Money Q & A
By Ernst & Young
October 2005
Q My
company has been doing business with a firm that has gone bankrupt. We are
preparing to take the debtor to court. I have two questions. First, do you
think we have any realistic chance of being paid the money we are owed? If
the court case is strung out for years then we would be prepared to cut our
losses and just forget about the whole thing, rather than pump unspecified
amounts of time and money into trying to get back what is owed. Second, as
we issued the company with a number of (unpaid) invoices, we are now being
told that we owe VAT on money we never received from this company. We would
appreciate any advice with this.
Name and address withheld
A It is quite difficult to determine
on the basis of this information your chances of recovering the money. Generally
speaking, this depends on the solvency of the debtor and the claims of other
creditors. There is a priority for payments in case bankruptcy proceedings
are initiated against a company, such as:
1. any expenses related to the bankruptcy procedures, including expenses required
for preservation and administration of assets in debtor’s patrimony,
as well as wage payments for personnel involved in the bankruptcy proceedings;
2. loans, along with related interests and expenses, granted by credit institutions
after the initiation of bankruptcy proceedings, as well as debts resulting
from the continuation of the debtor’s activity after the beginning of
bankruptcy proceedings;
3. debts resulting from labour relations, for a maximum six months prior to
the opening of bankruptcy proceedings;
4. State Budget debts;
5. amounts owed by the debtor to third parties on the basis of obligations
of support, allowances for minors or obligations of payment of regular amounts
for providing means of subsistence;
6. bank loans, along with other related interests and expenses, debts resulting
from sales of goods, supply of services, etc;
7. other unsecured debts;
8. subordinated debts.
With regard to the second part of your question, VAT is due to the State Budget
when the fiscal authorities become entitled to request the VAT payment. The
VAT becomes chargeable on the date of delivery of goods or on the date of
supply of services, barring certain exceptions. Since you issued the invoices
and your goods/services were actually delivered, the VAT became chargeable.
Hence, the related output VAT is due to the State Budget even if the invoices
were not paid.
However, the tax base of VAT can be adjusted (and consequently the VAT itself)
in case the value of goods or services delivered is not collected due to bankruptcy.
The adjustment for VAT is allowed from the date on which bankruptcy is declared.
The Fiscal Code specifies that the date of declaring bankruptcy is the date
of the final court decision on closure of bankruptcy proceedings.
In your case, you will have to pay the VAT (otherwise penalties and interest
could apply) and subsequently make the necessary adjustment when the final
court decision on closure of bankruptcy proceedings for your debtor is issued.
Q I am
considering employing three new people who would each earn 400 euros net.
Could you tell me exactly what taxes I would need to pay? My company is not
a micro enterprise.
B. K., Bucharest
A Since we don’t have all the
details about your company (number of employees, CAEN code), we presume your
company has less than 75 employees. In that case, the taxes and social security
contributions for one employee earning a net monthly salary of EUR 400 (gross
EUR 565.44) would be as follows:
For the employee*:
- Income Tax @ 16% – RON 242 / EUR 69.12
- Social Security Contribution @ 9.5% – RON 188 / EUR 53.69
- Health Fund Contribution @ 6.5% – RON 129 / EUR 36.74
- Unemployment Contribution @ 1% – RON 20 / EUR 5.65
For the company*:
- Social Security Contribution @ 22% – RON 435 / EUR 124.34
- Health Fund Contribution @ 7% – RON 138 / EUR 39.56
- Unemployment Contribution @ 3% – RON 59 / EUR 16.96
- Risk and Accidents Fund Contribution @ 0.776% – RON 15 / EUR 4.39
- Labour Inspectorate Commission @ 0.75% – RON 15 / EUR 4.24
(* Based on an exchange rate of 3.5 RON/EUR)
For three new employees each earning a monthly net salary of EUR 400, the
cost per month to your company is around EUR 2,264 (calculated as gross salaries
plus company’s contributions multiplied by 3).
Q I am
a foreigner living in Romania and understand that there is a law regarding
new ID cards for people like me. I have not yet applied for one, though I
do have the old green legitimatia. Is it acceptable to wait until my legitimatia
nears expiry and then apply for one, or should I be applying for one straight
away. What could happen if I do not apply for one?
Steven Holden, Bucharest
A In principle, the old residence permits
for foreigners (green legitimatia) issued by the Authority for Foreigners
in Bucharest were valid till 1st March 2005 and should have been changed for
new plastic ID cards by this date.
In practice, however, it appears that the old residence permits are valid
till the date of expiry. If you apply for extending stay in Romania, the Authority
for Foreigners will automatically give you a new format residence permit.
The application for extending your stay in Romania should be made at least
30 days before the expiry of your residence permit. Any delay in submitting
the application could lead to a fine of RON 100 to RON 500.
Normally, it takes 30 days from the date of application to receive the residence
permit, extended by another 15 days in case of supplementary verification.
But the term may be longer for the new format residence permit because these
are printed in Germany.
Separately, in case your old legitimatia expires and you apply for a new residence
permit, but it is not made available to you by the previous permit’s
expiry date, a proof of your application should be made available to you.
However, you may face certain difficulties in case you leave Romania and return
in this period without having a valid permit.
These responses do not in any way constitute professional advice and Ernst & Young Romania will not be held liable for any action taken on the basis of these answers. As Romania’s fiscal legislation undergoes frequent change, readers are advised to contact Laura Damian, Manager, on Tel: 402.4000 or email laura.damian@ro.ey.com to find out more about the services Ernst & Young can provide.
(Please mail your tax and business related queries to Andrew Begg at andrew@vivid.ro)
