Business entities in the field of hospitality (HoReCa) will apply new fiscal rules from 2023. This is, on the one hand, the taxation of activities, the specific tax is abolished, and on the other hand, the taxation of tips by reflecting the amounts offered by customers in the tax receipt. According to the latest rules, these amounts will be transferred to an account, distributed among employees and taxed in accordance with current regulations.

Tipping legislation is a measure that has been strongly demanded by the HoReCa sector and the debate has been going on for several years, taking various forms. After the repeal of the provisions governing the procedure for the determination, registration and taxation of gratuities contained in GEO no. 15/2018 this topic remained suspended. However, there is also interest from the authorities, given estimates of the amounts paid and thus collected in tips ranging from 750 million to 1.5 billion lei and therefore not taxed.

Who are covered by the new rules?

Tipping regulations were introduced by amending the legislation on the use of electronic fiscal marking machines and apply to business entities that carry out activities corresponding to CAEN codes 5610 – Restaurants and 5630 – Bars and other beverage service activities. It is not specified what happens in the case of other types of activities where tipping is practiced (for example, in the field of cosmetic services, massage, etc.).

On the other hand, in the case of home delivery, writing a tip on the receipt is optional, probably because the tip pays for the service. This raises the question of whether it is optional to write a tip in the receipt for other types of activity not expressly specified in the legislation.

Practical aspects of tipping and taxation

Gratuities will be allocated on a separate line, regardless of the payment method (in cash or card). In advance, the customer will receive a payment receipt that allows them to choose the suggested tip level. It can range from 0 to 15% of the consumption value, but there is also an option to enter an absolute value in lei if the customer chooses this option.

If an invoice is required, for example to be deducted as protocol costs, tips will also be written separately on this document. Generally, gratuities will also only be deductible based on a tax receipt unless an invoice has been selected, although this is not clearly stated.

Gratuities do not constitute income at the level of business entities in the HoReCa sector, but will be fully distributed among employees based on a nominal entry and internal procedures established by the employer. At the same time, amounts related to tips remain outside the scope of VAT taxation.

By adopting these rules, Romania aligns itself with the rules practiced by some countries of the European Union. Some of them, however, have offered a number of tax breaks to players in the hospitality industry to support workers during the pandemic. For example, France has abolished the tax on tips until December 31, 2023, and Italy has reduced the income tax applicable to tips to 5%. In addition, in both cases there are certain thresholds above which tip taxation applies.

In summary, the taxation of tips in HoReCa is a welcome measure that brings more transparency to the sector, but there are still a number of practical aspects that need to be clarified by the authorities, so that economic entities that carry out activities that practice awarding rewards of this kind to be able to meet provisions that apply to them.

Review by Kamelia Malakhov, Director, and Andrea Vlad, Direct Tax Manager, Deloitte Romania