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Romania Real estate taxation

Antonis Loizou & Associates does not provide tax related advice. However, we note the following relevant points regarding real estate taxation in Romania below:

Non-resident companies are subject to tax on their Romanian-sourced income only. Sale of shares held in Romanian companies by non-resident companies and sale of real estate located in Romania are also subject to profits tax in Romania (capital gains tax).

Stamp duty is payable on most judicial claims, issue of certificates and licences, and documentary transactions which require authentication.

There are two existing types of stamp duty:

       1. judicial stamp duty; and
       2. extra-judicial stamp duty.

Judicial stamp duty is levied on claims and requests filed with courts and the Ministry of Justice, depending on the value of the claim. Quantifiable claims are taxed under the regressive tax mechanism. Non-quantifiable claims are taxed at fixed amount levels. A judicial stamp duty may also be levied at the transfer of real estate property under certain circumstances. Extra-judicial stamp duty is charged for the issue of various certifications such as identity cards, car registrations, etc.

Categories of income subject to taxation; A flat income tax rate of 16% applies to the following categories of income:

        * income from freelance activities;
        * salary income;
        * rental income;
        * pension income;
        * prizes;
        * agricultural income;
        * other income.

The Fiscal Code provides for special tax rates in case of income obtained from investments, gambling and transfer of ownership rights over real estate.

Taxation on real estate transactions

The real estate transfer tax, which has to be paid by the taxpayer in the event of the transfer of the property right or parts of it, is computed as follows:

        * for buildings and the related land, as well as for land without constructions, acquired and sold within a three years period inclusively:
        * 3% of the sale amount, if this amount is up to RON 200,000 inclusively;
        * for a sale amount over RON 200,000, the due tax is RON 6,000 +2% of the amount which exceeds RON 200,000 inclusively.
        * for buildings and the related land, as well as for land without constructions, acquired and sold after 3 years:
        * 2% of the amount, if this amount is up to RON 200,000 inclusively;
        * for a sale amount over RON 200,000, the due tax is RON 4,000 +1% of the amount exceeding RON 200,000 inclusively.

Land tax

Land tax is payable by owners of land. Generally, the tax is established as a fixed amount per hectare, depending on the location of the land within certain determined zones, towns or villages and depending on the use of the land. The tax is payable annually, in two equal instalments by 31 March and 30 September.

In accordance with the Fiscal Code, the land located outside urban areas may be taxed with RON 22-16 per hectare (for a land with construction on it). This is factored using a correction coefficient which is between 1 and 8, and depends on the rank of the locality. An indicator of this tax is the estimate made by the local fiscal authorities.

Rental income

Gross rental income consists of amounts in cash or kind stipulated in the rental agreements and related to a fiscal year (regardless of the time of effective cashing), as well as certain expenses borne by the tenant and which, based on the law, are the landlord’s liability.

The taxable amount is determined by deducting a 25% expense quota from the gross income. Tax on rental income is determined by applying 16% on the taxable amount. Hence the effective tax rate on gross rental income is 12%.

As an exception, taxpayers may opt for the determination of the net rental income based on single entry accounting.

Capital gains tax

Capital gains are taxed in the year in which they arise. Capital gains obtained by a Romanian resident company are included in ordinary profit and taxed at 16%.

Capital gains obtained by non-residents from the sale of real estate located in Romania or from the sale of shares held in a Romanian company are also taxable in Romania at 16%. On the sale of real estate (or the shares) by a local company 16% profit tax is due on the difference between the sale price and the fiscal book value (of the real estate).

PROPERTY TAXATION RE-VISITED Alice Macovei / Nicholas Hammond April 2009

The question of taxation of property in Romania is still in the current climate a matter for consideration.  There have been a number of changes in taxation the last few months and it does no harm in our view to re-iterate the current taxation position.

