VAT registration procedure

In view of all the existing studies on tax evasion in Romania showing that the major proportion of tax evasion occurs with regard to the VAT, upon the companies' request, the Ministry of Public Finance has elaborated a new VAT registration procedure.

Although we understand and support the fight against tax evasion, because we have direct contact with the business environment and because, as professional accountants, we are the ones that "translate" all these undertakings in practice for our clients, providing them with the procedural support for VAT registration purposes, we would like to show you the way these new regulations are seen from the business environment, and particularly the way they are implemented on a daily basis.

We believe that, given our activity, we play an important role in maintaining a sound economy, based on objective and easily applicable fiscal principles, and have therefore decided to present not the content of the new procedure, which can be easily read, but rather the aspects related to the way in which the procedure, in spite of the positive effects targeted by the Government upon the elaboration, has a negative impact on the honest tax-payers that wish to perform their activity in compliance with the legal provisions.

Although the procedure applies not only to companies requesting the VAT registration for the first time, but also to those which, for different reasons, have had their VAT registration cancelled, we propose an analysis for start-ups, newly established companies, or at their first application for VAT registration. There are several measures meant to facilitate the establishment of new companies, extremely important to the economic development, and yet, this procedure is a burden and almost makes it impossible for certain companies to perform the intended activity.

As of 01.07.2012, the fiscal code requires a turnover limit of RON 220000, below which companies are not VAT registered, but use the VAT exemption facility for small enterprises.

However, in practice, for a new company, depending on its field of activity and the geographic area in which it trades its goods and/or services, a VAT registration may be important and necessary, even if the turnover lies below this limit, or an exceeding thereof is estimated in the current fiscal year.

Consequently, it is possible to obtain a VAT registration by way of option, subject to Article 153(1)(a) and (b).

For this, before 01.02.2015, the company would file a registration request, along with Annex 2 (098) comprising some information regarding the partners and directors, a copy of the proof for the registered office address and a Real Estate Register excerpt, the Declaration on oath with regard to the activity execution place (registered office, branch), the field of activity, a description of such activity and the equipment required for the performance of this activity. Following the submission of this file, an inspector would visit the declared registered office in order to make sure that the place corresponds to the activity. The procedure would take several days, and the company's VAT registration decision would be issued in approximately one week.

After the new procedure established in the Order of the President of the National Fiscal Administration Agency no. 18/2015, published in the Official Gazette no. 32/15.01.2015, applicable as of 01.02.2015, besides the 010 registration application form, companies must also attach the 088 form, a declaration on oath regarding the assessment of the intention and capacity to perform economic activities involving VAT-related transactions. By means of this form, additional information is requested, some of it being confidential, and for companies with foreign partners, rather difficult to obtain. We will not go into the 18 questions in this form, but will focus on some examples that we consider relevant in order to understand this change:

o Specifying the full address where the company's activities will be carried out, for companies that declare that they perform activities exclusively outside the registered office and the branches:

For companies that carry out activities exclusively at the beneficiary, it is impossible to provide this information, as this is the place for future activities, a difficult thing to know upon the submission of the application form, and the Trade Register allows the operation of a company with its main activity outside the registered office or secondary offices;
For companies working with logistics companies (providing them with warehouses), there is no need for a secondary office.

o Specifying the gross income registered by the partners and directors in the last 12 months before the declaration filing month:

This is confidential information, of a discriminatory nature for young entrepreneurs that may have just finished university and do not have a labor agreement or other income sources;

o During the last 3 years, the partners (irrespective of their participation in the share capital) or directors hold or have held this position in other companies with overdue payments to the state budget (except for local taxes and fees):

The facts could be checked in real time by the department in charge of the file assessment, not to mention the fact that a person who is only a partner in another company does not necessarily know the tax situation of the respective company at a certain time, as the director of the company is responsible for this; therefore, information must be requested in this respect;

o Specifying the education and the professions of the company's partners and directors, as well as the positions held during the 12 months before the submission of the declaration:

The experience in the company's field of activity becomes relevant, under the conditions of a growing economy, in which the focus should be on innovation and in which the unemployed from significant redundancies in certain fields of activity must and are encouraged to undergo a professional reorientation;

o Three references are requested, contact details (name, date of birth, phone number, e-mail) of three persons resident in Romania who, upon the request of the fiscal authority, can provide information about the company's directors:

Do we need recommendations in order to be able to establish and grow a business?

o Number of concluded individual work agreements - it is not an estimation that is requested, such agreements must be concluded:

A start-up should be allowed to produce before making any expenses - salary expenses included.

