Romania’s VAT Rate Increase

Effective 1 August 2025, Romania  will implement significant changes to its Value Added Tax (VAT) system, including raising the standard VAT rate from 19% to 21%, and consolidating the reduced rates of 5% and 9% into a single 11% rate. This move is part of a broader fiscal strategy aimed at aligning Romania’s budgetary practices with European Union (EU) fiscal rules, particularly in light of growing pressure to reduce the national deficit and stabilize public finances.

Why the VAT Rate Is Increasing

Romania has faced mounting challenges in meeting EU fiscal targets, especially as post-pandemic recovery efforts and inflationary pressures have strained government resources. The European Commission has urged member states with high deficits to take corrective measures, and Romania’s VAT hike is a direct response to this call.
According to recent reports, the Romanian government anticipates that the VAT increase will generate approximately RON 6 billion (roughly  € 1.2 billion) in additional revenue annually, helping close the budget gap and avoid potential sanctions from Brussels. This change is also seen as a way to bring Romania’s tax policy more in line with other EU countries, where standard VAT rates often exceed 20%.

What’s Changing?

Here’s a breakdown of the key VAT changes effective 1 August 2025:

• Standard VAT rate: Increasing from 19% to 21%, and which will now apply to all supplies previously subject to 19% as well as certain supplies previously subject to 9%
• Reduced VAT rates: The new reduced rate of 11% will apply to all supplies previously subject to 5% as well as certain supplies previously subject to 9%
• Scope: The new rates apply to most goods and services, including retail, hospitality, and professional services. There is a special transitionary rule applying to new housing.

Impact on Businesses

The VAT increase will have wide-reaching implications for businesses operating in Romania, particularly in terms of pricing, cash flow, and compliance.

1. Pricing Adjustments

Businesses will need to recalculate prices to reflect the new VAT rate. This could lead to higher consumer prices unless companies choose to absorb the cost increase. Retailers and service providers should update point-of-sale systems, online platforms, and marketing materials to ensure consistency.

2. Cash Flow Considerations

For businesses that operate on tight margins, the VAT increase may affect cash flow, especially if they are unable to pass the cost on to customers. Companies should review their financial models and consider adjusting payment terms or renegotiating supplier contracts.

3. Accounting and Compliance

ERP and other accounting systems must be updated to apply the correct VAT rates from 1 August. Businesses should also ensure that invoices, tax filings, and reporting templates reflect the new rate to avoid penalties. Training staff and consulting with tax advisors will be essential during the transition.

4. Cross-Border Transactions

For companies engaged in intra-EU trade, the VAT change may affect pricing competitiveness and require updates to VAT treatment in contracts and documentation. Businesses should review their EU VAT compliance strategies to ensure alignment.

Preparing for the Change

To navigate the VAT increase smoothly, businesses should take the following steps:

• Audit current VAT processes and identify areas that need updating.
• Communicate with customers and suppliers about pricing changes and contractual implications.
• Consult with tax professionals to ensure full compliance and optimize VAT recovery.
• Monitor future announcements, as additional fiscal reforms may follow.

How Vertex Can Help

Navigating VAT changes can be complex, especially when they affect multiple systems and jurisdictions. Vertex, a global leader in tax technology, offers robust solutions to help businesses manage VAT compliance efficiently and accurately.

With Vertex, companies can:

• Automate VAT calculations across all transactions, ensuring accuracy with the updated 21% and 11% rates.
• Update tax engines and ERP integrations seamlessly to reflect regulatory changes.
• Generate compliant invoices and reports that meet Romanian and EU standards.
• Access real-time tax content updates, reducing the risk of errors and penalties.
• Scale VAT management across borders, supporting businesses with operations throughout the EU.

Whether you're a retailer, manufacturer, or service provider looking to simplify you VAT compliance, Vertex VAT Compliance can help you take the next step toward seamless, automated VAT management across Europe.