Context
A Romanian company, VAT registered and operating under CAEN code 6201 (custom software development activities), signs a contract with an Italian company, also VAT registered, for the development of a custom software application. The project involves the temporary relocation of a Romanian employee to the client’s site in Italy for a period of at least one year.
What are the tax and reporting obligations of the Romanian company in this context?
Applicable Legal Framework
According to Article 271(1)(c) of the Romanian Fiscal Code and its implementation norms, custom software development is classified as a provision of services. Thus, the development of a tailor-made software solution falls under the VAT regime applicable to services.
Regarding the place of supply, Article 278(2) of the Fiscal Code provides that for services rendered between taxable persons (B2B), the place of supply is considered to be the Member State where the recipient is established. In this case, the service is deemed to be supplied in Italy.
Tax Implications
Based on the above, the following conclusions apply:
- The service is non-taxable in Romania, with the VAT obligation arising in Italy, where the recipient is established.
- The Italian company will treat the service as an intra-Community acquisition of services, subject to VAT under Italian legislation.
Reporting Obligations of the Romanian Company
- VAT Return (Form 300)
The value of the invoiced services (whether monthly or by project milestone) must be declared:
- In line 3: “Deliveries of goods or services for which the place of supply is outside Romania…”
- With details in line 3.1: “Intra-Community supplies of services that are not exempt in the Member State where the tax is due.”
- Recapitulative Statement (Form 390 VIES)
- The transaction must be reported using symbol “P” (intra-Community supply of services).
Employee Relocation – Implications
Sending an employee to Italy does not create a fixed establishment for the Romanian company, according to the definition in Article 266(2)(b) of the Fiscal Code.
To qualify as a fixed establishment, the company would need to have its own technical and human resources in Italy, capable of regularly providing services to various clients. In this case, it is merely a delegation of one employee, without establishing a permanent place of business.
The delegation is carried out under Article 44 of the Labor Code, which allows for a period of up to 60 days, extendable only with the employee’s consent.
It is important to note that delegation is not the same as posting (detașare), which involves the temporary transfer of the employee to a different employer.
Conclusion
The Romanian company is not required to register for VAT in Italy, nor to establish a fixed establishment there. The provision of custom software development services is treated as an intra-Community supply, non-taxable in Romania, but subject to VAT in the Member State of the recipient.