applicability to new categories of legal entities
GEO 13/2021 provides that foreign legal entities carrying out activities in Romania through one or more permanent establishments, as well as the foreign legal entities having its place of effective management in Romania, are obliged to organise and keep their accounting records in accordance with Romanian regulations.
b) Preparation of the financial statements and general inventory for transformation of business
Under newly enacted provisions, the obligation to prepare financial statements has been extended to the transformation of legal entities in addition to merger, de-merger and liquidation operations. Such financial statements must be audited, if the company has the obligation to audit the annual financial statements.
In addition, such a transformation process will trigger the obligation to perform the general inventory of assets, liabilities and equity.
c) Extension of the obligation to retain the financial statements
GEO 13/2021 extends the obligation to retain financial statements for ten years for interim and consolidated financial statements.
d) Consolidated financial statements
Under the new provisions, the consolidated financial statements include the consolidated directors’ report, the independent auditor’s report, and the consolidated report on payments to governments, if accounting regulations provide for such a report.
e) Definition of public information
GEO 13/2021 defines public information as data from a company’s financial statements as presented on Ministry of Finance’s website. In addition, the Ministry of Finance can conclude protocols for exchange of information and provide data from financial statements in their database.
Fines can result from non-compliance with rules on preparation and submission within the legal deadline of the annual financial statements and annual consolidated financial statements. The level of the fine will be based on the delay period. Fines are also applicable for non-compliance with obligations for interim financial statements.
In addition, a separate fine will be applicable if the obligations to prepare and submit the directors’ report, the independent auditor’s report, and the report regarding payments performed to governments are not fulfilled.
These changes to Accounting Law entered into force on 26 February 2021, except for the provisions for fines for non-compliance with the legal obligations on accounting matters, which will become applicable at the end of March 2021.
Roxana Popel, Head of Tax, CMS Cameron McKenna Nabarro Olswang LLP SCP
Andrei Tercu, Tax Director, CMS Cameron McKenna Nabarro Olswang LLP SCP
Ramona Tudor, Senior Tax Consultant, CMS Cameron McKenna Nabarro Olswang LLP SCP