Romania: Tax consequences of the COVID-19 pandemic on companies in Romania
Despite the measures adopted for managing the effects of the COVID-19 pandemic with a view to helping or even saving Romanian businesses, it goes without saying that many companies will soon face difficult times, for which they need to be prepared.
Below is a brief list of the key tax aspects that businesses need to consider:
1. Failure to cash-in invoices
- provisions for the impairment of receivables will be 30 % deductible, under certain conditions;
- writing off bad debts may generate non-deductible expenses unless certain conditions are met;
- taxpayers can recover the output VAT related to unpaid invoices from the state budget only in certain cases expressly provided by law (bankruptcy or reorganisation of their respective clients);
- payment of output VAT towards the state upon cashing in the invoice is a system which may be applied by companies with a turnover below lei 2.25m during the previous calendar year, and which opt to apply said system by 25 January of the following year.
2. Contractual penalties
Contractual penalties or damages claimed by business partners are tax deductible.
3. Decline in turnover
- companies with a turnover up to and including EUR 1m as at 31 December 2020, will be liable for 1 % or 3 % turnover tax as of 2021. Notwithstanding any company with a registered capital of at least RON 45,000 and at least 2 employees, can opt to continue to apply profit tax;
- a turnover under lei 300,000 entitles a company to renounce its VAT number.
4. Unused fixed assets
- the tax depreciation for the fixed assets under conservation is put on hold;
- adjustments might be required on the input VAT claimed when said assets were acquired/ produced (i.e. part of the input VAT must be reimbursed to the state budget).
5. Destroyed/expired inventories or fixed assets
- expenses related to losses from inventories or depreciable fixed assets due to force majeure are tax deductible;
- no adjustment is required on the input VAT claimed when acquiring the respective assets under certain conditions.
6. Expropriations / requisitions
Taxpayers in this situation may be required to charge output VAT for the services supplied for the state's benefit / assets disposed of in favour of the state. A case-by-case analysis is required.
7. Entering insolvency
- may imply a tax audit;
- no deferral plan for the payment of tax liabilities under the available tax restructuring scheme.