As we advised in our recent Flash Report on VAT, the Romanian government has modified Art 8 of the VAT Ordinance and has confirmed the reverse charge concept. The Report also confirmed that the Government is attacking all foreign services payments for withholding tax.

According to the amended VAT Ordinance, where the legal person performing taxable operations does not have a registered office in Romania, it is compulsory for it to appoint a fiscal representative domiciled in Romania. This person undertakes to fulfill all VAT payment obligations.

It now appears that in June 1996, the President of the Central Commission for Unitary Enforcement of Legal Provisions in Indirect Taxes Field (we should use initials in future) issued an official explanation regarding the implementation of Art 8 of the VAT ordinance (this is referred to "Decision 8"). This decision has now been published in the Official Monitor and is likely to become the authoritative approach to reverse charge. Consequently, we would expect the application of the reverse charge principle to be reviewed in detail in all future tax office audits.

Decision 8 states that VAT should be paid by beneficiaries having their head office in Romania for services imported from suppliers who have their head office abroad, at the time of the payment to the supplier. VAT should be paid to the fiscal department where the beneficiary is registered as a taxpayer.

The decision reiterates that beneficiaries registered as VAT taxpayers will benefit from the ability to offset this VAT paid in accordance with the VAT legislation. This enforces the fact that a beneficiary that is not VAT registered is still liable for reverse charge VAT even though he cannot reclaim it.

Decision 8 also explains the required accounting treatment for imported services both in respect to VAT reverse charge and withholding tax. If details of the accounting treatment is required please contact us.

The above information is a short summary of recently published information and is not intended to be advise on any particular matter. Price Waterhouse expressly disclaims any responsibility to any person in respect of anything done in reliance of the contents of these publications.

Further information can be obtained from:

Ron Barden or Anca Troaca-Dragoman
Price Waterhouse Romania
Union International Center Etaj 3
Strada Ion Campineanu Nr 11
Bucharest 2 Romania
Telephone: 40 1 311 2455
Fax: 40 1 312 3334