Noerr: Important fiscal measures published for reducing the budget deficit

Article by Noerr lawyers and consultants (Theodor Artenie, Tax Practice Coordinator & Carmen Mazilu, Senior Fiscal Consultant)

On 26 September, the Romanian Government approved by way of Law No. 296/2023 (the “Law”) important fiscal measures intended to reduce the budget deficit and ensure long-term financial stability. After multiple debates, the Law was published in Official Gazette No. 977 of 27 October 2023.

We present below a summary of the most important fiscal changes that companies and individuals will face starting from 1 January 2024. The majority of the fiscal measures will apply as from 1 January 2024, but there are a few exceptions, which are mentioned below.

1. Profit tax

• Companies that registered a turnover greater than 50 million euros in the previous year are obliged to pay a minimum turnover tax in the current year, if the latter is higher than the profit tax calculated by the company according to the applicable general rules or if the company registers a fiscal loss;
• The turnover is calculated according to the formula CA = VT – Vs, and the minimum tax is calculated according to the formula IMCA = 1% x (VT – Vs – I – A), where the indicators have the following meaning:
  • VT = total revenues;
  • Vs = revenues that are deducted from total revenues: (i) non-taxable revenues; (ii) revenues related to product inventory costs; (iii) revenues related to the costs of work in progress; (iv) revenues from the production of tangible and intangible assets, which are not included in indicator I; (v) revenues from subsidies; (vi) revenues obtained from compensation from insurance/reinsurance companies for damage caused to stocks or tangible assets; (vii) revenues representing excise duties that were simultaneously reflected in the expense accounts.
  • I = value of fixed assets under construction related to the acquisition/production of assets, recorded in the accounts starting from fiscal year 2024;
  • A = accounting depreciation computed at the level of historical cost related to assets purchased/produced starting from 1 January 2024. This indicator does not include the accounting depreciation of the assets included in the value of indicator I above.
• The minimum tax  is determined before the recovery of the fiscal loss from previous years;
• Regulations are introduced for the payment of the minimum  tax and in the case of fiscal groups;
• The amounts related to sponsorships/patronage acts can be deducted from the minimum tax, within the deduction limit provided by law;
• Legal entities carrying out activities in the oil and natural gas sectors will owe, in addition to profit tax, a turnover tax of 0.5% for the 2024-2025 period. The tax computed using the same formula as above.;
• Credit institutions – Romanian legal entities and Romanian branches of credit institutions – foreign legal entities will owe, in addition to profit tax, a turnover tax of 2% for the 2024-2025 period and 1% starting from 2026. For these companies, special computation rules will apply.

2. Microenterprise tax

• The following new tax rates are being introduced:
  • 1%, for microenterprises with revenues not exceeding EUR 60,000 and not carrying out the activities mentioned below;
  • 3% for microenterprises: (i) with revenues over EUR 60,000; or (ii) carrying out activities in the following sectors: IT, HORECA, legal (only for professional companies with legal personality), general and specialized dental assistance, other activities related to human health.

3. Income tax for salary income and related social insurance contributions

• Starting from November 2023, monthly gross income of over RON 10,000 earned by employees in the IT, construction, agriculture and food sectors are subject to income tax;
• Starting from November 2023, the exemption from payment of health insurance contribution for the salary income earned by employees in the fields of construction, agriculture and food has been eliminated;
• Meal and holiday vouchers granted to employees will be subject to 10% health insurance contribution;

4. Income tax for revenue from independent activities and related social insurance contributions

• The possibility of deducting health insurance contributions from the tax base for the calculation of income tax is introduced;
• The maximum ceiling for payment of health insurance contributions is increased from 24% of gross minimum wages to 60% of gross minimum wages.

