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Mihaela Bucurenciu |
In April 2012, by the European Union Council Decision of 26 April 2012 (decision), Romania was authorised to limit at 50% the VAT deduction right related to domestic and intra-Community acquisition, import, hire or lease of certain motorised road vehicles, if such vehicles are not used exclusively for the business purposes of the company. Furthermore, Romania is authorised to apply the 50% limitation to input VAT charged on expenditure related to these vehicles, including the purchase of fuel. As mentioned in the preamble of the decision, Romania motivated the introduction of such measures considering the non-business use of vehicles is difficult to be identified accurately and even where this would be possible, the mechanism for doing so is often burdensome. As such, Romania believes that a flat rate percentage of 50% for vehicles that are not exclusively used for business purposes is justifiable.
Romania introduced the above mentioned VAT deduction restriction to the domestic and intra-Community acquisitions, imports, hire or lease of certain motorised road vehicles, starting July 1 2012, if such vehicles are not used exclusively for the business purposes of the company. Furthermore, the same VAT limitation would also apply to input VAT charged on expenditure related to these vehicles.
The criteria for determining the vehicles qualifying for these provisions remain, in principle, the same as already provided within the Romanian VAT legislation(May 1 2009, in that vehicles with less than nine seats and weighing less than 3,500 kg), whereby the limitation introduced in 2009 applied to 100% but only to the acquisition of the respective types of road vehicles.
An important aspect is brought by the introduction of the limitation at 50% input VAT recovery on the hire and lease of qualifying vehicles and on the related expenditures (repairs and maintenance).
As such, the new rules also apply in the case of advances paid before July 1 2012, where the related supply takes place after July 1 2012.
This measure especially affects leases/hires or other expenditure, which previously were fully deductible, since the buyers will have to bear 50% input VAT cost on advances paid before July 1 2012, where the supply takes place after this date.
On the other hand, for purchases where no VAT recovery was previously allowed, the buyers will be able to make a VAT saving on advances paid before July 1 2012, with the related supply being performed after this date.
National law provides no time limit regarding the applicability of these rules, but the decision provides that it will apply until the earliest between December 31 2014 and the entry into force of community rules determining the expenditures related to vehicles that are not eligible for full VAT recovery.
Mihaela Bucurenciu (mihaela.bucurenciu@ro.ey.com)
Ernst & Young?
Website: www.ey.com/ro
