I want to buy an apartment in Romania (for investment purposes). Which is the best vehicle to enter such a deal?
A: Such investment will generate the following tax liabilities: Income tax, property tax and VAT.
A thorough analysis is needed to determine the most efficient tax vehicle.
INCOME TAX
Individuals
Renting properties is subject to 10% income tax. However, a flat deduction of 40% from the gross revenue is applicable. Therefore, the final income tax is 6% (the rule is suitable for up to 5 rented properties).
The tax is due to be reported (online) and paid on May 25th of the following year. Foreign individuals need a tax registration in Romania.
! The tax regime in the residence country should be considered.
The sale of properties in Romania is subject to 3% revenue tax. A fixed deduction of RON 450,000 is applicable. The tax is paid to the Notary when the sale agreement is signed.
Romanian residents are due to pay a health insurance contribution if the yearly taxable income is at least the equivalent of 12 national minimum wages (RON 27,600). If anticipated, the health insurance contribution is RON 2,760 RON/year
Companies
Small companies (yearly revenues less than EUR 1 million) are subject to a revenue tax (1% or 3% if the company has/does not have employees).
The company’s profits may be distributed to individual shareholders after a 5% dividend tax (withheld).
! The tax regime in the residence country should be considered.
Larger companies (yearly revenues at least EUR 1 million) are subject to 16% profit tax.
Complete accounting reports are required for any company. A CPA or internal accounting department must prepare the financial statements. An audit is not mandatory except for larger companies.
PROPERTY TAX – residential properties
Individuals
The tax is 0.08%-0.2% per year from the taxable value of the building, depending on the Municipality decision. The taxable value is calculated according to the tax code and cannot exceed RON 2,600/sqm in 2021.
Foreign individuals need a representative to register the property with the Municipality.
Companies
The Property tax for residential properties held by the company is 0.08%-0.2% per year from the taxable value of the building, depending on the Municipality decision. The difference compared to individual owned properties is the taxable base. In the case of companies, the taxable base is the purchase value or the value resulting from a certified evaluation. Such evaluations are due every five years.
VAT
Purchase
The regular VAT quota is 19%. However, a 5% VAT applies to houses sold to individuals, in certain circumstances: valid area max 120 sqm and value up RON 450,000. The value may be increased to EUR 140,000 starting with 2022 (the Law is already proper but may be changed by the Government).
A reversed charge is applicable for transactions between VAT entities.
Rent
Rent of buildings (long term) is VAT exempted unless the owner chooses otherwise. Should the owner deducted VAT upon purchase, renting without VAT will generate VAT liabilities consisting of deducted VAT adjustments. The adjustment period is 20 years.
Sale
The sale of the building that is now new is VAT exempted unless the owner chooses otherwise. Should the owner deducted VAT upon purchase, renting without VAT will generate VAT liabilities consisting of deducted VAT adjustments. The adjustment period is 20 years.
! In certain circumstances (frequency of transactions), individuals may be considered taxable persons from a VAT perspective.
SUMMARY
| OWNER | VAT PURCHASE | VAT RENT | VAT SALE | TAX RENT | TAX SALE | PROPERTY TAX BASIS |
| INDIVIDUAL | 19%/5% | 0 | 0 | 6% | 3% (ron 450 K exempted) | Max RON 2,600/sqm |
| VAT Company (micro) | Reversed charge | 19% | 19% | 3% on revenue + 5% on dividends | 3% on revenue + 5% on dividends | Purchase price or evaluation |
| Non-VAT Company (micro) | 19% | 0 | 0 | 3% on revenue + 5% on dividends | 3% on revenue + 5% on dividends | Purchase price or evaluation |