A new year has begun, and the build-up of tax responsibilities and pressure has peaked and is now close to the point of reset and restart. But what does 2020 hold in store for companies active in Romania in terms of anticipated tax changes? And how can they get ready for and adapt to such amendments?
What is certain?
2020 is the year of conformity. The most important changes are mostly dictated by the EU Directives, Regulations and threats of infringement.
Four of the most important changes this year are:
- the transposition of the VAT quick fixes as per Council Directive (EU) 2018/1910;
- the transposition of Council Directive (EU) 2017/952 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries;
- the transposition of Council Directive (EU) 2018/822 as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements, better known as DAC 6; and
- the repeal, as of 1 February 2020, of the Split VAT mechanism, which was a real infringement threat against Romania. Read more about the VAT law changes in 2020 here.
Aside from the above-mentioned changes that entered into force at the beginning of February, other minor changes are already starting to take effect, such as the repeal of the over-taxation of part-time employment agreements, the decrease of the excise duty for motor fuel and the increase of the minimum gross wage per country, which directly affected the minimum annual income threshold against which social security and/or health insurance contributions will be due by persons earning non-salary income, as well as the taxable base for computing these contributions.
One of the most controversial taxes introduced in 2019 was the tax on financial assets applicable to all credit institutions, Romanian legal persons and Romanian branches of foreign credit institutions. The controversy has now ended, as starting in 2020 the tax will no longer be due.
What is expected?
While several draft laws are right around the corner, it is unclear if they will ever see publication in the Official Gazette. Among them are important changes that might have a serious impact on the Romanian tax environment:
- A draft law with extensive changes to the Romanian Fiscal Code is awaiting approval by the Chamber of Deputies. The most important and long-awaited changes include the corporate income tax consolidation, a more comprehensive definition of the place of effective management and the micro-company tax exemption of dividends obtained by micro-companies from Romanian legal entities.
- Another draft law proposing extensive changes to the Romanian Fiscal Procedure Code is also being analysed in the Chamber of Deputies. Of particular interest to taxpayers among the many changes proposed is the transfer of the competent structures for settling tax appeals from the National Agency for Fiscal Administration to the Ministry of Finance. This is expected to increase taxpayers' trust by ensuring a higher degree of official independence and neutrality when ruling on tax appeals.
- Pieces of tax legislation with more specific amendments are also subject to parliamentary debate: the decrease of the standard VAT rate from 19 % to 16 % and certain tax exemptions (income tax exemption, property tax exemption) for certain categories of taxpayers.
What is rumoured?
Some in the new governing party have voiced ideas regarding the repeal of the income tax exemption for employees working in the IT sector, which did not fall on sympathetic ears amongst the representatives of the Romanian business environment. Although no steps have been taken in this direction and the current Minister of Finance gave assurances that no further changes will be made to the Fiscal Code in 2020, it still remains a point of discussion for the future.
…and back to what is certain
As last year was a restless one, marked by a tense political environment, with a change in government and presidential elections, less tax changes were implemented or announced than usual in Romania. A European "champion" when it comes to volume of legislative changes adopted each year, the country frequently faces amendments in the tax system. Unfortunately, we do not anticipate this trend to change soon, and so it is best that companies stay alert, as tax changes can always appear when least expected.