Acquisition of electronic services from a third country (Nigeria) by a non-VAT-registered microenterprise (case study)
Background
A Romanian company, organized as a microenterprise, not registered for VAT purposes under art. 310 of the Fiscal Code, but holding a special VAT code under art. 317, purchases a software license for managing medical services from a supplier based in Nigeria.
Tax issue
The analysis focuses on the tax treatment from both VAT and non-resident income tax perspectives, depending on the legal nature of the payment.
Tax treatment analysis
The classification of the transaction depends on the contract content and the rights transferred. According to art. 7 point 36 of the Fiscal Code, the payment may represent:
• a royalty (right to use software), or
• a simple provision of electronic services.
Scenario 1 – Royalty
If the payment concerns the right to use software (algorithms, source code, know-how), it qualifies as a royalty. In this case:
• the income is taxable in Romania under art. 223 of the Fiscal Code;
• the company must withhold tax at source at 16% under art. 224;
• if a tax residency certificate is provided, the rate is reduced to 12.5% under the Romania–Nigeria Double Tax Treaty;
• reporting obligations: D100 (monthly) and D207 (annual).
Scenario 2 – Electronic services
If the software is provided online (SaaS / standard license without transfer of rights), the transaction is considered a service:
• the place of supply is Romania;
• the company owes VAT through the reverse charge mechanism;
• VAT is declared and paid via form D301, according to art. 326 of the Fiscal Code;
• the transaction is not reported in D390.
In this scenario, no non-resident income tax is withheld, unless the payment is classified as a royalty or as management/consultancy services.
Practical implications
The tax treatment differs significantly: either an additional cost with withholding tax (direct cash-flow impact), or VAT obligations without the right of deduction. Incorrect classification leads to risks of tax adjustments, penalties, and potential reclassification during tax audits.