Situation:
A company XYZ SRL with a turnover of less than 300,000 lei per year provides services for clients in the UK.
The services provided relate to communication on the online social network Facebook, communication that relates to information, announcements, advice related to the field, analysis of posts, marketing strategies, trend analysis, search for potential customers.
Does the company have to register for VAT?
Solution:
First of all, it should be mentioned that the provisions of Article 278, paragraph 2, are applicable to the services supplied, according to which the place of supply is deemed to be the place where the recipient is established, if the recipient is a taxable person for VAT purposes. Thus, these services are not taxable in Romania. The general rule applicable to services is known as B2B (business to business).
Also, for services rendered to a taxable person whose economic activity is based in a third country, the provider in Romania, who is under the special exemption scheme for small businesses regulated by Article 310 of the Tax Code, is not obliged to register for VAT purposes, neither under the special scheme as provided for in Article 317, nor under the normal scheme as provided for in Article 316 (if he has not exceeded the threshold of 300,000 lei per calendar year).
In this regard, the provisions of paragraph 15 of the implementing rules of Article 278, paragraph (2) of the Tax Code are relevant, according to which “(7) The services provided for in Article 278, paragraph (2) of the Tax Code, rendered by providers established in Romania to beneficiaries who are taxable persons established outside the European Union (… ), follow the same rules as intra-Community services as regards the determination of the place of supply and the other obligations imposed by this title, but do not imply obligations relating to the declaration in the recapitulative statement, as provided for in Article 325 of the Tax Code, regardless of whether they are taxable or whether they benefit from tax exemption, nor obligations relating to registration for VAT purposes specific to intra-Community services provided for in Articles 316 and 317 of the Tax Code. “
Thus, the service provided to a taxable person in a third country, such as the UK, is not taxable in Romania because the place of supply is considered to be the place where the beneficiary is established, without it being relevant that the service is actually provided in Romania.
In this case, the provisions of Article 278, paragraph (2) of the Tax Code are applicable, supplemented by those of point 14, paragraph (1) of the implementing rules of Article 278, paragraph (2), according to which, in order to determine the place of supply of services in accordance with the provisions of Article 278, paragraphs (2) and (3) of the Tax Code, the notion of taxable person, as defined from the point of view of value added tax, is taken into account. The identification of other elements, such as the fact that the taxable person carries out transactions exempt from value added tax or that he applies the special exemption scheme for small enterprises, does not influence the way in which the rules governing the place of supply apply when the taxable person provides or receives services.
According to point 14, paragraph 8, the provisions on the place of supply of services are supplemented by the provisions of Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax, which are directly applicable.
According to this Regulation, paragraph (18) “The correct application of the place of supply rules depends mainly on the status of the customer, the taxable or non-taxable person, and the capacity in which the customer acts.”
Returning to the obligation to register for VAT purposes under the normal regime according to the provisions of Article 316, paragraph (1), letter b), this obligation will be incumbent on the supplier in Romania only when the turnover of 300,000 lei/calendar year achieved from such non-taxable operations in Romania is exceeded, to which may be added, if appropriate, taxable operations, exempt operations with the right to deduct, and exempt operations without the right to deduct (if they are not ancillary to the main activity).
For non-taxable services in Romania, the provider in Romania has the following tax and accounting obligations:
- to issue the invoice by entering the tax registration code obtained at the time of establishment, without entering the VAT code obtained at the time of registration for VAT purposes under the special regime according to the provisions of Article 317 for intra-Community operations (if he has requested to obtain this code for intra-Community operations with goods and services);
- issue the invoice in the negotiated currency, with the information required by Article 319, paragraph 20 of the Tax Code;
- to include in the invoice the mention:
“not taxable in Romania under Article 278, paragraph (2) of the Fiscal Code” or “not taxable in Romania under Article 44 of EEC Directive No 112/2006″, an obligation regulated by Article 319, paragraph 20, point l): ” l) where a tax exemption is applicable, reference to the applicable provisions of this Title or of Directive 112 or any other statement indicating that the supply of goods or services is subject to an exemption;” and “special exemption regime under Article 310 of Law No 227/2015”. So, in this situation, the provider also applies the special exemption regime regulated by Article 310 “Special exemption regime for small enterprises” of Law no. 227/2015 on the Tax Code because the provider in Romania is a small enterprise, as defined in point 16 of Article 266 “Meaning of certain terms and expressions” paragraph (1) “For the purposes of this title, the following terms and expressions have the following meanings:……16. small enterprise means a taxable person applying the special exemption regime provided for in Article 310”.
- to register the invoice in the accounting registers at the exchange rate on the date of issue, the date of the invoice being the date on which VAT is due;
- to register the invoice issued in the sales journal at a tax base in lei determined by using the exchange rate in force on the date of issue of the invoice. The value of the invoice issued in this way is shown in the sales journal in the column allocated to non-taxable transactions in Romania for which the place of supply is outside Romania.
As can be seen, although it applies the special exemption regime regulated by article 310 “Special exemption regime for small enterprises”, the only fiscal obligation of the taxable person in Romania is to organize, for VAT purposes, the fiscal register of the operations carried out and invoiced, based on the sales journal, as a document to establish when the exemption threshold of 300,000 lei/year of taxable operations has been exceeded. The obligation to organize tax registers is regulated by:
– point 84, paragraph (1) of the implementing rules of Article 310: “Special exemption regime for small enterprises” “84. (1) Persons applying the special exemption regime, according to Article 310 of the Tax Code, are obliged to keep registers of supplies of goods and services that would be taxable if they were not performed by a small enterprise, using the sales journal, as well as registers of taxable goods and services purchased, using the purchase journal.”
- article 321, paragraph (1): “Taxable persons established in Romania must keep correct and complete registers of all operations carried out in the course of their economic activity.”
When the limit of 300.000 lei/calendar year is exceeded from such operations, the provider will be obliged to register for VAT purposes in the normal regime according to the provisions of article 316, paragraph (1), letter b) of the Fiscal Code.
Therefore, until the moment of registration for VAT purposes under the normal regime, the supplier in Romania has no tax obligations for VAT registration, reporting and payment of VAT for these services.
Legal basis:
– Fiscal Code (approved by Law no. 227/2015, published in the Official Gazette no. 688 of 10.09.2015), as amended and supplemented;
– Tax Procedure Code (approved by Law no. 207/2015, published in the Official Gazette no. 547 of 23.07.2015), as amended and supplemented;
– Methodological Norms for the application of the Tax Code (approved by HG no.1/2016).