We noted that there are cases where companies tend to overlook reporting and administrative requirements when no actual activity is carried out by the company, as it appears that the cost of fulfilling such obligations does not justify the benefits. However, we also noted that companies are not fully aware that this lack of compliance can lead to being declared an inactive taxpayer and the costs associated with this status by far exceed the costs of being compliant.
Inactivity may be rather costly from a tax perspective, both for the taxpayer and for its business partners. We have summarized in this article the main criteria based on which inactivity is declared and how this status affects the tax position of the company.
Companies will be declared inactive by the tax authorities when one of the following criteria is met (not cumulatively):
- The company does not fulfill its reporting obligations for a period of 6 months/one semester;
- The company avoids tax audits carried out by tax authorities by way, declaring other identification data on fiscal domicile which does not allow their identification;
- The Romanian tax authorities ascertain that the Company does not carry out activities at appointed fiscal domicile;
- The service life of the company has expired;
- The company no longer has statutory bodies;
- The registered office has expired.
Reactivation of taxpayers
The inactive status of a company may be reversed by the tax authorities and the company may become again active if the following conditions are cumulatively met:
- The Company has fulfilled its reporting obligations according to law;
- The Company does not record outstanding fiscal liabilities;
- The Romanian tax authorities ascertain that carry out activities at the appointed fiscal domicile.
Limitation of tax rights during inactivity period of taxpayers
During inactivity period, taxpayers lose certain deduction rights and this loss of rights extends including to their business partners.
Inactive taxpayer losses its VAT registration number, having therefore the following obligations/limitation:
- The taxpayer should pay VAT on all the supplies of goods and services made during inactivity period without actually collecting the VAT from the clients;
- The inactive taxpayer is not allowed to deduct any input VAT during this period;
- Business partners that carry our transactions with inactive taxpayers lose their right to deduct VAT, thus they consider the tax as a cost, except the acquisition of goods/services made from bankrupt suppliers or under enforcement procedure.
2. Corporate income tax
- The taxpayer should declare and pay corporate income tax during inactivity period, however, loses its right to deduct expenses for corporate income tax purposes;
- Business partners that carry transactions with inactive taxpayers lose their right to recorded deductible expense with those inactive taxpayers for the purposes of corporate income tax computation, except the acquisition of goods/services made from bankrupt suppliers or under enforcement procedure.
3. Other taxes and social contributions
- Taxpayers should declare and pay taxes (other than VAT or corporate income tax) and social contributions during inactivity period.
Registry of inactive/reactivated taxpayers
Romanian tax authorities organize the record of inactive taxpayers through a registry of inactive/reactivated taxpayers. This registry is updated in real time and can be accessed at the following link: www.anaf.ro.
We believe that by raising awareness about the tax consequences of being an inactive taxpayer and the associated costs in order to regain the active status, companies will focus more on being compliant.