Real Estate Taxes in Romania
Florian Ionescu, Wednesday, 22 January 2014
This article is part of a series of 8 articles about buying property in Romania. The other articles in the series cover the following topics:
According to the current legislation, the acquisition of land by foreigners within the Romanian territory is only possible as of 5 or 7 years of Romania’s accession to the European Union. However, this restriction will be lifted as of January, 1st, 2014. The acquisition of real estate properties, on the other hand, is conditioned by the foundation of a limited liability company in Romania. This article serves as an introduction to the taxes afferent to real estate investments by foreigners within the Romanian territory, from the corporate taxes to the individual ones.
Corporate taxation
In Romania, the taxes on income and capital gains are set at 16%, all related expenses being retained from the gross income. However, the tax on capital gains drops to 10% in the case of properties purchased after the year 2003, properties owned for over 2 years or properties whose seller and purchaser are not related.
The tax on the capital gains obtained from share sales is also set at 16%, but it is only retained according to the tax treaties signed by Romania and the home countries of the parties selling those shares. The same tax rate applies to the sale of real estate properties and real estate property rental.
As far as the tax depreciation system is concerned with immovable properties, this is a straight line one, the lifespan of building varying between 40 and 60 years for residential buildings and office ones, between 32 and 48 years for commercial buildings and between 24 and 36 years for warehouses. As for the tax losses, they can be deducted over 5 or 7 years.
Withholding taxation
1. Tax on dividends
The same flat rate of 16% applies to the dividends foreign shareholders are paid by a Romanian legal entity, but only in the case of non-resident ones. The shareholders residing within the European Union, on the other hand, are normally subjected to a 10% tax on dividends or even to no tax at all in case they have owned 15% of the shares within the Romanian company for a minimum period of 2 years.
2. Tax on interest payments
Non-resident entities also have to pay a 16% tax on the interest they receive from a Romanian company, but this threshold may vary depending on the provisions of the tax treaties signed by Romania and their home countries.
Local taxation
1. Tax on property
According to the Romanian law, the tax on property is calculated depending on the location of the property and its value, the minimum value being set at 0.25% of the gross value of the property and the maximum one at 1.5% of that value. The exact value is established by the Local Council of the county, town or municipality where the property is situated. Also, it can increase by 5 to 10% unless revalued within 3 years of their purchase or revaluation. The tax on property is to be paid by companies which sign financial leasing agreements to buy or obtain ownership rights over properties.
2. Tax on land
The tax on land is calculated based on the surface of the land, its location and its category as established by the Local Council of the area where it is situated. Thus, in urban areas, the values vary between 0.012 and 21 EUR per square meter whereas outside urban areas they vary between 0.002 and 0.11 EUR per square meter.
This tax is also paid to the Local Council of the county, town or municipality where the land is situated.
Non-residing entities can be exempt from the payment of both the property tax and the land one if the local authorities issue a state-aid plan, in which case the incentives may need to be forwarded to the European Commission.
Individual taxation
Foreign owners of property also have to pay taxes on the income they obtain from any Romanian real estate. However, they cannot own any immovable properties directly. These taxes are leveled at a rate of 16%. Also, it should be noted that married couples are subjected to a different taxation system and that foreign taxpayers do not benefit from any allowances.
1. Rental income
Once again, the flat rate is set at 16%, but 25% can be deducted from the gross income to cover the expenses that generate revenues. These deductions can also be itemized. Moreover, taxpayers who have over 5 ongoing rental contracts can only be taxed according to this direct system.
2. Capital gains
The sale of properties does not draw any taxes on the capital gains. However, the transfer of immovable property does.
The transfer tax
The Romanian law stipulates that parties transferring real estate properties must pay a transfer tax which includes the Real Estate Book registration fee and the notary fees. The value of this tax is established according to the sales proceeds and the ownership period. Thus, for an ownership period shorter than 3 years, the transfer tax reaches 3% of the transaction value for sales proceeds of up to 200,000 EUR and 2% for sales proceeds over 200,000 EUR whereas for any ownership period longer than 3 years, it reaches 2% of the transaction value and 1% respectively.
