The Romanian legislature recently clarified a number of tax issues that have been of high public interest – among them the reduced 9% VAT rate for food products and non-alcoholic beverages, the taxation of tips and the application of the Parent Subsidiary Directive. The clarifications come in the form of amendments to the Norms of the Fiscal Code introduced by Decision No. 367/2015.
9% VAT on food products and non-alcoholic beverages
As previously reported (click here for our previous Law-now on this topic), the reduced VAT rate for food products and non-alcoholic beverages which became effective on 1 June 2015 contained many unknowns. The recently published amendment to the Norms of the Fiscal Code:
- includes a comprehensive listing of all food products and non-alcoholic beverages that qualify for the reduced rate;
- clarifies that the 9% VAT rate applies to the entire economic chain from production activities to the sale to the final consumer;
- specifies how sellers, importers, and intra-community buyers can prove that the goods are intended for human and animal consumption or as food supplements and substitutes in order to qualify for the reduced VAT rate;
- applies the 9% VAT rate to accommodation services involving half-board, full-board or “all inclusive” services irrespective of if they include alcoholic beverages; and
- clarifies that when a package of goods is sold at a single price, the VAT rates should be separately applied for each type of goods provided that the goods forming the package can be separated. Promotional foodstuff offered free of charge will be VAT-exempted if they qualify as sales incentives.
Tax on tips
Another amendment addresses the recent tax on tips and clarifies that tip proceeds cashed by the taxpayers registered for VAT purposes, which are not distributed to employees, will be subject to 24% VAT rate – a controversial provision considering that tips are considered freely given and not typically offered in exchange for goods or services. The corresponding VAT amount will be determined using the gross-up mechanism. Tips distributed to employees shall be considered income from other sources and taxed only with income tax. (Click here for our previous Law-now on this topic)
Parent Subsidiary Directive
General partnerships and limited partnerships (in Romanian, respectively, “societati in nume colectiv” and “societati in comandita simpla”) are now allowed to apply the provisions of the Parent Subsidiary Directive regarding dividends received by exempting dividends from profit tax if the relevant conditions are met. Previously, only Romanian joint stock companies, limited liability companies and partnerships limited by shares were allowed to apply the provisions of the Parent Subsidiary Directive.
The recent amendments to the Norms also address areas of income tax, social security contributions, excise duties and construction tax.