5. VAT

• Increase of VAT rate from 5% to 9% for:
  • sale of certain housing as part of social policy. New definitions for social housing is introduced;
  • delivery of photovoltaic panels and delivery/installation of components for their repair and/or expansion;
  • delivery of high-quality food, i.e. mountain, eco, traditional products with less than 10% added sugar.
• Introduction of 19% VAT rate for:
  • Sale of foods with added sugar over 10%, including those of high quality, i.e. mountain, eco, traditional products;
  • Sale of non-alcoholic beverages such as water, including mineral water and carbonated water, containing sugar or other sweeteners or flavourings, non-alcoholic beer;
• Increase of VAT rate from 5% to 19% for:
  • the right to use sports facilities for the purpose of practicing sports and physical education;
  • transport of people with boats used for tourist or leisure purposes, cable transport, with trains or historic steam-powered vehicles.

6. Excise duties

• Excise duties for tobacco products and alcoholic products are increased;
• New excise duties are introduced for drinks with added sugar:
  • Concentration 5%-8% – RON 40/hl
  • Concentration > 8% – RON 60 /hl

7. Special tax on immovable and movable assets of high value

• Individuals who own/jointly own residential buildings located in Romania with a value exceeding RON 2,500,000 are obliged to pay a special tax of 0.3% on the difference between the taxable value of the buildings and the ceiling of RON 2,500,000. The tax must be calculated, declared and paid by 30 April inclusive of the year for which the tax is due;
• Individuals and legal persons who own cars registered in Romania whose individual purchase value exceeds RON 375,000 are obliged to pay a special tax of 0.3% on the difference between the purchase value and the ceiling of RON 375,000. The tax is due for a period of 5 years starting from the fiscal year in which the handover of the car takes place or for the fraction of years remaining until the completion of the 5-year period from this date for those in which the handover of the car took place previously. The tax must be calculated, declared and paid by 31 December inclusive of the year for which the tax is due.

8. Other regulations

• Income earned by individuals whose source has not been identified by the tax authorities will be taxed at an increased income tax rate of 70% (instead of 16%);
• In order to ensure compliance with the traceability of road transport of goods in Romanian territory, the RO e-Seal national system has been established – a system based on the use of electronic devices and an IT application that allows the competent authorities to determine the potential diversion points of goods transported by road transport, regardless of whether they are in transit or have as their final destination an economic operator on national territory;
• The possibility of paying within 15 days half of the minimum fines established by the Fiscal Code, the Fiscal Procedure Code, the Accounting Law, the Cash Register Ordinance and the Law on Cash Operations disappears;
• Law No. 70/2015 for strengthening financial discipline regarding cash receipts and payment operations is amended by drastically reducing the ceilings for cash transactions by approx. 80%. Failure to comply with the new ceilings will be punishable by a fine of 25% of the amount collected/paid or held in the cash register exceeding the established ceiling;
• The national electronic invoice system RO e-Invoice will be extended from 2024 to all (i) persons established in Romania, regardless of whether they have a VAT code or not, and (ii) to persons not established in Romania, but registered for VAT purposes in Romania, for all operations that have their place of supply in Romania:
  • During the period January 1 – June 30, 2024, these persons must send the issued invoices via the national RO e-Invoice electronic invoice system, regardless of whether or not the recipients are registered in the RO e-Invoice Register;
  • Sending invoices through the system is not mandatory for exports and intra-community deliveries of goods;
  • Except for the situation in which both the supplier and the recipient are registered in the RO e-Invoice Register, the persons mentioned above must send invoices issued to the recipients according to the provisions of the Fiscal Code,
  • The deadline for sending invoices in the national system is 5 working days from the date of issuing the invoice;
  • Failure to comply with the above provisions is punishable by a fine of between RON 1,000 – RON 10,000, but the imposition of fines will be suspended between 1 January and 31 March 2024;
  • Starting from 1 July 2024, electronic invoicing and the transmission of invoices through the RO e-Invoice system will be mandatory for all the persons mentioned above. Non-compliance with these provisions is punishable at the level of the buyer by a fine equal to the amount of VAT shown on the invoice received in the case of B2B transactions, and in the case of B2G transactions, with the derecognition of the payment of the invoice.
• New measures are being introduced to combat tax evasion – fines and confiscation of assets for individuals and legal persons who carry out economic activities without tax registration or without provenance documents for the goods owned or transported and the suspension of the activity in case of repeated violations within a maximum period of 12 months.