After the filling in of Form 088 and the submission of the registration file, there is a waiting period for the file assessment, according to Oder 17/2015. For our example of a newly established company, the focus is on the assessment, based on the analysis performed by the fiscal authorities of the intention and capacity of the tax-payers to carry out economic activities involving VAT and/or VAT-exempted transactions with a right to deduct, as well as operations for which the delivery/service provision place is considered to be abroad if the VAT were deductible, if such operation took place in Romania. Criteria here are not public and are not transparent, only an acceptance or rejection response is received.

For a better understanding of the effects of VAT registration rejection on a start-up, see the examples below:

For companies which intend to perform intra-EU transactions, the VAT registration is necessary in order to be able to apply/benefit from the reverse charge effects for intra-Community operations;
For companies in the trading sector, the fact that they cannot deduce the VAT related to purchases of goods is completely anti-competitive, as for them the VAT would be included in the sold goods and this means higher sales prices which will not allow them to have an adequate profit margin and a satisfactory turnover, depending whom they address - population or companies;
For certain activity types, there are commercial agreements which require that both parties be VAT-registered, whereas a non-VAT registered company is automatically eliminated from certain transactions;
For companies which intend to have certain initial investments in order to start the business under optimum conditions, a missing VAT registration rules out their right to deduce such investments, thus negatively influencing the future cash-flow.

From our experience, during these two months in which we have tried to assist start-ups with the VAT-registration procedure, we have come to the following conclusions:

None of the applications has been approved from the beginning, for various reasons, but they were all translated as "it is not capable to perform economic activities”;
The process duration cannot be predicted; answers for more recent applications have been received while previous applications are still waiting for an answer;
The criteria are not transparent, the company cannot estimate whether it shall have the approval or not, e.g. based on an initial scoring;
The company's decisions and activities are suspended while waiting for an answer which is crucial for certain activities.

We can also present some aspects that are rather convincing for the assessment department when analyzing the submitted documentation, such as:

It is essential for the new company to have declared activities at the registered office or at the registered branches, whereas this is a clear disadvantage for companies which cannot have their activities authorized for a fixed office (e.g. assembly works, etc.). In this case, we recommend to attach agreements with future clients, presented offers, any form of document that can prove that the company has a commercial potential to perform the declared activities;
It is very important to have work agreements with the employees and to file copies thereof along with the application form;
We think that the "scoring" can be increased if the partners and directors can provide evidence of their gross income in the last 12 months (attestation of revenues is the best proof, but we believe that any type of income - rent, dividends, authorized professional activities, etc. are an advantage);
The "tax" history of the partners and directors - without companies with debts to the state or companies declared as "inactive" at the National Fiscal Administration Agency;
Attaching a service agreement concluded with the accounting company, authorized by CECCAR and authorized to use the digital certificate for the respective company.

Clear rejection reasons are:

Lack of an adequate office, activity which is not declared at the registered office or a secondary office;
No employees;
Lack of partners' / directors' income;
Partners/directors with a tax record / debts from other companies;

We would also like to mention that the new procedure implies changes on the VAT-registration cancellation procedure, once the RON 220.000 limit has been exceeded.

Thus, assuming that a company has its VAT-registration application rejected and the company's turnover in the respective year exceeds the limit in terms of VAT, it must be VAT-registered by the 10th of the next month following the exceeding. The company will be VAT-registered as of the 1st of the next month, but, if the initial situation has not changed at that time, i.e. the information initially supplied in 088 is the same; its VAT-registration will be simultaneously cancelled. The absurd consequence of this measure is the fact that until the modification of the given conditions, when it shall be able to apply for and obtain the VAT registration, the company will have to collect VAT but will not be able to deduce it, whereas the company's clients will not be able to deduce the VAT related to purchases from this company.

Consequently, we believe that in spite of all the good intentions, the new procedure affects not only the unfair operators that will probably find a way to evade the system with these coordinates, but also the ones with good intentions that wish to start a business in Romania.

However, we hope that the business environment will be consulted and that, after an implementation period, conclusions will be drawn in order to adjust these conditions depending on the situations brought forth by the enforcement of the procedure, i.e. so as to facilitate the VAT-registration upon request, while highlighting those criteria that can really eliminate tax evaders without blocking start-ups which are very much needed in our economy.

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