The VAT collection system: implications for your business

What is the difference between VAT on receipt and VAT under the normal arrangements?

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The main difference between the two systems is the timing of VAT collection and deduction.

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Under the normal system, VAT is deducted and collected on the date of invoice, even if the money has not yet been paid or collected from suppliers or customers. However, in the case of input VAT, VAT is only collected and deducted when the money is actually received or paid.

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For which companies is VAT recommended in the normal regime?

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• Companies that are late with payments;
• Firms that collect invoices in the same month they are issued but pay suppliers over a longer period.

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For which companies is VAT on collection recommended?

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• Firms with longer terms for collecting invoices from customers but paying suppliers on shorter terms;
• Firms that have customers who don't pay on time;
• Companies that pay their suppliers on time;
• Firms whose purchases are much smaller compared to their sales, so they can benefit from a deferral of when VAT has to be paid to the budget.

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When can the VAT collection system be applied?

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The VAT collection system can be applied at any time during the year. The system will be applied as follows:

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• if it is applied from the date of registration for VAT purposes, it will be used from that date and a notification will have to be submitted to the competent tax authorities;
• if it is applied later, it can be used from the first day of the tax period following the one in which the company opted for this system, provided that it has not exceeded the turnover ceiling in the current year.

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To note:

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• if the VAT on collection system is opted for and the turnover does not exceed the threshold of 4,500,000 lei, the system must be applied at least until the end of the calendar year in which the option was made;
• after the first year, the VAT collection system may be waived at any time between the 1st and the 20th of the month in question by submitting a notification to the competent tax authority. Removal from the register of persons applying the VAT collection system will be effected from the first day of the tax period following that in which the notification was submitted;
• if in the previous year the turnover did not exceed the threshold of 4,500,000 lei and taxable persons applied the VAT collection system, then they do not have to complete any formalities to continue applying the system in the following year, as this is done automatically;
• if the turnover exceeds the threshold of 4,500,000 lei during the calendar year, taxable persons are obliged to notify the competent bodies and waive the application of the VAT collection system by the 20th of the month following the month in which the threshold was exceeded.

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What are the conditions for opting for the VAT on collection system?

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• Registered taxable persons whose place of business is in Romania;
• In the previous year they did not apply the VAT collection system;
• The turnover in the previous calendar year did not exceed the threshold of 4.500.000 lei.

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How is the turnover calculated for the 4.500.000 lei ceiling?

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In order to calculate the VAT threshold of 4,500,000 lei, it is necessary to take into account the turnover achieved in the calendar year.

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Turnover consists of the total value of taxable and/or VAT-exempt supplies of goods and services and transactions from economic activities for which the place of supply is deemed to be abroad according to Articles 275 and 278.

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The following elements are taken into account in determining turnover:

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• the tax base shown on the lines of the corresponding tax statement;
• supplies of goods and services which are taxable or exempt with the right of deduction;
• supplies of goods and services for which the place of supply is deemed to be abroad but which give rise to a right of deduction.

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There are certain exceptions in setting the VAT ceiling, meaning that certain amounts will not be taken into account in tax statements. These amounts include: invoices issued after tax inspection, information on non-exempt or non-deductible VAT.

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It is also important to note that the ceiling will only be calculated for periods during which the taxable person is registered for VAT purposes.

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Why opt for VAT on collection?

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For businesses that do not exceed the threshold and can opt for VAT on collection, the system can offer the following advantages:

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• allows companies to manage their cash flow more efficiently because VAT is no expense, no revenue;
• increases the cash flow of smaller companies that do not exceed the threshold of 4,500,000 lei;
• gives smaller businesses the possibility to postpone paying VAT until they receive the money from their customers;
• helps avoid financial bottlenecks;
• allows VAT to be deferred for up to 90 days if it is paid by the 25th of the following month.

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Do you have problems managing financial documents?

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