The year 2017 was one when many changes were proposed by the Government, but these changes were not always implemented. Some important changes in the field of taxation have taken place however and will take effect from 1st January 2018. I set out below some of these changes which I feel will have the most impact on individuals and companies. This is not a definitive list and specific advice should be taken as necessary either with your Romanian lawyer or accountant. Whilst there is still much discussion with respect to some of these changes as to their impact and effect, they will become part of the law from 1st January and therefore need to be observed.
VAT was one area which was of interest. It should be noted that the split VAT system will enter into force for insolvent companies and firms with debts to the state budget with effect from the 1st January 2018. This will complicate the relationships between the businesses that have to apply split VAT and those that do not apply split VAT. Accounts departments will have to scrutinise invoices carefully to see whether or not split VAT is payable. It should be noted that one of the provisions is that split VAT applies to those companies who have debts to the State Budget. Should a company make a payment late then they could be classified as having a debt to the State Budget. This could trigger the requirement that they then become a split VAT payer. This is a point to watch especially if in the past you have delayed payments to the State Budget for commercial reasons. Even one day late may trigger this requirement.
Another area of controversy which is now the law is the obligation to pay the social contributions will be fully transferred to employees, but the employers will still be responsible for collecting and paying the money to the state budget. Some companies have increased the employees’ gross salaries by at least 20% so that the employees net salaries remain the same. I hope that discussions in relation to this have been commenced and agreed. Remember that the changes to the Employment contract should be registered with the authorities at least one day before the changes come into effect; also, what is to happen if the Emergency Ordinance bringing these changes into effect is not passed?
To avoid these issues some companies are proposing to give the difference in the form of a bonus until the law regarding the transfer of social contributions is clear from a legal perspective. An employers’ failure to pay the social contributions which they should have collected can now be sanctioned with prison between one year and six years from January 1, next year.
For those who receive dividend income, interest, and revenue from other sources or independent activities they will now have to pay a 10% contribution for health insurance on these sums. They were previously exempt from paying this contribution but now will have to pay it. People who have full-time jobs and receive dividends will now have to pay the contribution to the health insurance both as an employee and as a receiver of dividends.
There are some beneficial changes for tax payers, namely the personal income tax rate will drop from 16% to 10% for all taxable income, except for the tax on dividend income for which the tax will remain at 5%.
Another area of change which will affect SME’s is the revenue threshold of a micro enterprises which will be increased to EUR 1 million, from January 1, 2018. The tax rate for a micro enterprise with one full-time employee will be 1% of turnover up to that figure, whereas the tax rate for micro enterprises with no employees will be 3% of turnover.
The minimum gross salary will be increased from RON 1,450 (EUR 311) to RON 1,900 (EUR 407). However, this increase will not translate into a significant growth in the net wage, because employees will need to pay higher social contributions. It may however lead to a rise in unemployment as it may affect temporary and part-time workers where the employee may wish to have the social contributions covered. This may make the business model uneconomic and lead to closure of some businesses.
The last change which might be of interest is that the contribution to the mandatory private pension system will drop from 5.1% to 3.75% of the gross wage from January 1, 2018. How this will affect the operation of the pension funds has yet to be worked out.
You should also be aware that if you are a Romanian tax payer who leaves the country for more than six months you are required to notify the tax authorities. You will need to fill in and submit a residency form. The fine for failing to submit this form in due time will range between RON 50-100 (EUR 11-22). One does question what will happen if you do not fill in a form and do not return to Romania?
These are just some of the interesting changes which we have had to consider with effect from 1st January 2018.
- The author is Partner at Hammond, Minciu & Associates