This article is part of a series of 8 articles about buying property in Romania. The other articles in the series cover the following topics:
According to the current legislation, the acquisition of land by foreigners within the Romanian territory is only possible as of 5 or 7 years of Romania’s accession to the European Union. However, this restriction will be lifted as of January, 1st, 2014. The acquisition of real estate properties, on the other hand, is conditioned by the foundation of a limited liability company in Romania. This article serves as an introduction to the taxes afferent to real estate investments by foreigners within the Romanian territory, from the corporate taxes to the individual ones.
Corporate taxation
In Romania, the taxes on income and capital gains are set at 16%, all related expenses being retained from the gross income. However, the tax on capital gains drops to 10% in the case of properties purchased after the year 2003, properties owned for over 2 years or properties whose seller and purchaser are not related.
The tax on the capital gains obtained from share sales is also set at 16%, but it is only retained according to the tax treaties signed by Romania and the home countries of the parties selling those shares. The same tax rate applies to the sale of real estate properties and real estate property rental.
As far as the tax depreciation system is concerned with immovable properties, this is a straight line one, the lifespan of building varying between 40 and 60 years for residential buildings and office ones, between 32 and 48 years for commercial buildings and between 24 and 36 years for warehouses. As for the tax losses, they can be deducted over 5 or 7 years.
Withholding taxation
1. Tax on dividends
The same flat rate of 16% applies to the dividends foreign shareholders are paid by a Romanian legal entity, but only in the case of non-resident ones. The shareholders residing within the European Union, on the other hand, are normally subjected to a 10% tax on dividends or even to no tax at all in case they have owned 15% of the shares within the Romanian company for a minimum period of 2 years.
2. Tax on interest payments
Non-resident entities also have to pay a 16% tax on the interest they receive from a Romanian company, but this threshold may vary depending on the provisions of the tax treaties signed by Romania and their home countries.
Local taxation
1. Tax on property
According to the Romanian law, the tax on property is calculated depending on the location of the property and its value, the minimum value being set at 0.25% of the gross value of the property and the maximum one at 1.5% of that value. The exact value is established by the Local Council of the county, town or municipality where the property is situated. Also, it can increase by 5 to 10% unless revalued within 3 years of their purchase or revaluation. The tax on property is to be paid by companies which sign financial leasing agreements to buy or obtain ownership rights over properties.
2. Tax on land
The tax on land is calculated based on the surface of the land, its location and its category as established by the Local Council of the area where it is situated. Thus, in urban areas, the values vary between 0.012 and 21 EUR per square meter whereas outside urban areas they vary between 0.002 and 0.11 EUR per square meter.
This tax is also paid to the Local Council of the county, town or municipality where the land is situated.
Non-residing entities can be exempt from the payment of both the property tax and the land one if the local authorities issue a state-aid plan, in which case the incentives may need to be forwarded to the European Commission.
Individual taxation
Foreign owners of property also have to pay taxes on the income they obtain from any Romanian real estate. However, they cannot own any immovable properties directly. These taxes are leveled at a rate of 16%. Also, it should be noted that married couples are subjected to a different taxation system and that foreign taxpayers do not benefit from any allowances.
1. Rental income
Once again, the flat rate is set at 16%, but 25% can be deducted from the gross income to cover the expenses that generate revenues. These deductions can also be itemized. Moreover, taxpayers who have over 5 ongoing rental contracts can only be taxed according to this direct system.
2. Capital gains
The sale of properties does not draw any taxes on the capital gains. However, the transfer of immovable property does.
The transfer tax
The Romanian law stipulates that parties transferring real estate properties must pay a transfer tax which includes the Real Estate Book registration fee and the notary fees. The value of this tax is established according to the sales proceeds and the ownership period. Thus, for an ownership period shorter than 3 years, the transfer tax reaches 3% of the transaction value for sales proceeds of up to 200,000 EUR and 2% for sales proceeds over 200,000 EUR whereas for any ownership period longer than 3 years, it reaches 2% of the transaction value and 1% respectively.
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