Romania Land Ownership

Until the EU entry non-Romanian citizens and legal entities were not allowed to own land. From 1 January 2007 that changed for EU member states citizens and legal entities. Now they can acquire land in Romania, under the same terms and conditions as Romanian citizens and legal entities. However, the full ownership is deferred for 5 years for residential purposes and for 7 years for agricultural land, forests and forestry. Foreign citizens may own buildings, while on the land on which the building is constructed foreigners enjoy only the right of use for the entire building existence. When the 5 year transitional period, envisaged in the Accession Treaty in the EU, expires, the ownership of the land, associated with the flat, will pass to the buyer. The difference in time land ownership does not affect the ability of the foreign buyers to rent their property in the Romanian market or to sell the property before 1 January 2012.

Buying property in Romania

Until the end of 2006 all property purchases in Romania by foreigners (flats, houses and land) were done by setting up a Romanian company. Since 1 January 2007, with the coming of force of the EU agreement, setting up a company is not necessary for apartments. In practice foreign investors can choose to buy either as an individual or through a Romanian company, depending on what they are buying. Each choice has financial and tax consequences to be considered.

Buying as an individual is cheaper and easier. This path is most suitable for people deciding to invest in one or two apartments.

For those who want to buy land setting up a company remains the only option so far. The biggest advantage of this choice is saving paying VAT. The costs associated with this method of purchase are:
-  Setup costs. The cost of incorporating a Romanian company varies with different lawyers but should not be more than 2000 euros all inclusive. The registration itself, once all the documents are collected, takes a week. It is advisable though to count 2 to 3 weeks for the whole process to be completed.

-  Running costs. These are associated with: 
1. Renting address - roughly 300 Euros +VAT  until the purchase of the property when the company seat can continue at the office of the law practice for an annual hosting fee of 300 Euros + VAT or following completion  buyers can relocate the headquarters to their new properties.
2. Accountancy costs - 600 Euros + VAT  annually for accounting costs. According to the Romanian law every  SRL has to file statements to the tax authority and the obligatory year end accounts. These have to be done by  a certified accountant.

Taxes and Fees

When buying property or land in Romania, there are no different tax rules or special taxes for foreigners. The buying costs are for:
- Notary fees - amounting to approximately 0.5% of the value of the property.
- Property tax: this is a local tax and the rates vary between 0.1% and 0.4%
- Building Tax - it is paid annually to the local authorities. That tax ranges between 0.25% and 1.5% of the book value of the building.
- Land Tax is established as a fixed amount per square metre, depending on the location.
- Stamp duty - notary stamp fees have been abolished in 2006 but the notaries now collect tax on transfers of property.
 - Property transfer tax - stamp duty is charged as a percentage of the value of the transaction (the marginal rate can be up to 2%). Notary fees of up to 2.5% are usually added.

Tax on Rental Income: The taxable amount is determined by deducing a 25% expense quota from the gross income. Tax on rental income is determined by levying 16% on the taxable amount.

Capital Gains Tax: There are two different tax regimes for Individuals and legal entities:

a. Individual Sellers. As of January 1 2007 the proceeds from the sale of buildings with land sold within 3 years will be subject to tax at the rate of 3% on the value of the sale up to 200,000 RON  (€57,000) and at the rate of 2% on the value of the sale over 200 000 RON. The proceeds from the sale of buildings with land sold after 3 years will be subject to tax at the rate of 2% on the value of the sale up to 200,000 Ron and at the rate of 1% on the value of sales over 200,000 RON.
     
 b. Legal Entities. In this case Capital gains tax become profits and is subject of 16% corporate tax. Non-resident legal entities are taxable in Romania at the standard profits tax rate of 16% for the capital gains realized from selling ownership right over a local company. Profits derived from the direct sale of real estate in Romania are also subject to the standard 16% tax.

Value added tax: as a rule, transfer of immovable property in Romania is subject to VAT charged at the standard 19%. However, special VAT simplification measures apply in the acquisition of land and buildings, provided both the seller and the buyer are registered in Romania for VAT purposes. In this case, the seller and the buyer account for both input and output VAT without any VAT cash flow.

Summary

As a rough guide buyers have to budget for 4-6% additional costs for purchasing Romanian property.

Transaction costs of a standard property purchase in Romania include the following:
- Costs include a Survey Fee (1-3% + 19% VAT) -applicable for old properties
- Transfer tax (0.5 - 3%).
-  Notary fee (0.5 - 1.5%).
- Real estate agents fee (3% to both buyer and seller). Romanian estate agency fees.

Rental income earned by non-residents is taxed at 16%, with roughly 25% of the gross
rental income from immovable property deductible. When the landlord is a foreigner,
the person paying the revenue (the tenant) pays the tax directly to the state.

Property tax for legal entities is payable at 0.5 - 1% of their property value; the
taxable value is calculated on the size and type of the property.

Land tax is calculated dependant on the area of the land, the rank of its locality and
the category of use of the land. A fixed rate applies to land outside urban areas.
 
Corporate income tax applies to the income earned by a corporation in rent, at a fixed
rate of 16%. Expenses attributable to earning the income can be deducted from the
taxable revenue.

Capital gains tax does not apply on earnings from the sale of real estate, but corporate
income tax will normally apply to capital gains from disposal of Romanian property.

Property transfer taxes applies to income derived from the sale of real estate at the
rate of 16% when the building transferred has been owned for less than three years,
and all land without real estate.

Transfer tax (Stamp duty) of 0.5 - 3% is payable on the purchase of real estate, the rate depending
on the value.

VAT - Romanian companies with an annual turnover in excess of RON 200,000 (approximately
€57,000) have to register for VAT. VAT applies to the transfer of real estate, although
if both buyer and seller are VAT payers then the payment on such a transfer will be
reverse chargeable and the net VAT cost for both parties will be zero. Rental payments
are usually exempt from VAT.

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