The sale and purchase of real estate in Romania is normally subject to notary and real estate registration fees. They generally together amount to one (1)% of the transaction value.  It must be remembered that the transaction value is that as stated in the notarised document.   If there is one price in the notarised document but a different price is paid then the document is void.  No property passed and the money cannot be reclaimed as there was a fraudulent document.  

On a sale, taxpayers must have a fiscal certificate from the local authorities attesting the payment of all related local taxes. 

VAT is not chargeable on all property transactions.  Sale or purchase of old buildings or portions of these, the land on which they are constructed and any land besides building land is VAT exempt unless a taxable person (the Seller) opts to charge VAT at the current rate of nineteen (19) %. It must always be borne in mind, especially by purchasers of apartments and real estate that this exemption is not applicable to sale of new buildings or parts of them or land for building purposes.  Thus new buildings and land for building is liable to VAT at nineteen (19)%.

Further, as of 15 December 2008 a VAT rate of five (5) % has been introduced in relation to social housing (including the land on which they are constructed).  Social housing has been defined as houses or flats with a maximum of one hundred and twenty(120) square meters and not exceeding in value three hundred and eighty thousand (380,000) RON excluding VAT. The reduced rate of five (5)% rate is applicable only in cases were the property can be used as such and at the time of sale.   Also included is the land where the house is built on provided it is less that two hundred and fifty (250) square meters in surface (in case of an individual house or apartment). Any individual or family can purchase a single social house.  No individual can buy more than one social housing unit, and thus they cannot be purchased through the medium of a company.  

Financing property purchase

Under the current thin capitalization rules, there are restrictions on the deductibility of interest expenses and the foreign exchange losses related to loans.  Interest expenses and foreign exchange losses on loans direct from banks and other lending institutions are not subject to thin capitalization rules.

In group financing transactions the question of the transfer pricing regulations must be considered and observed with regard to the rate of interest charged and other financing costs.  There will also be a sixteen (16)% withholding tax applicable to interest income received by the non-resident, subject to any double tax treaty provisions. 

Taxation of property

Rental income on property is taxed at the standard rate of sixteen (16)%; they are allowed to claim depreciation based on the purchase price. 

From 1st January 2007, revaluations performed in accordance with the accounting regulations are taken into account for taxation  purposes.  Land, is a non-depreciable asset, but the costs of land improvement may be depreciated.  Depreciation for tax purposes may be different from the accounting depreciation and care must be taken in this regard. The depreciation for buildings is between thirty two (32) and sixty (60) years. 

Rent is generally VAT exempt, although an owner may opt to charge VAT at nineteen (19)% on the rent. 

Local companies owning buildings are required to pay an annual building tax to the local authorities of between point two five (0.25)% and one point five (1.5) % of the building’s book value.  The tax may be increased to ten (10) % if the building has not been revalued in the preceding three (3) years.  Land owners pay land tax at a fixed rate calculated in relation to the surface area and depending on the location.  Construction authorizations are subject to a one (1)% tax on the construction’s value. Local councils are allowed to set the local taxes as provided by law.

Taxation on Disposal

Non-resident and resident legal entities are taxable in Romania on capital gains arising out of any sale of property or local holding company.  This is at the rate of sixteen (16) %.  Capital gains of individuals from the sale of shares are subject to sixteen (16) % tax. 

Capital gains of individuals from the sale of property within three years of acquisition is subject to a three (3) % tax on the proceeds of sale up to two hundred thousand (200,000) RON, and two (2) % tax on the amount in excess of this limit. 

For property held for more than three (3) years the tax rate is two (2) % on the proceeds of sale up to two hundred thousand (200,000) RON and one (1) % on amount in excess of this amount.  Under double tax treaties signed by Romania, the income obtained by non-residents from sale of shares in a Romanian company may be subject to tax only in the state where the seller is resident, even if assets are real estate.  Direct sale of property in Romania does not benefit from such treaty protection.  The sale of shares of Romanian companies is not subject to VAT in Romania.

The above is a brief overview of the main taxation provisions now affecting property and property transactions.