Deloitte: EU authorized Romania to limit to 50 percent the right to deduct VAT for leasing operations and vehicles rentals
2012-05-25 14:21:34
The managers of Deloitte tax said that the new regulations might increase VAT costs for companies in this field while vehicle leasing contracts would face the strongest impact, after the EU Council has approved Romania’s request to restrict the right to deduct this tax. The restriction will be applicable provided the Fiscal Code is also amended. This decision enforces and extends regulations already in place in the local fiscal legislation since the beginning of the year. On April 26, the EU Council authorized Romania to limit to 50 percent the right to deduct VAT on the purchase, intra-Community acquisition, importation, hire or leasing of specified motorized road vehicles with a permissible laden mass of maximum 3,500 kg or up to nine seats, as well as on expenditure related thereto, including the purchase of fuel.
“The Romanian authorities explained that this restriction comes on the background of the challenges faced in accurately identifying the use of vehicles, either for professional or personal use,” explains Vlad Boeriu, Manager, Deloitte Tax. “Under these circumstances, the 50% rate has been considered as justifiable in order to limit the right for VAT deduction for both vehicle purchase and also expenses related to vehicle repair, spare parts and fuel,” the manager added.
The restriction of VAT deduction to 50 percent was implemented in the Romanian legislation starting January 1, 2012, but only for the purchase of vehicles used for passenger transport and fuel purchased for their use. Following the decision made at the end of April, the EU Council has practically validated the measures already in place and has thus created the possibility for restrictions on other segments as well, like leasing, rental and car repairs, spare parts and purchase of fuel.
Still, the Council’s decision will not affect the activity of companies with fleet vehicles used for taxi services, sales or purchasing agents, emergency services, security, protection and courier services. In these cases, VAT may still be entirely deducted, as the year before. “The new regulations will increase the costs with VAT for companies with activities in these areas, but car leasing will see the strongest impact,” Vlad Boeriu continues. “So far, many companies have favored the purchase of vehicles through leasing, so that they would benefit from full VAT deduction.” Should this restriction be implemented through the changes to the Fiscal Code, car leasing will no longer represent an advantage for beneficiaries from the VAT point of view, as it will result in an extra cost of non-deductible VAT. The new restriction will not affect leasing companies’ expenses related to vehicles purchased for hire or leasing. However, sales might be affected given lower interest from the buyers, following the new deduction restriction. Moreover, companies with ongoing leasing contracts may now be unable to entirely deduct the VAT related to the monthly installments, and may thus decide to cancel these contracts.