Romania has one of the highest VAT gaps in Europe, which is why applying the reverse charge mechanism in Romania is mandatory for specific transactions. To combat tax fraud, the country requested an extension of the reverse charge mechanism in Romania.
VAT simplification measures or simplified procedures (reverse charge mechanism) are applicable in Romania for specific transactions between two Romanian VAT payers. The main condition for applying the reverse charge mechanism in Romania is that both the seller and the buyer are registered for VAT purposes in Romania and that the supply takes place within the country.
Goods and services subject to reverse charge mechanism in Romania
The reverse charge mechanism in Romania is mandatory for applicable transactions as the country has one of the highest VAT gaps in Europe (35.88% in 2016) as regards uncollected VAT. In this respect, the seller issues the invoice without VAT and the buyer records the VAT both as input and output VAT, offsetting one another.
Provided that both the seller and the buyer are Romanian VAT payers, the main local goods and services subject to this reverse charge mechanism in Romania are as follows:
- Sale of ferrous and non-ferrous waste
- Sale of wood
- Sale of cereals
- Sale of electrical energy
- Sale of construction, partial construction, land (subject to the VAT regime by option or by law)
- Sale of mobile phones
- Sale of devices with integrated circuits
- Sale of PCs, tablets or laptops
Since it was possible to invoice most of the above transactions without VAT until 31 December 2018, Romania requested an extension of this mechanism to combat VAT fraud in these specific areas.
EU Directive on reverse charge mechanism
In this respect, EU Directive 2018/1695 was published in the Official Journal of the European Union on 12 November 2018, allowing Member States to regard the buyer as the person liable for VAT for specific local transactions until 30 June 2022. This is the envisaged date that the new EU VAT Directive will enter into force.
Having considered the above EU Directive and the current approach of the Romanian Ministry of Finance, the Romanian authorities modified the Romanian Fiscal Code. As we wrote in an earlier article, Government Emergency Ordinance no. 114/2018 enables the continued application of the reverse charge mechanism in Romania after 1 January 2019.
If you would like to know more about the application of the reverse charge mechanism in Romania or any other taxation issues of the country, please visit the website of Ensight, WTS Global’s exclusive representative in Romania.