The Ministry of Finance has published a draft emergency ordinance that introduces a series of significant amendments to the Fiscal Code, primarily aiming to align Romanian legislation with EU directives on value-added tax (VAT). These changes target small businesses, the place of taxation for certain services, and the elimination of specific VAT exemptions. The short implementation timeline presents challenges for taxpayers.

For companies, the amendments not only impose new compliance obligations but may also offer opportunities for tax optimization—if implemented correctly. In this article, we analyze the impact of the new regulations and how businesses can prepare for the changes coming in 2025.

Raising the VAT exemption threshold for small businesses

One of the most significant proposed tax changes is increasing the threshold for applying the special VAT exemption regime from RON 300,000 to RON 395,000. This adjustment aligns with EU Directive 285/2020, which aims to standardize VAT regimes for small businesses across the European Union.

Small businesses will be most affected. Companies with annual turnover below RON 395,000 will be able to remain under the VAT exemption regime and will not be required to collect VAT, thus benefiting from a simplified tax framework. Conversely, taxable persons exceeding this threshold will be required to register for VAT as soon as the threshold is crossed, taking on related reporting and payment obligations.

Additionally, taxpayers who registered for VAT purposes in 2024 after surpassing the RON 300,000 threshold will have the option to request VAT deregistration starting April 1, 2025. This will allow them to return to the exemption regime and reduce the administrative burden associated with VAT collection and reporting.

The measure offers flexibility for microenterprises but also requires close monitoring of turnover so that businesses can transition properly between tax regimes.

Reciprocal application of VAT exemption between Romania and other EU states

The draft ordinance seeks to remove trade barriers by extending the special exemption regime for small enterprises across the EU. This will allow taxable persons established in Romania to apply the small business exemption regime in other EU Member States, thereby facilitating cross-border economic activities within a harmonized tax framework.

At the same time, companies from other EU Member States will be able to benefit from the same special exemption regime for activities carried out in Romania. This reciprocal treatment eliminates trade barriers and ensures equitable tax treatment for small enterprises across the EU.

Change in the place of taxation for certain services

The draft introduces new rules for determining the place of supply for virtual events and digital services, shifting taxation to the country of consumption.

The services affected by this change include access to online cultural, artistic, sports, scientific, educational, and entertainment events. As a result, providers of such services must comply with the new tax rules applicable in the consumer’s country.

Economic activities carried out via electronic means—such as webinars, virtual conferences, and access to digital platforms—are included and will be subject to the new rules for determining the place of taxation and applying VAT.

Under the revised rules, taxation will occur in the country where the customer is established, resides, or habitually lives. This aligns national regulations with the principle of taxation at the place of consumption.

In addition, these services will no longer benefit from reduced VAT rates. The standard VAT rate of each jurisdiction will apply, potentially increasing costs for service providers and necessitating adjustments to pricing strategies and tax compliance processes.

Eliminating VAT exemptions for non-profit entities

Currently, certain deliveries of goods and services to non-profit entities are VAT-exempt. However, the draft ordinance proposes the removal of these fiscal benefits.

The change particularly affects services related to the construction, rehabilitation, and modernization of hospital units carried out by non-profit entities, as well as the supply of medical equipment to these organizations. This will result in increased costs for beneficiaries and the need to reassess budgets allocated to projects in the non-profit sector.

This change is in response to a request from the European Commission. Romania has committed to amending the legislation starting March 2025 to avoid infringement procedures.

Short implementation timelines and new VAT reforms

The proposed changes will have different implementation deadlines depending on the nature of each measure. Some amendments will come into effect immediately after the ordinance is published in the Official Gazette, requiring a swift response from taxpayers. Other measures will become mandatory starting April 1, 2025, giving businesses a short timeframe to comply and adapt their tax processes.

In the long term, companies must be prepared for further VAT reforms at the EU level. The European Union has approved the ViDA package—VAT in the Digital Age—a comprehensive reform that will gradually transform VAT regulations and is set to be implemented progressively until 2035, introducing major changes in cross-border VAT reporting and collection.

What should companies do to prepare?

These changes require companies to carefully review their VAT regime and swiftly adapt to the new tax requirements to avoid non-compliance risks and potential penalties.

Cabot Transfer Pricing can support you through this process by assessing the impact of the new measures on your business and ensuring the proper implementation of the legislative changes.

We offer guidance on VAT registration or deregistration under the updated regulations, as well as tax analysis and optimization strategies to ensure compliance with both national and EU laws. Don’t let legislative changes catch you off guard!

Contact the Cabot team for a tailored tax strategy that aligns with the new regulations and ensures your business remains compliant with current tax requirements.